Professional Services Agreements – a guide for construction professionals Second Edition

Contents Acknowledgement v
Foreword to the first edition xvii
Foreword to the second edition xviii
Preface to the first edition xix
Preface to the second edition xx
About the author xxi
Abbreviations xxiii
1 Introduction 1
1.1 General 1
1.2 Liability 1
1.3 Standard conditions of engagement 2
1.4 The commercial nature of the management of
agreements 3
2 The client 5
2.1 Identification of the client 5
2.2 Agent acting for the client 5
2.3 Client acting on behalf of, or for the benefit of,
third parties/Panatown/Contracts (Rights of Third
Parties) Act 1999 6
2.4 Receivers as clients 8
2.5 Joint clients 9
2.6 Design and build contractor clients 10
2.7 The Crown, Government, local authorities and other
statutory body clients 10
2.8 ‘Shell company’ clients 11
2.9 Another professional as a client 12
2.10 Use of correct name 12
3 Forming the appointment 13
3.1 General – forming a contract 13
3.2 An appointment comprising several documents/
incomplete drafts 15
3.3 Tenders 17
3.4 Letters of intent 17
3.5 Incomplete contracts 18
3.6 Implied terms 19
3.7 ‘Entire’ contract 19
3.8 Misrepresentation 21
3.9 Payment on a quantum meruit basis 23
3.10 Speculative work 25
3.11 Trading conditions, purchase orders and similar 25
3.12 Checking revised drafts 25
3.13 Appointments signed towards the end of a
commission 26
3.14 Signing under hand or as a deed 26
3.15 Effect of signing appointment under hand or as a
deed 27
4 Obligations imposed on the professional 29
4.1 Duty of care in contract and in tort 29
4.2 Warranties for fitness for purpose and warranties
generally 34
4.3 Absolute or strict obligations 41
4.4 Compliance with statutory requirements and the
introduction of Eurocodes 44
4.5 Compliance with third party agreements and ‘back
to back’ clauses 46
4.6 Compliance with the client’s instructions 49
4.7 Best endeavours/reasonable endeavours 51
4.8 Timescale for professional services 53
4.9 Acceleration of the services 54
4.10 Statements concerning reliance 55
4.11 Deleterious/prohibited materials 56
4.12 Key personnel 58
5 The services 61
5.1 Definition of tasks 61
5.2 The standard conditions of engagement 62
5.3 Approving, checking, reviewing, etc. services 65
5.4 Review of shop drawings 66
5.5 ‘As-built’ drawings 67
5.6 ‘Supervision’, ‘inspection’ or ‘monitoring’ on site 68
5.7 The duty to warn/report on deficiencies or unsafe
designs or practices of others/continuing duties 72
5.8 Services for a design and build contractor 78
5.9 Contractors’ obligations 80
5.10 Hired-in plant operators 80
5.11 Provision of Services Regulations 2009 80
5.12 Variations and the power to omit 82
6 Client provisions 85
6.1 Client’s obligations to provide information and
decisions, etc 85
6.2 Accuracy of information provided by the client 88
6.3 Nothing the client does relieves the professional 90
7 Payment of fees 93
7.1 Offers, estimates and quotations 93
7.2 Lump sums and fixed fees 94
7.3 Disbursements 94
7.4 Conditional payment and speculative work 94
7.5 Conditions precedent to payment 95
7.6 Payment of fees by instalments 96
7.7 The Construction Act 1996 and the Local
Democracy, Economic Development and
Construction Act 2009 96
7.8 Instalments under the Construction Act 1996 96
7.9 Additional fees 97
7.10 Date for payment of fees 103
7.11 Due date and final date for payment of fees under
the Construction Act 1996 103
7.12 Interest payments and Late Payment of
Commercial Debts (Interest) Act 1998 104
7.13 Payment of undisputed portions of invoices 105
7.14 Notice of payment under the Construction Act 1996 106
7.15 Set-off generally 107
7.16 Notice of intention of withholding payment under
the Construction Act 1996 108
7.17 Pay when paid clauses under the Construction
Act 1996 110
7.18 Pay when paid clauses 111
7.19 Amendments to the payment provisions of the
Construction Act 1996 by the Local Democracy,
Economic Development and Construction Act 2009 112
7.20 Revisions to standard conditions of engagement
as a result of the amendments 118
8 Termination and suspension 127
8.1 Termination generally 127
8.2 Client’s rights to terminate and payment on
termination 127
8.3 Repudiatory breach 129
8.4 Professional’s right to terminate 131
8.5 Obligations after termination 131
8.6 Delivery up of documents on termination/suspension 132
8.7 Suspension and payment on suspension 135
8.8 Suspension under the Construction Act 1996 and
as amended 136
8.9 Provisions for termination and suspension in
standard conditions of engagement 139
8.10 Notice provisions 143
9 The Professional Services Agreement – PSC3 145
9.1 Introduction 145
9.2 The professional’s services and other responsibilities 147
9.3 Skill and care 149
9.4 The client’s responsibilities 149
9.5 Communication 150
9.6 Early warning and risk register 151
9.7 Prevention 154
9.8 Starting, completion and key dates 155
9.9 The programme 159
9.10 Quality and correcting defects 161
9.11 Payment 164
9.12 Compensation events 166
9.13 Intellectual property 169
9.14 Insurance and liability 169
9.15 The optional clauses 174
10 Intellectual property rights 177
10.1 Copyright 177
10.2 Remedies for infringement of copyright 179
10.3 Licences 179
10.4 Vesting copyright in the client or another party 184
10.5 Design right 185
10.6 Registered designs 186
10.7 Moral rights 187
10.8 Building information modelling (BIM) 188
10.9 Physical ownership of documents 189
11 Confidentiality 191
11.1 The duty of confidentiality 191
11.2 What constitutes confidential information and
when is the duty of confidentiality breached 191
11.3 Confidentiality provisions in conditions of
engagement 192
11.4 Confidentiality where there is novation 195
11.5 Separate confidentiality agreements 195
11.6 when professionals may need to protect
confidential information 195
11.7 Remedies for breach of the duty of confidentiality 197
12 Liability for work carried out by others 199
12.1 Privity of contract 199
12.2 Responsibility for the work of others 199
12.3 Sub-contracting of services by a professional 200
12.4 Implications of sub-contracting for the professional 201
12.5 Implications of sub-contracting for the
sub-consultant 206
12.6 Taking over from another professional mid-project 206
12.7 Joint and several liability and the Civil Liability
(Contributions) Act 1978 207
12.8 Joint ventures 209
12.9 Joint venturing with a contractor 212
12.10 When joint or concurrent liability can arise 212
12.11 Net contribution clauses generally 213
12.12 The Co-operative Retail Services case and its effect
on net contribution clauses 215
13 Agency 217
13.1 Appointment of the professional as agent for the
client to employ others, such as contractors 217
13.2 The extent of the agency 218
13.3 The contract with the third party 219
13.4 Duties of an agent 219
13.5 An agent’s rights against a client 220
13.6 The relationship between the client and the third
party 221
13.7 The agent’s liability in tort 221
13.8 Criminal liability of an agent 222
13.9 Termination of the agency 222
13.10 Agents appointed on behalf of the client, the
delegation of their duties and provisions in the
standard conditions of engagement 222
14 Statements, certificates and reports 225
14.1 Legal principles 225
14.2 The duty owed to a client in respect of statements,
etc. 225
14.3 The duty owed to third parties in respect of
statements, etc 225
14.4 Negligent misstatements 226
14.5 Those to whom the professional can become
liable 226
14.6 Necessary expertise of the maker of a statement 227
14.7 Circumstances in which there can be a breach of
the duty of care 227
14.8 Gratuitous advice or statements 228
14.9 Disclaimers 228
14.10 Certificates 230
14.11 To whom the certificate is addressed 233
14.12 Council of Mortgage Lenders’ Certificate 233
14.13 The basis for giving certificates 236
14.14 Particular contract considerations for reports,
surveys, etc. 237
14.15 client requests to pass on reports 239
14.16 The Technotrade case 240
14.17 Guidance on report writing 241
15 Insurances and liability 243
15.1 Professional indemnity insurance generally 243
15.2 No general duty to minimise damage 244
15.3 ‘Claims made’ basis 244
15.4 Aggregation of claims 245
15.5 Losing the right to indemnity 246
15.6 Limitations of professional indemnity insurance 247
15.7 Subrigation rights 249
15.8 Liability of partners 249
15.9 Liability of directors 249
15.10 Liability of limited liability partnerships 250
15.11 Liability of individual employees 251
15.12 Public liability insurance 251
15.13 Disclosure of insurance details 252
15.14 Provision of Services Regulations 2009 252
15.15 Insurance requirements of standard conditions of
engagement 254
15.16 Insurance obligations in non-standard conditions of
engagement 256
15.17 Run-off insurance 258
15.18 Value of reducing number of claims against the
professional 258
15.19 Choice of insurers 259
16 Limitation and exclusion of liability 261
16.1 Limiting or excluding liability generally and the
Unfair Contract Terms Act 1977 261
16.2 Limiting liability by reference to a monetary
amount 265
16.3 Limiting liability by reference to ‘net contribution’ 266
16.4 Limiting liability by reference to particular losses or
direct, indirect or consequential losses 268
16.5 Exclusion of liability 269
16.6 Limiting the time within which claims can be
brought and time limits for claims 270
16.7 The Unfair Terms in Consumer Contracts
Regulations 1994 272
16.8 Arguments in favour of including limits of liability 274
16.9 Limitation of liability in standard conditions of
engagement including evaporation clauses and net
contribution clauses 274
16.10 Net contribution where there is a contractor with
design responsibility 285
17 Indemnities 287
17.1 Indemnities and guarantees generally 287
17.2 Problems with indemnities 288
17.3 Position under professional indemnity insurance
policies 290
17.4 Some specific indemnities 290
17.5 Provisions equivalent to an indemnity – what will
be paid, or the extend of liability 293
17.6 Where indemnities may be acceptable 293
17.7 Effect of limitations of liability on indemnity
clauses 294
18 Set-off, abatement, liens, retentions and liquidated
damages 295
18.1 Set-off and abatement 295
18.2 Liens 295
18.3 Retentions 296
18.4 Liquidated damages 297
19 Assignments and novations 299
19.1 Assignments generally 299
19.2 Legal assignments and the ‘no loss’ argument 299
19.3 Equitable assignments 301
19.4 Extracts from standard conditions of engagement 302
19.5 Assignments in collateral warranties 303
19.6 Effect of the Contracts (Rights of Third Parties)
Act 1999 on assignment 304
19.7 Novations generally 304
19.8 Novation by a client to another client 305
19.9 Novation by a professional to another professional 306
19.10 Interaction with sub-contracting 306
20 Novation of the professional by a client to a design
and build contractor 307
20.1 Introduction 307
20.2 The meaning of ‘novation’ and the situations for
which it was intented 307
20.3 Differences between novation to another client
and to a design and build contractor 309
20.4 When novation takes place to a design and build
contractor 310
20.5 Nature of liability arising out of services performed
prior to novation 310
20.6 The Blyth & Blyth case 311
20.7 Ab initio novation 312
20.8 Client’s position under ab initio novation 313
20.9 Switch novation 314
20.10 Post-novation services 314
20.11 Avoiding conflicts of interest 314
20.12 Confidentiality 315
20.13 When liability to the contractor can arise outside
any novation 315
20.14 “Equitable’ or implied novation 316
20.15 The CLLS novation agreement 317
20.16 The CIC novation agreement 318
20.17 Conclusion 321
21 Collateral warranties 323
21.1 What are collateral warranties? 323
21.2 Reducing risks under collateral warranties 324
21.3 Professional indemnity insurance for claims under
Collateral warranties 326
21.4 Collateral warranties for residential property 327
21.5 Collateral warranties for contractors 327
21.6 Extracts from standard conditions of engagement 327
21.7 The CIC Forms of collateral warranty generally 329
21.8 The CIC purchaser/tenant collateral warranties 329
21.9 The CIC funder’s collateral warranty 333
21.10 Powers of attorney to execute collateral warranties
and completing them in escrow 336
21.11 Non-standard collateral warranties 336
21.12 Adjudication in collateral warranties 339
21.13 Third party rights schedules 340
21.14 The BPF warranties for funder (4th edition) and
purchases/tenant (3rd edition) 342
21.15 What happens to collateral warranties if the client
goes into liquidation 343
22 Guarantees and bonds 345
22.1 General 345
22.2 Basic characteristics 345
22.3 Guarantees 346
22.4 On-demand bonds 347
22.5 Matters to be considered by professionals 348
22.6 Parent company guarantees 349
22.7 Advance payment guarantees 349
23 The Construction (Design and Management)
Regulations 2007 (the CDM Regulations 2007) 351
23.1 Relevance to professionals 351
23.2 The statutory framework 351
23.3 Civil liability – breach of statutory duty 352
23.4 Criminal liability – prosecution and other sanctions 354
23.5 The dutyholders 356
23.6 The ‘Client’ 357
23.7 The Client’s duties 357
23.8 Designers 359
23.9 Design 360
23.10 Designers’ duties 360
23.11 Obligations in appointments to comply with the
CDM Regulations 370
23.12 A designer’s checklist 373
23.13 The CDM coordinator’s duties 373
23.14 The principal contractor’s duties 374
23.15 Contractors’ duties 374
23.16 Duties of all dutyholders 375
23.17 Duties on others 375
23.18 Collateral warranties and third party rights for a
designer/CDM coordinator 375
24 Law and jurisdiction, and dispute resolution 377
24.1 Law and jurisdiction 377
24.2 Dispute resolution processes 378
24.3 Litigation 379
24.4 Arbitration 379
24.5 Provisions in the standard conditions of
engagement 380
24.6 Mediation 380
24.7 Conciliation 382
24.8 Expert determination 382
24.9 Adjudication 382
25 Adjudication 383
25.1 Introduction 383
25.2 Insurance considerations 383
25.3 Adjudication under the Construction Act 1996
the statutory Scheme and ‘construction contracts’ 384
25.4 Non-statutory standard adjudication procedures 386
25.5 Non-standard ad hoc adjudication procedures 387
25.6 Referring party in an adjudication 387
25.7 Responding party in an adjudication 387
25.8 Adjudication in collateral warranties 388
25.9 Adjudication provisions in standard conditions of
engagement 388
25.10 Amendments to the adjudication provisions of
the Construction Act 1996 by the Local
Democracy, Economic Development and
Construction Act 2009 390
26 Management of risks 391
26.1 Risk management generally 391
26.2 Internal procedures 391
26.3 Conclusions 392
Appendix 1 Building Information Modelling 393
Appendix 2 CIC novation agreement 397
Appendix 3 Note on switch and ab inition novations 409
Appendix 4 CIC purchaser/tenant collateral warranty 415
Appendix 5 CIC funder’s collateral warranty 425
Appendix 6 Summary of the Client’s duties under the CDM
Regulations 2007 437
Bibliography 439
Index 445