This intolerance of impartiality does not reflect
the day-to-day reality of construction projects. An architect, while employed by the client, is usually the contract administrator, too. No one bats an eyelid over the conflict of interest created between the contractor and the client, or the contractor and architect, in cases such as a cause of delay dispute.
Now take this potential conflict a giant leap further – into the minefield of dual clients. The client employs an architect and then, in order to have one point of responsibility, novates the architect's appointment to the contractor. So far, nothing unusual.
But at this point some contracts slip away into a surreal, conflict-ridden world. The employer does not step out of the picture at all – despite the "novation" – but instead retains its own contractual relationship with the architect.
Such a contract can contain anything from an obligation on the architect's part to inspect and report to its employer client on its contractor client's work, to administering the building contract and certifying payments to the contractor client. Even in the relatively innocuous former (inspect and report) situation, it does not take much imagination to envisage the contractor, pen poised over a cheque, asking the architect to hold off before reporting a problem on assurance it will be sorted out. This is an uncomfortable position for the architect, who does not want to upset his contractor client, but even more uncomfortable if the problem is not solved or gets worse due to the delay.
Having said that, developers, consultants and contractors who work under this system swear by it. It would appear that, when the arrangement works, the improved communication ensures it works very well. This is probably aided by its particular popularity with parties that share a long and successful working history.
If novation agreements create serious conflicts of interest, what would the courts make of dual-client arrangements?
But what would happen if a serious dispute did arise? How would the courts deal with contracts that embody such glaring conflicts of interest? The recent Scottish case of Blyth & Blyth vs Carillion Construction brought this to my mind. The case has been thoroughly examined in Building, but here's a brief reminder.
It concerned a conventional design-and-build scenario, without dual clients of the sort I have described. The court held that the contractor, to whom the consultant's appointment was novated, could not claim against the consultant for any type of pre-novation losses which the employer had not also suffered. In respect of the fixed-price contract in question, the employer suffered no loss on account of inadequate design information, so the contractor could not claim for losses relating to that.
The finding came as a shock to contractors, and those who scrambled to double-check their novation contracts were in for a worse shock yet. The finding came as news to most of their lawyers, too.
One of the arguments the judge considered before coming to his narrow interpretation of the novation agreement was the conflict of interest that would arise if the consultant had to consider two sets of interests at the pre-novation stage. "In my view," said Lord Eassie, "the difficulty is not simply textual but also reflects an underlying tension between, on the one hand, the designer's duties to the employer and, on the other hand, the conflict of interests between an employer and a contractor."
If the courts consider a retrospective novation agreement to create a severe conflict of interests, what would they would make of these dual-client arrangements?
Melinda Parisotti is an in-house barrister at Wren Managers, which manages a professional indemnity mutual for architects.