Professional negligence claims against contract administrators (Part 1)

In this first part, we’ll look at the role of the contract administrator, the potential and mechanisms for claims in general, and the practical steps which can be taken to reduce the likelihood of those claims. In Part 2, we’ll cover some common types of claim against contract administrators in more detail.

Both articles cover quite a wide range of issues relatively briefly, so, by necessity, this is only a short summary of the points raised. It is not intended to be legal advice and should not be taken as such: whilst common themes emerge, every situation is different.

The parties and the contract administrator’s role

General

In both parts of this article, we’ll refer to the parties to a construction contract as the employer (the client which is commissioning the work) and the contractor (which delivers it).

The contract administrator is a third party, named in the construction contract, which is empowered to exercise payment and other contractual controls as between the employer and the contractor.

Whilst it is appointed by the employer, and acts on the employer’s behalf, the contract administrator is required to discharge its obligations quasi-judicially, and to administer the contract independently, fairly and in accordance with its terms.

Contract administrators are usually architects or quantity surveyors but, in reality, it is a role which can potentially be carried out by any construction professional.

The role

The exact role of the contract administrator depends on the contract wording. Typically, however, it includes inspecting progress, certifying sums due to the contractor, deciding whether work is complete, issuing notices on behalf of the employer and instructing any variations which are required to the contract works.

The contract administrator must also determine the impact of unfolding events on the contract sum payable to the contractor by the employer, and/or the date by which the contractor’s works are required to be complete.

Ultimately, it is a role which requires the contract administrator to exercise its own professional judgement on the progression of the project and the various issues that arise as the works proceed.

Potential for claims

Ultimately, whilst the decisions made by the contract administrator take many different forms, the consequences of those decisions boil down, directly or indirectly, to money: how much the employer must pay, how much the contractor will receive, and when. Frequently, there is unhappiness on the part of the employer or the contractor (or both) with aspects of this financial outcome. For this reason, it is not unusual for claims to be pursued against the contract administrator in relation to the decisions it has made.

As the party which has actually appointed the contract administrator, a disgruntled employer will be able to pursue a direct claim. That claim is likely to be for breach of the contract administrator's terms of engagement and/or negligence. In practice, both claims are usually pursued together.

The situation is different for the contractor, if it considers that it has not received something to which it is entitled because of the way the construction contract has been administered on the employer’s behalf. In those circumstances, the claim against the contract administrator is generally likely to be indirect, primarily because the contractor has no contract with the contract administrator.

The contractor’s recourse in this situation is to claim against the employer. The employer will then seek recovery from the contract administrator of any losses it suffers as a result of the contract administrator’s alleged error(s).

How it does so will largely depend on the forum in which the contractor’s claim is pursued. In litigation, for example, the employer might join the contract administrator into the proceedings as a Part 20 Defendant. In other types of dispute resolution, such as adjudication, it is likely to commence a claim against the contract administrator later (in the event that it is unsuccessful in defending the contractor’s claim).

Requests for assistance

In the latter scenario, the employer will ordinarily expect the contract administrator to assist it in defending the allegations being made by the contractor, which can present a challenge. Depending on the merits of the contractor’s claim, the contract administrator may be faced with the predicament of trying to be helpful whilst not incriminating itself and, of course, not being seen to compromise its independence.

Where the contract administrator is a regulated professional, it may also be necessary to consider whether a conflict of interest has arisen, especially if it is seeking payment for assisting with a dispute which, arguably, has arisen as a result of its own breach of contract and/or negligence.

Risk management

There are a number of ways in which contract administrators can reduce their potential exposure to claims.

Firstly, and as with all professional engagements, careful thought should be given at the outset to agreeing a carefully scoped and unambiguous written appointment with appropriate limitation of liability clauses.

It might sound obvious, but the contract administrator must ensure that its team knows the contract it is administering back-to-front, including any requirements imported by legislation such as the Housing Grants, Construction and Regeneration Act 1996. Many claims arise through a lack of understanding of applicable contractual and statutory requirements.

Certificates and decisions issued by the contract administrator should set out the information required clearly and unequivocally, with as little scope for differing interpretations as possible.

The contract administrator should also make sure that there is a clear record of each decision it makes in relation to the project – including the detailed reasoning behind those decisions – and that everything else is properly documented and recorded, including site meeting minutes, progress reports, variations to the contract works, extensions of time for completion, prolongation costs/delays and all of the documents generated in relation to each contractor payment cycle.

Photographs are useful in evidencing what was taking place at the point of each inspection, but contract administrators should also consider producing a short, written summary of the outcome of each inspection (including its purpose) and the areas/aspects of works that could/could not be seen.

A court will generally expect a contract administrator both to seek input from other professionals on the project in relation to matters not within its own expertise, but also to exercise its own judgement. Where a contract administrator is relying on the advice of third parties, it should maintain a record of its own analysis of that advice, including why it considered the advice should be accepted or not accepted.

All of this record keeping will assist in the event of any claim against the contract administrator, but the absence of it may even form the basis of a claim in itself. It is possible that a claim could be pursued by an employer or contractor which has been unsuccessful in a dispute because the contract administrator had not retained (and therefore could not make available) sufficient records of what took place on site, and the reasoning for its decisions.

Conclusion

The role of the contract administrator is complex and varied, and there are numerous areas in which, if appropriate care is not taken, it can be vulnerable to claims. We’ll discuss common claims in Part 2.

The main ways that a contract administrator can protect itself are similar to those applicable to other professional liability classes: a clearly drafted appointment, an intimate understanding of the relevant contract, contractual nexus and applicable legislation, disciplined record keeping, transparent reasoning in certificates and decisions, and seeking advice from others on issues which fall outside the administrator’s own expertise, then considering that advice carefully and applying its own judgment to it.