State your terms

On any project consultants should be aware of their potential exposure in the event of a failure to carry out the services with the appropriate level of skill and care. In the event of a claim, lawyers will turn first to the terms and conditions of the contract between client and consultant. The construction industry is poor at agreeing and documenting those terms and conditions. The common law is prepared to envisage liability for damages that many consultants would not expect to be liable for.

Spending a few hours at the beginning of any project agreeing terms and conditions can limit liability and also give certainty, saving time and legal costs if a dispute arises.

Consultants’ own terms and conditions, often prepared by their professional bodies, can be used. However, clients, having to satisfy banks, purchasers and tenants, often cannot accept these standard forms Negotiation needs to take place on the terms and conditions of appointment on a project-by- project basis. From a consultant’s point of view there are various points that should always be raised:

Caps on liability

The common law position is that the party that breaches its contractual obligations will be liable for “reasonably foreseeable” losses such as loss of profit and loss of use. For commercial developments, such heads of loss can be many times the cost of repairing physical damage.

On any project, therefore, consideration should be given to what losses are reasonably foreseeable and what risk of loss the consultant is prepared to accept. Almost all clients (and their banks) will accept caps at reasonable levels. Caps should be by reference to levels of professional indemnity insurance but should not be tied to them. References in the appointment to an obligation to take out and maintain professional indemnity insurance are not the same thing as a cap on liability.

Clarity on scope of services

Spending a few hours at the beginning of any project agreeing terms and conditions can limit liability and give certainty, saving time and legal costs if a dispute arises

It is not uncommon in bespoke appointments to see a schedule of services headed with a catch-all such as: “All such things would reasonably be expected of a consultant including …”. This could create obligations to carry out services not originally anticipated by the consultant. Ensure there is scope for fee increases by reference to time spent and that the fees are not simply referred to for the provision of a widely defined set of services.

Dispute resolution

The Housing Grants Construction Regeneration Act 1996 with its statutory procedures for adjudication is an excellent protection for consultants, particularly when used with the payment obligations the Act creates. Care should be taken to ensure the adjudication procedures are not skewed in favour of the client.

Adjudication is binding but not final. Following adjudication, either the courts or arbitrators could consider disputes. Construction disputes often involve many parties and I believe the courts rather than arbitrators should have jurisdiction.

Warranties/third party rights

On commercial developments there is almost always a requirement that the consultant will owe a duty of care not only to the client but to various third parties. When giving these third party rights either through collateral warranties or through the Contracts (Rights of Third Parties) Act 1999, care should be taken to ensure no greater liability is given under the warranty than by the underlying appointment.