Dealing with divorce

What is the difference bteween a contractor and a consultant? I was asked this question recently and various flippant answers came to mind. I will not repeat them for fear of flooding the letters’ pages. However, the question is serious. What is the difference? Or put another way, why are they treated differently?

In these days of design-and-build contracting with single points of responsibility and novated, or directly appointed, design consultants, is there really any difference between a contractor and a consultant?

The question is all the more valid when you consider how much specialist design is now carried out by subcontractors rather than consultant architects and engineers.

So where is all this leading – a call for everybody to be treated the same? There are some ways in which consultants might be horrified at being treated like contractors. But there is one particular area where I think consultants get a raw deal and could benefit from this. It applies equally whether the client is the ultimate employer or a contractor client. The issue is termination. More particularly, when can the client terminate, in what circumstances and with what result?

Few would dispute that clients, consultants and contractors should all be able to terminate their engagement with one another where the other party is in persistent, or serious, breach of contract or has become insolvent. My problem is the client’s right to sack its consultants whenever it likes and for whatever (or no) reason. This is unfair (it is rarely a reciprocal right in bespoke appointments), and there are opportunities for abuse. Think about the client that feels that it needs a headline architect to secure planning consent on a sensitive site but perhaps never has the intention of seeing the project through with that architect. Planning consent is obtained and the client is free to dispense with its headline architect for someone cheaper and more malleable.

It is rare for a building contract to include the right for the employer to terminate at will. The rationale is simple – the parties have bargained for the whole job and, in the absence of breach or insolvency, each should be entitled to see it through. Surely the same applies to consultants. Indeed, they are often smaller practices, where the planning and allocation of human and other resources to a project is a key concern. Staff taken on for one job may not easily be absorbed into other projects being carried out by the practice. Employment laws make it difficult (and rightly so) to dispose of employees quickly and cheaply. The client argument is largely about control. The client pays for the project, so it should be in the driving seat and able to choose its professional team. It is free to fall out with that team. The difference is that, whereas the client may fall out with a consultant and terminate its employment, no such rights usually exist against the contractor.

In the real world, I think it unlikely that clients will forgo their rights to terminate consultants’ appointments. Perhaps, then, consultants are better off concentrating on what happens next. The issue that immediately springs to mind is fees. A fee schedule hastily agreed and stapled to the back of an architect’s appointment may become fundamentally important at this stage. Often, the stages for payment of the fee are, as part of the commercial negotiation, distorted so that early payments do not truly represent the amount of work carried out by the consultant and its profit on that work. Where this occurs, the consultant should provide for some form of catch-up payment in the event of termination (at least where it is a termination at will and not for breach or insolvency).

• The problem is the client’s right to sack its consultant for no good reason
• In the real world they are unlikely to forgo this right
• So consultants should insist clients pay for the privilege

In fact, why not go further? The consultant has bargained for the whole job and if the client changes its mind why should the consultant not receive its profit on the whole job? After all, this is what happens under a JCT contract where the contractor terminates for employer breach (that is, without fault on the part of the contractor).

A termination at will by the client is analogous.

Consultants should also look to recover the costs of wrapping up their involvement in the project. Costs relating to the termination are generally recoverable under the RIBA and Association of Consulting Engineers appointments but are often overlooked in bespoke forms.

Then there is the whole issue of copyright. Consultants will usually be required to grant wide-ranging licences in favour of the client to use their designs. These may or may not be subject to whatever fees are due, having been paid.

Linking copyright to fees certainly gives the consultant useful leverage to obtain payment.

In certain circumstances, it may be appropriate to go further than this. If the consultant sees a risk of the client not taking its engagement beyond planning consent, for example, it should consider imposing additional fees that must be paid before the client can take the design forward with another party – effectively placing a price on the right to use the design.

We are used to pricing risk in our industry.