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Explanatory Notes
Appointment of Quantity Surveyor
B102
APPOINTMENT OF QUANTITY SURVEYOR/
ARCHITECT/STRUCTURAL ENGINEER
EXPLANATORY NOTES
The three model form appointments - of Quantity Surveyor, Quantity Surveyor and Structural Engineer - all follow the same basic format, and the Commentary on the various clauses covers 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, architect, structural engineer.
It should be noted by UK users that this Form of Appointment does not reflect all of the provisions of the Housing Grants Construction & Regeneration Act 1996 which introduced provisions relating to payments and adjudication into UK-based construction projects in 1998. This commentary suggests some additional wording to deal with the Act.
APPOINTMENT - CLAUSE 1
This clause formally confirms the appointment of the Consultant by the Owner.
SERVICES - CLAUSE 2
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.
FEES AND PAYMENT - CLAUSE 3
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 the UK legislation referred to above 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. Where the UK legislation does apply, the consultant may wish to have an additional sentence in Clause 3.3 stating that "any dispute as the entitlement of the owner to withhold payment will, on the application of either party, be referred to adjudication for a determination".
STANDARD OF CARE - CLAUSE 4
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, states the normal standard.
OBLIGATIONS OF OWNER - CLAUSE 5
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.
COPYRIGHT - CLAUSE 6
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.
INSURANCE - CLAUSE 7
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.
CONFIDENTIALITY - CLAUSE 8
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.
PUBLICITY - CLAUSE 9
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.
ASSIGNMENT & SUBCONTRACTING - CLAUSE 10
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.
TERMINATION - CLAUSE 11
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. 180 days is the period suggested here (which is the same as appears in some Institute forms of appointment).
Clauses 11.2 & 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 - CLAUSE 12
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 180 days, either can terminate the Agreement.
Under the UK legislation referred to above, 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.
DISPUTE RESOLUTION & GOVERNING LAW - CLAUSE 13
This Clause provides for a 2-stage dispute resolution process - direct negotiation and arbitration.
The consultant may want the arbitration to be before an arbitrator appointed by the Consultant's own institution, as in our example (Clause 13.2).
Clause 13.3 specifies the jurisdiction whose law governs the interpretation of the contract.
If the project is within the UK, an adjudication provision may be relevant. See our note at the end of this document "Construction Contracts in the United Kingdom" for sample wording.
MISCELLANEOUS - NOTICES, ENTIRE AGREEMENT, INDEPENDENT CONTRACTOR (CLAUSES 14,15,16)
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.
[OPTIONAL CLAUSES]
COLLATERAL WARRANTIES
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.
Option [A] makes it clear that the collateral warranty must not impose new, onerous obligations on to the Consultant. The purpose of a collateral warranty is to create a contractual link between the consultant and a third party such as a third party end user of a development used to have in tort - i.e. if the Consultant was negligent, the end user had a right of action against him. Collateral Warranty Agreements mirror that (former) tortious right and the Consultant undertakes with the third party purchaser, etc. to exercise skill and care in the performance of his duties under his contract with the Owner.
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.
PROFESSIONAL INSTITUTE CONDITIONS
Professional consultants often prefer to contract on their own Institute's standard form of contract. By cross-referring to the Institute conditions, this can be achieved when using a form of appointment such as this one. Although the clause gives priority to our conditions over those of the Institute, the possibility of ambiguity does exist, and care is needed when adopting this approach: both sets of conditions need to be carefully checked.
KEY PERSONNEL
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.
OVERSEAS SERVICES
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.
CONSTRUCTION CONTRACTS IN THE UNITED KINGDOM
Please note that Construction Contracts for work within the United Kingdom are likely to be affected by Part II of the Housing Grants, Construction & Regeneration Act 1996 ( the "Construction Act").
Our documents are prepared for international use and not all of them contain provisions which are compatible, or fully compatible, with the Construction Act. These notes are designed to assist purchasers of our contracts who wish to use the documents within the UK.
The Construction Act applies to contracts for "construction operations" within the UK. Broadly speaking, this covers all contracts involving building operations, whether new buildings or maintenance or repairs of old buildings, within the UK. The main exception is construction work for residential occupiers.
The Act contains certain mandatory provisions relating to payment and adjudication as a means of resolving disputes.
PAYMENT
Sections 109 to 113 of the Act deal with payment.
1. Payment
Where a contract duration is likely to be 45 days or more, a construction contract must provide an adequate mechanism for determining what payments become due under the contract, when they become due and contain provision for final date for payment of each sum becoming due. The following wording in a payment clause may be appropriate to deal with this provision:
"Within 5 days after the end of each month, the Contractor will submit an application to the Employer for payment in respect of work carried out during that month. Within a further 5 days the Employer will issue to the Contractor a certificate showing the amount due and the final date for payment which will be 20 days from the date of the Contractor's application."
2. Withholding of payment
Section 111 makes it illegal for a party (usually the Employer) to withhold any amount from a payment which has become due unless within a specified period before the final date for payment, that party has given an effective notice of its intention to withhold payment. That notice must specify the amount to be withheld and the grounds for withholding each such amount.
Suggested wording is as follows:
"If the Employer wishes to withhold any payment which has become due under the Contract, he shall, not less than [5] days before the final date for payment of that amount, give notice to that effect to the Contractor specifying in the notice each amount to be withheld and the reasons."
3. Pay when paid
Section 113 of the Act makes it illegal for a Contract to contain a "pay when paid" clause - i.e. a provision which makes payment under the Contract conditional upon the payer receiving payment from a third party. In other words, a Main Contractor cannot make payment to a Subcontractor conditional upon payment being received from the Employer under the Main Contract.
4. Suspension
The right to suspend performance of a Contract is given under Section 112 to a party who has not received payment in full of the amount which has become due by the final date for payment and no notice of withholding has been given. In those circumstances, the payee must give 7 days notice of its intention to suspend performance, and if payment is made within that period, the right to suspend ceases. There is no need to give this right of suspension expressly in the Contract as it is covered by the wording of the legislation. Some commentators have argued that an Employer would be entitled by contract to exclude the right of a Contractor under Section 112 to give notice of suspension. Not everyone agrees with this argument.
ADJUDICATION
Section 108 of the Construction Act contains provisions which give any party to a Construction Contract the right to refer a dispute arising under the Contract to adjudication. The section states that a party can give notice at any time of his intention to refer a dispute to adjudication and the timetable must be designed to secure the adjudicator's appointment and the referral of the dispute to him within 7 days of the notice, with the adjudicator's decision within 28 days from referral. This 28 day period may be extended by 14 days with the consent of the referring party or for any other period by agreement between the parties.
The adjudicator must act impartially and be able to take the initiative in ascertaining the facts and the law.
The adjudicator's decision will be binding (and must be implemented) until a dispute is finally determined by legal proceedings, arbitration or agreement. If the Contract states, the adjudicator's decision can be final and binding.
It is not possible to contract out of these provisions and if the Contract is silent on adjudication, there is a statutory scheme - the Scheme for Construction Contracts, which will apply.
Thus, even if the Contract is silent, a party to a Contract to which the Act applies can require that a dispute is referred to adjudication.
There are a number of organisations which will appoint an adjudicator and which have adjudication rules which are compliant with the Construction Act. These include most of the main professional bodies - RIBA (Royal Institution of British Architects), RICS (Royal Institution of Chartered Surveyors), ICE (Institution of Civil Engineers) etc.
A suggested clause, under which reference is made to one of those organisations, is as follows:
"Either party may refer a dispute arising out of this Agreement to adjudication by giving notice to the other party. The adjudicator, if not appointed by agreement between the parties, shall be appointed by the President of the [Institution of Civil Engineers] on the application of either party. The adjudicator shall act impartially and be free to take the initiative in ascertaining the facts and the law. The adjudicator shall be required to reach a decision within 28 days of referral or such longer period as the parties may agree.
[The adjudicator's decision shall be binding on and implemented by the parties and unless either party gives notice to the other within [60 days] from the date of the decision, it will be final and binding on the parties and will not be subject to any further legal proceedings."]
It should be noted that the Construction Act is so written that if a Construction Contract does not comply with the Act, the Contract will, in effect, be supplemented by the (statutory) Scheme for Construction Contracts. This sets out details of provisions with respect to payment by instalments and adjudication which will take effect in those circumstances.
This is one of many of our engineering contracts.
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