Construction: consultant appointments
Proceed with caution
4 April 2013
If you want to avoid discussions with professional negligence lawyers, says Nik Haria, make sure you understand the contents of your legally binding appointment documents
When negotiating the terms of a professional consultant appointment, it is important to understand the obligations and liabilities arising under it. This article considers three key issues and provides advice to consultants who enter into professional appointments.
Standard of care
The standard of care required of the professional consultant is of paramount importance, both to them and the client. There are two types of standard of care:
1) fitness for purpose, and
2) reasonable skill and care.
Fitness for purpose
Put simply, this means that when the project is completed it will be fit for its intended use. Although this does not sound unduly onerous, it is in fact a high standard because the consultant guarantees that its design will be suitable for its intended use.
Reasonable skill and care
This means that the consultant agrees to use reasonable skill and care in performing the services. This is a lower standard than fitness for purpose. Under this standard of care if, for example, the design is not suitable for its intended use, the consultant can avoid liability. The obligation to use reasonable skill and care is not an obligation to ensure that the building is fit for a specified purpose.
If asked to enter into an appointment with a fitness for purpose standard of care, it is essential that the consultant’s professional indemnity insurance policy covers these more onerous obligations
In addition, consultants should consider whether a standard of care may be implied in the appointment. Section 13 of the Supply of Goods and Services Act 1982 can imply a duty to act with reasonable skill and care. This can be extended to a fitness for purpose obligation if there are special facts, such as a client making it clear to the consultant that a design must meet certain performance requirements, justifying this extension.
Tip: For clarity, consultants should ensure that any appointment includes an express clause setting out the required standard of care. Reasonable skill and care is the standard preferred by consultants. If asked to enter into an appointment with a fitness for purpose standard of care, it is essential that the consultant’s professional indemnity insurance policy covers these more onerous obligations. Many do not.
Professional indemnity insurance
The primary purpose of professional indemnity insurance is to insure the consultant against liability for professional negligence. This could arise from negligent advice or defective design (if there is a design responsibility). Such insurance is a requirement for RICS regulated consultants and is usually a condition of appointment.
Consultants are generally required to maintain professional indemnity insurance for a period not less than 12 years from practical completion of the respective project if executed as a deed, or six years from practical completion otherwise. In some instances, the time period begins at the end of defects liability period.
Tip: If possible, execute any appointment as a simple contract, not a deed. This limits the period in which a claim can be made against the consultant. Given the length of time in which the insurance must be provided, ensure that the appointment stipulates that insurance must only be maintained if available at commercially reasonable rates.
Net contribution clause
This clause serves to limit the consultant’s liability to a fair and reasonable or a just and equitable proportion of the total losses. A net contribution clause only limits a consultant’s liability, where the consultant is at fault, but is not the only one at fault.
A net contribution clause can be found in some standard form professional appointments. However, legally advised clients often delete such a clause as a pre-condition to entering into an appointment.
Tip: Require a net contribution clause in an appointment. If a client refuses to accept such a clause, it is imperative that insurers are consulted, as the policy may include as a term that the consultant only enters into appointments that include such a clause.
It is vital for any members of a consultant’s organisation who enter into legally binding appointments to fully understand and give adequate consideration to the above three issues before any appointment is entered into or any services are provided (if this is earlier). A detailed understanding of the above and, importantly, the extent of
insurance coverage the consultant has in place, will avoid many of the claims that all too frequently cross
the desks of construction lawyers and professional negligence lawyers, alike.
Nik Haria is a Partner with law firm SGH Martineau