Third Party Roles in Contracts

Introduction

Construction contracts tend to be made between the client and Contractor and as with all construction contracts there are many parties involved with the process and professional roles that differ and are alike depending on the contract forms. This discussion will examine the different roles within contracts and more specifically the Project Manager in NEC 3 contract and the Employer’s Agent in JCT 05 contract. By furthering and understanding this discussion, I will be reflecting on third party roles of contract administrators while also analysing the details of the Latham reports findings.

The contracts

Today’s contracts are many in number to what they used to be 30 years ago, with contract forms under which the role of delivering the contract administration for the employer may and may not involve a dual role. Within the following traditional contracts there is a separated role appointed by the employer for third party decision maker:

Both JCT Standard form and Intermediate and Minor Works contract forms allow for the selection of a contract administrator say in form of architect.

ICE Conditions of Contract Measurement selects an engineer as the certifier.

Such roles carry a duty on the certifier to act independently and truthfully in their decision making. Giving Employer and contractor, the right to challenge decisions and to have them reassessed.

Conversely, there are contract forms which do not insist upon a free role for a third party certifiers or contract administrator and have merged them into one.

The JCT Design and Build Contract 2005 provides for an Employer’s Agent and employer’s representative respectively who represent the employer in the administration of the contract. They are appointed by the employer and effectively working for the Employer. So the roles of the JCT Standard form have been effectively combined in the design and build JCT contract. The agent acts for Employer with limited independence as set in article 3.

While The NEC 3 June 2005 expressly provides for the role of a project manager for who shall be appointed by the employer. Here they have almost unanimous control and power. It is much more far reaching than the Employers Agent, but with the power comes responsibility to act honestly and independently from the Employer, for example for the good of contractor and project as well. This is quite relevant and interesting because of Jackson J. decision in the case of Costain Ltd v Bechtel Ltd 2005.

So now to look at these two contracts and the roles set out within them in more detail and also the discerning case law and reports that accompany them.

JCT contractual roles

In JCT the employer can choose an employer’s agent in areas of contract administration. On such appointment the employer’s agent will be compelled to accept any of employer’s instructions. However, in practice the employer’s agent will often find conflicts between the interests of the employer and contractor. The leading case of Employer agent’s role in JCT contracts is Sutcliffe v Thakrah.

Sutcliffe v Thakrah identified that the Employers agents’ role is the significant issue in construction contracts. It stated that the architect was susceptible of legal responsibility in negligence to the Employer. The Lords made clear that the architect had two roles to execute; be duty-bound to take action on Employers instructions, or else use professional knowledge.  Parties also base contract that the Agent will be just and impartial, whilst employ professional precision and expertise. The role of a third party certifier is different from the Employers Agent. Though in the real construction world roles will inevitable be amalgamated. Whether this works and is root cause of conflicts and adjudication procedures is probable.  If the Third party certifier doesn’t follow the two roles in Sutcliffe V Thakrah judgement then they run the possibility of disentitlement.

The employer’s agent must conduct their duties in an approach that the contract necessitates even in the absence of a third party certifier. Nonetheless there are examples under JCT contract where judgements and resolutions have to be made without third party certifier. The employer takes on this role of third party certifier, by for example deciding when practical completion is (clause 2.27). As a result the employer’s agent must in an impartial and reasonable way, execute clause 2.27 for example, if that’s what contract dictates. Of course it can and will lead to disputes, and requires stern professionalism from the Agent.

The case of Scheldebouw showed Third party certifiers (Employers Agent) real position:

Scheldebouw BV v St. James Homes Ltd. approved the decision that when someone making judgments in a construction contract has no impartiality and freedom from the Employer they ought to achieve a fair and honest decision, as opposed to favouring the Employer. From this case, it’s apparent that when a third party certifier is chosen to incorporate a dual function role, then the employer should be unable to perform that role, even if the free functioning role is carried out by another establishment or by someone within the company. Both employer and contractor should be allowed to contest decisions made by the acting third party certifier. The employer would be at a disadvantage compared with the contractor, if there was no right to challenge.

Judge Jackson stated three suggestions with regards to Third party certifier’s position.

1. The role and duties are determined contract terms.

2. They cannot be seen and are not, independent of the Employer as with Employer agent.

3. When making decisions, it must be done in an independent, fair and truthful manner.

Despite the employer’s agent not being independent, the employer cannot contest their own accounts or decisions. If the employer is unhappy with results they cannot question under the contract. It seems in the end the JCT contract affords employer to use an agent to be answerable to them.

NEC3 contractual roles

NEC came in to place and was meant to provide straightforwardness and elasticity within construction contracts. The project manager’s duties seem are wide and varied and for some issues the project manager must act in the interests of the employer, when deciding different quotes for example. But generally has a free role in a project. Case law however has shown the project manager also has a duty to act impartially and fairly between the employer and contractor.

In the Costain Ltd. v Betchel Ltd. case again which Judge Jackson presided over but this time examined the roles of third party certifiers and then the role of the project manager in the NEC 3. The case involve a Project Manager allegedly being overly inclined in measuring payments in Employers favour, which became an issue for the contractors who were to receive such payments.

The main issues of concern for this discussion are what the duties the Project Manager was obliged to conduct himself by. Should he act impartially between the two parties or whether he has a duty to work for the concern of the Employer? Judge Jackson recalled upon Sutcliffe v Thakrah case and upheld that such roles had been established with regards to the duties of architects and certifiers in JCT.

He therefore believed that the Project Manager must rely and use their own judgment repeatedly in construction projects under NEC and the authority of Sutcliffe v Thakrah case would apply to NEC contracts. Jackson believed that the project manager performed a dual function and therefore the employer’s viewpoint was not obliged to be considered by the project manager. Only the contractor can raise a challenge in relation to action taken or not taken by the project manager.

In NEC contracts the project manager tends not to have a dual role with their obligations to act in their own professional capacity, impartially and fairly, except with (clause 90) termination conditions, where parties must explain inform the project manager.

The Project Manager seems to hold a more far-reaching and hands-on role in comparison to Employers agent.  Whilst there is no condition for impartiality and acting in fair manner, there is the belief that the Project Manager must act fairly and impartially from the Employer’s interest. There is also no statement or mention in NEC3 to circumstances where only the contractor can contest or dispute.

Latham’s report gave its opinion and advice as to project manager’s roles within NEC3:

Latham’s Constructing the Team Report 1994 had much to talk about construction contracts and specifically the NEC Contract. He voiced an apprehension that construction contracts weren’t fulfilling the needs of construction industry itself.

He found contracts where the architect/engineer act as contract administrators they would be deemed by parties of that contract to be unbiased adjudicators between those parties. To Latham such practice didn’t relate actual construction of the time and would necessitate revision or replacement by other contractual approaches.

Latham stated, along with a variety of ideas, that there should be an adjudication system separate from contract administration. Strengthening the prospects of NEC by saying, “The approach of the New Engineering Contract is extremely attractive.”

Constructing the team gave the NEC Contract a helping lift and enhancement with his statement. Further editions were made including recommendations of Latham’s as to what a construction contract ought to enclose.

The report advocates that the project manager must never be afforded a dual role of power and instead act solely for the employer. Whilst be Joined by a dispute resolution procedure, in case the contractor is discontented with what the contract administrator has or has not done.

Comparison of JCT to NEC3

JCT is now seen as a conflicting contract that can do more in collaboration of parties as Latham set out, this is shown in the role of the Employers Agent. NEC 3 is seen as a more positive alternative for parties involved. Having said that NEC can still be seen as less positive partnership contract, as in real world, out of theoretical implementation  both contracts allow for the role of the Project Manager and Employers Agent to be manipulated and change to one parties benefit or detriment.

Conclusion

Even with case law there is still doubt and likely disagreement to occur from the roles of Employer’s Agent and Project Manager. It ‘s inevitable for third parties that they will feel the interests of the Employer and contractor balance a lot more with the Employer. There is case law that can allow them not to concede their independence to one party over the other and make decisions on trust and professional accuracy. That is if the law is in their mind when making such decisions, it invariable is human nature to side with one party more favourable even with checks in place. Relationships are important and closeness of these relationships affects the views of agents and project managers.