Surveyors are increasingly taking on the roles of contract administrator, certifier and project manager on behalf of clients. They are paid by the client and, naturally, assume that they should follow his instructions. But what duties, if any, do they owe to the contractor? This article addresses some of the legal issues. The term 'project manager' will be used to refer to anyone carrying out the task of the certifying officer or contract administrator under a typical building contract.

The client as his own construction manager

The decision of Jackson J in Scheldebouw BV v St James Homes (Grosvenor Docks) Limited (2006 TCC) helpfully summarises the relevant principles.

The case involved a residential riverside development in London, with St James' Homes as developer and Mace as their construction manager. All went well up to practical completion. However, shortly after that, and a little before the final accounts were due to be settled, St James wrote to the various trade contractors notifying them that they intended to terminate Mace's engagement and appoint themselves as construction manager. The cladding contractor, Scheldebouw, objected to this.

'Construction manager' was defined in the contract as "Mace Ltd or any further or other person notified in writing by the employer to the trade contractor from time to time". So on the face of it, St James could appoint anyone, including themselves, to the role.

Jackson J reviewed the general role of the construction manager. He highlighted two separate functions.

The first role, said the judge, was as the agent of the employer. Here, the project manger gives effect to the employer's wishes and carries out his instructions. He may, for example, decide what variations to a design should be made. He will then issue appropriate instructions. This is the 'agency function'.

The second role is quite different. Here, the project manager reaches decisions on matters where, potentially at least, the contractor and employer have opposing interests. Examples are ascertaining and certifying loss and expense, making adjustments to the contract sum, giving fair and reasonable extensions of time, issuing certificates of practical completion and issuing interim certificates and the final certificate. This is the 'decision-making function'.

With regard to the agency function, said the judge, the project manager owes the ordinary duties of agent to principal. He is obliged to carry out his client's instructions.

However, with regard to the decision-making function, his obligation is quite different. His duty is not simply to implement the instructions of his principal, but rather to hold the balance fairly as between employer and contractor.

Similar points have been made in earlier cases. For example, in Sutcliffe v Thackrah (1974), the House of Lords had said that a project manager was to be regarded as "holding the ring" between employer and contractor. Other cases have referred to his obligation to act "fairly and impartially" and "in a fair and unbiased manner".

Applying these principles to the facts of the Scheldebouw case, the judge said it was quite impossible to construe the contract as allowing St James to appoint itself to the role of construction manager. This would be a highly unusual state of affairs, not envisaged by Scheldebouw when they had priced the job – so it would require an express term permitting it.

The duty to act fairly

The duty to act fairly and impartially does not require the sort of judicial approach required of a judge or arbitrator. In AMEC Civil Engineering Limited v Secretary of State for Transport (2005, CA), the engineer under an ICE form of contract decided that the failure of roller bearings on the concrete deck of a motorway viaduct was due to poor design or workmanship of the contractor. Because of the shortage of time available for his decision – which in turn was due to the impending expiry of a limitation period – the engineer gave the contractor only one day to consider complex technical allegations and provide a response.

The Court of Appeal said that fairness would usually require one party to have a reasonable opportunity to make representations in response to allegations against it, but that this was not a "straitjacket requirement" in all circumstances. In this case, it went on, given the urgency of the position and the fact that the allegations did not entirely come out of the blue, the engineer's decision was not in breach of the obligation of fairness. More generally, the court made clear that the decision of the certifier does not have to be reached by a judicial process.

It has long been established that an architect who merely follows his employer's wishes in the issue of certificates is likely to have his certificates overturned. In Hickman v Roberts (1913, HoL), the architect wrote to a contractor who was disputing his valuations, to say that the contractor should contact his clients "because, in the face of their instructions to me, I cannot issue a certificate, whatever my own private opinion in this matter". It was held that he had come under the influence of the employer to such a degree that his certificates were valueless.

What should a project manager do when faced with client pressure of this sort? The answer is that he must remain resolute and not compromise his independence. Clients who pressurise their contract administrators to give the 'right' decision are liable to come unstuck, in any case. If there is evidence of pressure, other certificates will be of doubtful value. Can the project manager take legal advice, e.g. on the approach of the courts to such matters as concurrent delays? Yes, so long as the final decision is his. There is no need for such advice to be disclosed to the contractor.

Which contracts do the duty of fairness/impartiality apply to?

The duty applies to the contract administrator under JCT SBC 2005 and to most contracts where the project manager is required to make decisions on issues where the employer's and contractor's interests may not coincide. The engineer under the ICE Conditions (7th Edition) has an express duty to act impartially. Under the FIDIC 1999 Red and Yellow Books (the employer-designed and design-build contracts, respectively) the Engineer must make a "fair determination". By contrast, there is no such duty under the JCT DB 2005 contract (and most other design and build contracts) where the certifying function is carried out by the employer directly (the "employer's agent" is named only as a contact point).

What about the New Engineering Contract, NEC3? In Costain Limited v Bechtel Limited (2005, TCC), where the contract in question was based on the NEC, Jackson J thought that there was an implied duty to act fairly. However, it has been pointed out^[1] that under certain versions of the NEC, only the contractor (and not the employer) can challenge the decision of the project manager in adjudication etc; and that this position does not sit easily with the project manager having a duty of fairness to both parties. Therefore, although Costain suggests that such a duty exists in the NEC, the position cannot be regarded as entirely certain.

Project manager duties

In summary, the project manager will have a duty to act fairly and impartially as between employer and contractor under many standard and bespoke forms of contract (though not under JCT DB 2005, and possibly not under NEC3) in respect of anything covered by what was described in Scheldebouw as the decision-making function. However, the duty does not require him to act in the way that a judge or arbitrator must act. Pressure from the client will almost certainly invalidate any certificate. Taking legal or even expert advice is permissible.

Fortunately for the project manager, he can at least rest easy that the contractor cannot sue him for incorrect certificates. That was made clear in Pacific Associates v Baxter (1989, CA). The contractor can ask the appropriate tribunal to review any certificates, but that is its sole remedy.

[1] 1 The Independence and Impartiality of Contract Administrators under Various Standard Forms of Construction Contracts, Jones and O'Carroll, 2007 Const.L.J., p475

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For further information about this published aticle, contact Kathryn Hobbs on +44 (0)121 213 2397, Alexa Highfield on +44 (0)121 213 2396 or Amie Ryalls on +44 (0)121 213 2360

This published article may contain information of general interest about current legal issues, but does not give legal advice.