Our three model form appointments - of Architect, Quantity Surveyor and Structural Engineer - all follow the same basic format, and the Explanatory Notes on the various clauses cover all three Agreements.
A standard form of professional appointment can be useful, in particular, to the Owner/Employer: by adopting such an approach he will have a common set of terms & conditions for all consultants on the project. The services which each of them provide and the fee arrangement, will, of course, be very different, but basic contract terms are common.
These terms & conditions are written more from the point of view of the Consultant than the Owner.
The form of Appointment is a fair one, imposing reasonable obligations on the Consultant and it is designed for use by a Consultant in his business (as well as by a Client.)
In this Commentary, the word "Consultant" covers all three professionals - Architect, quantity surveyor, structural engineer.
This clause formally confirms the appointment of the Consultant by the Owner.
Details of the services to be provided are set out in Appendix A. The "basic services" are expected to cover all the functions which would normally be provided on a project of the type which is covered by the Contract.
Given the nature of construction projects, however, the Consultant may be required to provide services which are outside the normal brief and this is covered by clause 2.2. When additional services are required it is advisable for the Consultant to point this out to the Owner in advance to get his consent. Otherwise there may be scope for argument that no additional fee should be paid since the Owner believes the work is covered by the basic services.
3. FEES AND PAYMENT
This is clearly an important clause from the point of view of both parties. Fee arrangements can be quite complex with a fixed fee element, daily rates, etc. Details are to be set out in Appendix B. Where there may be additional services it is advisable to fix the rates for these in advance, if it can be done.
If a project is likely to last for more than a year Appendix B could contain provision for increases in rates.
The extent to which out of pocket expenses are chargeable in addition to fees should also be clarified in Appendix B: photocopying, travel, etc., should be listed so that there is no uncertainty. Where work involves overseas travel, it is advisable to specify class of travel and scale of costs for hotel accommodation.
Clause 3.3 is inserted because of UK legislation which requires a paying party to give notice of any intention to withhold money which has become due. Although mandatory in the UK, such a clause is, in fact, a useful discipline for both parties and may be incorporated in contracts which are not affected by the UK legislation.
4. STANDARD OF CARE
For a professional Consultant a normal standard of care is to exercise reasonable skill and care unless it is expressly stated that a higher standard is required by the Owner. The clause, as drafted, specifies the normal standard.
5. OBLIGATIONS OF OWNER
Owners do not always appreciate the fact that if their Consultants are to perform effectively, they need to receive all necessary documents. In addition, where the Consultant seeks a decision or approval, e.g. for a design, from his client, a timely response may be needed if delays on the project are to be avoided. This Clause attempts to deal with such issues.
This clause establishes that copyright in all documents produced by the Consultant belongs to him. However, the Owner has a right to use these documents freely in connection with the Project. What he is not allowed to do is to use the drawings etc. for another project. Similarly, if he uses documents for purposes for which they were not prepared, the Consultant is exempt from any liability.
Professional Indemnity Insurance is almost invariably taken out by Consultants. This will give insurance cover against negligence. The Owner may need to be satisfied at the level of insurance cover and this is referred to here. Since claims can arise some years after a project is completed, consultants are sometimes required expressly to maintain cover for the duration of the 'limitation period' - i.e. the time within which a claim for negligence may be brought against the Consultant after the Services have been completed. This period varies from country to country. In the UK it is 6 years (or 12 years if the agreement is signed as a deed). In many civil law countries, the period is 10 years.
Here we refer to cover being maintained for so long as the Consultant has any liability arising under the Agreement. A prudent consultant will ensure that insurance is maintained until the relevant limitation period is past, even without such a requirement.
The Consultant must not disclose any confidential information he receives in the course of his work. The Owner needs to ensure that confidential information is identified as such.
Consultants often like to be able to publish information concerning projects: it can be useful for marketing purposes. Owners would not normally object (assuming the publicity is not too early in the development of the project). This clause regularises the arrangement: the Owner has to be asked for his approval in advance.
10. ASSIGNMENT & SUBCONTRACTING
Both Owner and Consultant need the other's consent before they can assign or transfer their respective interests in the Agreement to a third party.
So far as subcontracting is concerned, the Owner's consent is needed before the Consultant brings in any sub-consultants.
This sets out the basis for termination. In addition to bankruptcy, material breach by Consultant or non-payment by Owner, the Owner has the right to terminate at any time: quite important since he may decide not to proceed with the Project after the Consultant is appointed - through lack of finance, inability to get necessary planning permission, etc. Since suspension might occur and continue for a long time, if it goes on for too long either side can terminate the Agreement. 90 days is the period suggested here.
Clauses 11.2 and 11.3 vary the payment terms depending on the reasons for termination: while "voluntary" termination by the Owner may allow the Consultant to pick up some termination expenses, termination because of the Consultant's insolvency or breach allows payments of fees owing to be frozen and for the Owner to set off extra costs against those fees.
Suspension may be required by the Owner - e.g. during a period he is waiting for planning consent, or trying to arrange finance for the project. The Consultant gets paid everything due to him and if the Suspension continues for more than 90 days, either can terminate the Agreement.
Under UK legislation, the Consultant would be entitled to give 7 days notice to suspend performance of his obligations if any payment which has become due is not paid on the due date and no effective notice of withholding has been given under clause 3.3. This is a statutory right under all construction contracts in the UK and no additional wording is required in the contract.
13. DISPUTE RESOLUTION & GOVERNING LAW
This clause provides for a 3-stage dispute resolution process - direct negotiation, adjudication and arbitration.
Under English law a party to a contract involved in construction services has a right to have any dispute referred to adjudication. The law specifies the adjudication procedure to be adopted which, amongst other things, requires a decision within 28 days from the date of a reference to the adjudicator.
Adjudication is intended to be a quick and relatively cheap method of resolving disputes. If a party is dissatisfied with the adjudicator’s decision, the law requires that that decision is implemented. It does not, however, prevent the dissatisfied party from referring the matter to a higher authority – in this case, arbitration.
The Consultant may want the arbitration to be before an arbitrator appointed by the Consultant's own institution, as in our example (clause 13.3).
Clause 13.4 specifies the jurisdiction whose law governs the interpretation of the contract.
14, 15 & 16. MISCELLANEOUS - NOTICES, ENTIRE AGREEMENT, INDEPENDENT CONTRACTOR
These small but useful clauses are reasonably self-explanatory. Clause 15, in particular, needs to be noted: if there are documents to be incorporated in the Agreement, they need to be referred to, probably in a schedule, otherwise they will not have any contractual effect.
There are two versions of this: [A] which is written from the Consultant's point of view and [B] which is from the Owner's.
Consultants are regularly asked to provide collateral warranties in favour of third party funders, purchasers and lessees. Collateral Warranties are almost invariably required on new construction projects. This Clause recognises the reality of the position.
The purpose of a collateral warranty is to create a contractual link between the consultant and the third party who has the benefit of the warranty, enabling that third party to sue the consultant if he is found to be negligent at some later date. Under English Law, without such a provision (unless the Contracts (Third Party Rights) Act is applied) no such claim would succeed.
Option [A] makes it clear that the collateral warranty must not impose new, onerous obligations on to the Consultant.
Also, the Owner must ensure that all his consultants provide similar warranties - otherwise there is a much greater risk for this consultant if he is the only one to enter into a collateral agreement with the purchaser.
Option [B] sets out the Owner's usual position: he will require warranties, often within quite a tight timetable to meet his obligations to his bank or buyer. Even here, though, there is a "reasonableness" test.
It is quite common for a Client to want to be satisfied that the key individuals engaged on a project will remain on that project and will not be moved once the appointment has been confirmed. It is, therefore, quite common to have a clause which refers to certain named individuals who may be referred to in a Schedule at the back of the Agreement. The Consultant must obtain consent from the Client to change personnel. Clearly, in some cases, consent will automatically be forthcoming, for example if an individual resigns from the company, but in other cases the Client does have some measure of control.
It is always advisable for a Consultant to negotiate and agree on the facilities to be provided by the Client when the work is outside the Consultant's usual territory. This clause provides a template which can be adjusted depending on the particular circumstances.
LIMITATION OF LIABILITY
It is common for Consultants to seek to eliminate the potential liability they may have for any defect which appears. The costs of rectifying a serious design fault in a building can easily exceed fees payable to a Consultant for the design work. Apart from the direct remedial costs, a Client may suffer substantial 'consequential' losses - loss of rent from tenants etc. Our draft clause imposes a cash limit on the Consultant's liability without distinguishing between direct and indirect/consequential losses. Sometimes a Consultant wishes to exclude liability for consequential losses in any event, although this is, to some extent, illogical if the Consultant has professional indemnity insurance.
Other Consultants may wish to restrict liability as much as they can - a cap on liability equal to the agreed level of professional indemnity insurance is a solution which offers a fair compromise for both parties in many cases.