It could spark a civil war of intergalactic proportions: the British Property Federation has drawn up a contract for consultants’ appointments, and it’s turning into a struggle of light versus dark. But which side is captained by Darth Vader and which by Luke Skywalker?
Last Week, the Hi-tech city offices of top law firm Linklaters witnessed what might go down as the first skirmishes in a civil war in the construction industry. After the unveiling of the British Property Federation’s Consultancy Agreement, the audience split along clear factional lines. Knots of clients and consultants muttered among themselves. The room was filled with cloak-and-dagger intrigue, mutual suspicion and dark mutterings.
The agreement that triggered this reaction is the first document to give clients their own form of template for dealing with consultants. The BPF’s four-strong drafting team was chaired by Roger Squire, director of Development Securities, and was composed of Ann Minogue, a partner in Linklaters and a Building columnist, Gillian Simpson of John Sisk and Owen Fox of Brewer Consulting. They were in upbeat mood as they talked the audience through the details.
But some consultants in the audience thought they were witnessing a client coup. “The four of them were sat up there like priests,” fumed one architect who was present at the launch. “The new agreement is all very well in theory, but it’ll have huge effects on consultants in practice. They’re not living in the real world.”
What the clients say -
Once it’s up and running we hope to use the agreement as an industry standard. The professional indemnity market has been pretty volatile, and consultants are minimising their risk. We sometimes try and cap the liabilities of some of the consultants who have a smaller role, but then other consultants will turn around and look for that level, too
Steve Brewer, Grosvenor Estates
The tension has been building for some time.
The consultants themselves – architects, QSs and engineers – have not signed up to the BPF agreement, and the RIBA and the Association of Consulting Engineers are already advising their members to reject it. Hardly surprising, as consultants think that the agreement in its current form could end up ruining them.
We wanted to have a document that suited most of the people most of the time. It’s not just for the top clients – the Land Securities and Hammersons of this world will make sure their lawyers go through all their contracts. But that’s not the same with infrequent and inexpert clients
Nigel Woolcock, Prudential
Consultants are skilled professionals whose input is essential for a project to succeed. The flipside of having this crucial role is that they are answerable when things go wrong. Consultants therefore take out professional indemnity insurance to safeguard against the consequences of mistakes they make themselves, or mistakes made by other firms in the team of consultants.
In traditional construction contracts, there is no maximum limit or “cap” set on liabilities created by consultant negligence, on the straightforward reasoning that the party at fault should be prepared to take the consequences.
But this is only fair if it’s obvious who is at fault. If you’re a member of a large consultant team, there are a number of things that could go wrong – a team member could make a mistake or, worse, go bust. The way each member protect itself against taking more than its fair share of the blame is through a “net contribution clause”, which matches the amount payable by each consultant with the extent to which it was at fault. Clients on the big projects are increasingly using caps and NCCs on a scheme-by-scheme basis.
We have our own form of standardised contract but we do think it’s important to have a client-based document as well as a consultant one. Usually we will negotiate a cap if it’s appropriate for an individual project. But it should only be done on an ad hoc basis. My view is that the BPF’s new document is much better than what the individual consultants have produced. Consultants have consultant-favoured documents so we needed a client-favoured one to restore the balance
Geoff Wright, Hammerson
This pragmatic system is now threatened by the BPF’s refusal to include either caps or NCCs in its new agreement. Consultants, who are already facing rising PI premiums, could suddenly face unlimited financial losses on projects using the agreement.
Tim Hamilton, director of architect Hamilton Associates, says that the agreement could be “devastating” for consultants. “If an architect designs an office building that then leaks, and it gets into the computer system, then you’ve had it. You could be exposed for millions.”
The most at-risk consultants would be architects and structural engineers, because their negligence is most likely to cause a catastrophe: quantity surveyors’ error tends to be limited to cost and time overruns.
What the consultants say -
The industry does not need yet another biased agreement and this one is – against consultants. Most notably, in the guidance notes, it recognises that ‘agreements for professional services do not, in general, require a consultant to guarantee results’, yet several of the clauses within the agreement raise the required level of care beyond reasonable skill and care. This is something that will inevitably pose problems for consultants given that their PI insurance is essentially negligence-based
Melinda Parisotti, barrister, Wren Managers
The crisis could have an effect on consultants’ insurance premiums. At the moment, a standard level of cover is about £5m per project, but a norm of £10m could increasingly be required. This could lead to a rise in premiums or excess – the amount of money a firm needs to pay as a contribution to a claim. “We often have to pay £40,000 excess for a claim,” says one architect. “But some firms are paying as much as £100,000. That will have a huge effect on your bottom line. We’d just have to put up costs to the clients.”
Hamilton agrees. “We always insist on an NCC: all the most sensible architects do. But there are some commercially conscious firms out there who will work without one. Then even if they have good insurance, they find themselves on an uninsurable project.”
Hamilton is actually in favour of the standardised client document, but only if it is fair. “We will carry any liability that is our share. But if the engineer screws up, we don’t want to have to foot the bill to rebuild a skyscraper.”
If you’re a lead consultant, which the architect is, according to the agreement, then if, for example, your structural engineer goes bust, you could be in deep trouble
Peter Godfrey, director, RIBA Insurance Agency
Consultants had raised concerns about the lack of liability capping on earlier drafts of the agreement, but were ignored. “These and other points were raised with the federation some time ago, and we are saddened to see that they have failed completely to take our comments on board,” says Frances Paterson, chair of the liability council of the Construction Industry Council.
From one angle, the agreement appears stacked against the consultant. But there is another way of looking at it – from the client’s point of view. At the moment, clients are faced with an array of agreements published by consultants’ associations (including the RIBA, the RICS and the Association of Consulting Engineers), and the system which could be made much simpler by using one standard agreement.
I am totally in favour of the concept of professional liability, but we will take on the liability that is our share. If the engineer screws up we don’t want to have to rebuild a skyscraper
Tim Hamilton, director, Hamilton Associates
Nigel Woolcock, director of project management at property developer Prudential, is confident that the BPF agreement will be taken up. “We wanted to have a document that suited most of the people most of the time,” he says. “It’s not just for the top clients – the Land Securities and Hammersons of this world will make sure their lawyers go through all their contracts. But that’s not the same with infrequent and inexpert clients.”
Geoff Wright, director of Hammerson, agrees. “We have our own form of standardised contract but we think it’s important to have a client-based document as well as a consultant one,” he says. “Usually we will negotiate a cap if it’s appropriate for a project. But it should only be done on an ad hoc basis. My view is that the BPF’s document is much better than what the individual consultants have produced. Consultants have consultant-favoured documents so we needed a client-favoured one to restore the balance.”
The BPF “agreement” risks polarising an already partisan debate. Development Securities’ Roger Squire, who chaired the team that drew up the agreement, was not in the mood for compromise. “There is no cap because why should there be?” he growled. “There is no historical justification for a cap on liability for a consultant’s negligence – it’s a new thing in the past couple of years.”
It seems inequitable for a consultant to take the rap for another consultant’s mistakes. We’re all carrying our respective PIs
Alastair Walker, Watkins Gray Architects
Squire’s heated reaction was the norm in the Linklaters suite, where consultants and clients debated the issues in low voices and separate camps. The consultants were only kicking up a fuss over liability caps even though they knew there was never any chance of a liability cap, said one client. The failure to introduce a cap was a scandal, said one consultant: it was standard practice on 75% of his projects.
But for Prudential’s Woolcock, the consultants’ attitude is another example of the industry’s inability to solve shared problems. “What we have is agreement from clients and contractors but there’s been no buy-in from the consultants. It’s frustrating that we’ve had to go it alone.”
The BPF agreement: Why consultants are angry
The BPF agreement says that clients should agree a lump sum for consultants’ fees upfront. But it then says that the consultant must comply with “the employer’s lawful instructions”, which is rather less open to argument than the current wording in most consultants’ agreements of “reasonable instructions”. The new agreement could expose the consultant contractually to unpaid work in addition to the work subject to the fee agreement. Francis Paterson of the Construction Industry Council says: “If a client decided it wants a different design you may have to work for no fee even though you’ve done nothing wrong.”
The agreement requires consultants to carry out a “post-construction audit” to “ensure other projects benefit from the experience gained”. Consultants are wary of spending lots of time and money answering potentially limitless enquiries. All this is also included in the consultant’s fees, and thus could mean more unpaid work.
At the moment, the benchmark of acceptable practice is defined as “the exercise of reasonable skill and care in the provision of professional duties”. This means that as long as the consultant doesn’t make a hash of the job it is skilled in doing, all will be well. The new agreement subtly changes this balance by adding the phrase “… for the project in question”. Consultants are worried that this means that the standard they have to meet is raised from that of an “ordinary competent consultant” to a specialist. This could mean that an architect designing an airport is expected to perform with a specialist airport architect’s skills.
Novation agreements are disliked by consultants because if something goes wrong they can be blamed by either the client or the contractor. The client usually wants a quality building, the contractor wants to ensure a profit, and the consultant is caught in between. The CIC’s upcoming agreement will try to initiate a “clean break” between the two stages of the contract. But the BPF’s new agreement goes the other way, arguably formalising the conflicts of interest.
The CIC’s Paterson says: “Not only does it create the fiction that the contractor was the consultant’s employer from the outset, there are additional unacceptable provisions: that the contractor has relied on information and advice given, and that the consultant agrees that any losses suffered by the contractor were within the contemplation of the consultant.”