KILLIAN DORNEY, Partner, Beale & Co, outlines some of the key contract provisions that consultants should consider and resist and how these provisions impact consultants’ ability to operate.
With all the excitement that surrounds a new project, often employers and consultants rush into commencing services without agreeing an appointment – this can lead to much frustration down the line where the employer withholds payment on the basis that no appointment is signed and that the two parties have reached an impasse on agreement to the terms of the appointment.
To avoid situations such as these arising, we urge consultants to ensure they have an appointment in place (or their standard terms and conditions) in the first instance before commencing the services.
In light of the constantly changing landscapes of the construction and professional indemnity insurance (PPI) markets, it is equally important that consultants are aware of the key provisions to include in their appointments and how to mitigate these risks. In particular, given the hardening of the PII market, it is crucial that consultants operate within the remits of their PII cover, especially concerning their appointment terms.
This prompts the question: What are the key provisions that consultants should include and resist in appointments?
- LIABILITY
The inclusion of a limitation of liability is imperative. Otherwise, the consultant’s liability is unlimited, which can lead to a hoard of issues. We, therefore, recommend that consultants ensure they have an overriding limit of liability in their appointments and that their liability is limited to an amount that is commensurate with the relevant fee and scope of services. In addition, the limit should never be above the consultant’s PII limit of indemnity, and any exclusions (eg in respect of fire safety and cladding claims and asbestos) should also be reflected in the limit of liability.
That said, in certain sectors in the Irish market, in particular in the public sector, employers require consultants to work with unlimited liability. The consultant should be aware of the risks of this before entering appointments with unlimited liability and ensure that it follows its contract carefully and implements sufficient risk mitigation measures during the performance of the services.
Although some consultants in the Irish market are accustomed to working for public authority employers under unlimited liability, should consultants appoint UK sub-consultants and/or other international sub-consultants, they will find that will meet strong resistance from such sub-consultants to accept the risk of unlimited liability. Should the consultant succumb to the sub-consultant’s resistance and agree for the sub-consultant’s liability to be limited, there will then be a risk of a liability gap to the consultant’s detriment. We recommend that consultants stand firm on either resisting this gap or narrowing this gap as much as possible.
We also recommend that consultants ensure that (i) they include an exclusion in respect of indirect and consequential loss that they are not liable for loss that is far removed from the breach, and (ii) they have a net contribution clause so that they are only severally liable for loss that they have caused rather than jointly with the other consultants, contractors and sub-consultants that form part of the project team. Note that UK sub-consultants will most likely demand these provisions in their sub-consultant appointments too.
- DUTY OF CARE AND FITNESS FOR PURPOSE OBLIGATIONS
For consistency with PII arrangements, it is important that the consultant’s duty of care is no more than that required at common law (ie reasonable skill and care). Often, bespoke employer appointments contain higher standards of care (eg good industry practice), in addition to strict obligations that are inconsistent with typical PII arrangements. We, therefore, advise consultants to ensure that they have a duty of care that is consistent with PII arrangements and which is “overarching” in that it trumps all strict obligations in the appointment.
In addition, fitness for purpose obligations often crop up in design and build contracts in particular, either as an express fitness for purpose provision or in the guise of a requirement to “comply with the brief ” or “achieve the employer’s requirements”. Such obligations are inconsistent with typical PII arrangements and should be resisted.
- PAYMENT AND THE CONSTRUCTION CONTRACT ACT 2013
The Construction Contracts Act 2013 (the “Construction Act”), which applies to all “construction contracts”, provides the parties with the opportunity to submit a payment dispute to adjudication and for the consultant to suspend for non-payment by giving not less than seven days’ notice. The Construction Act requires that a “construction contract” shall provide for “the amount of each interim payment to be made under the construction contract”, and “the amount of the final payment to be made under the construction contract” or “for an adequate mechanism for determining those amounts”. Accordingly, we recommend that consultants ensure that their appointments include an adequate payment mechanism that includes a payment claim date and a final date for payment. Moreover, we recommend that consultants ensure that a right to suspend for non-payment and a right to adjudicate is written into their appointments to reflect their statutory rights. These are useful tools to have to hand when employers fail to make a payment or unreasonably withhold a payment.
We are increasingly seeing more onerous payment provisions, including long payment periods (ie where the final date for payment is more than the standard 30 days after the submission of an invoice) and additional “hurdles” to payment (eg to provide all information as the employer requires in addition to the consultant’s payment application). We advise that consultants push back on such onerous payment provisions.
- ADDITIONAL SERVICES AND PROLONGATION
More often than not, employer bespoke appointments do not contain a fee adjustment mechanism to adjust the fee if the consultant is required to provide additional services, to vary the services, or if there is delay or prolongation to the services due to no fault of the consultant. This is a cash-flow risk and one that needs to be mitigated against. We, therefore, recommend that a standard fee adjustment mechanism is inserted into appointments so that the consultant is not caught in a scenario where it has incurred significant additional costs that are unrecoverable under the terms of its appointment.
- BUILDING CONTROL (AMENDMENT) REGULATIONS 2014
The consultant and the employer will need to comply with their respective obligations under Building Control (Amendment) Regulations 2014 (BCAR), which will need to be written into the appointment. Often consultants are required to provide ancillary certificates and opinions in respect of the compliance of the design with BCAR. Such requirements can expose the consultant to joint and several liabilities with the assigned certifier and contractor, respectively, under BCAR. We recommend that in respect of ancillary certificates, the consultant only agrees to enter into the industry standard forms that have been developed and agreed by the RIAI, ACEI, Engineers Ireland and SCSI. In respect of a requirement to provide opinions, we advise that this is resisted where possible.
- COLLATERAL WARRANTIES
Due to the complex nexus of projects, consultants are often required to provide collateral warranties to third parties (ie parties other than the employer with whom the consultant is contracting) that expose consultants to additional liability. We advise that consultants consider whether (i) this is appropriate to the scope of services (eg pre-planning services would not be appropriate); (ii) the number of collateral warranties are limited to an appropriate number; (iii) the scope of beneficiaries are limited accordingly (eg no residential tenant warranties); and (iv) the form of collateral warranty is no more onerous than the appointment (in particular that the consultant owes no greater or longer-lasting liability to the beneficiary than it does to the employer under the appointment).
- INDEMNITIES
Often employer bespoke consultant appointments contain indemnities, which are inconsistent with typical PII arrangements and which are recoverable on a “pound for pound” basis. Indemnities remove the principle that losses must be reasonably foreseeable, meaning that the employer can claim losses that the consultant cannot anticipate. In addition, indemnities extend the limitation of the liability period. We, therefore, advise that consultants resist indemnities. In any event, the employer can claim damages for breach of contract and does not require indemnities to recover loss that flows from the breach.
- FORCE MAJEURE
Often force majeure clauses are not included in bespoke employer consultant appointments. However, since the impacts from Covid-19, they are now a “must-have” provision to include. Importantly, the definition of “force majeure” in appointments should expressly refer to pandemics and other events that are outside the consultant’s control. We also recommend that force majeure provisions provide for an entitlement to additional time (and payment where possible), make clear that the consultant is not liable for the force majeure event and entitle consultants to suspension and termination if the force majeure event persists.
IN CONCLUSION
Although the above is not an exhaustive list of the key provisions to incorporate into appointments or those provisions to resist, these items illustrate the fundamental risks and measures that a consultant should consider from the outset of a project and when entering into a contract.
We, therefore, recommend that consultants ensure that (i) they have adequate protection mechanisms in their appointments (including, amongst others, a limitation of liability); (ii) they operate within their PII cover (which is in the interest of the employer too); and (iii) they seek advice from their legal advisers to ensure that they are complying with the former. And most importantly – get into contract early to protect themselves and provide certainty. Beale & Co are international construction and insurance law specialists. Killian Dorney is a partner in Beale & Co and leads the non-insurance construction practice in Dublin.
To learn more, visit www.beale-law.com or contact Killian directly on k.dorney@bealelaw. com / +353 (0) 86 032 1205.