The certifying duties of a Project Manager…

1 June, 2005
by: Cripps

Can the certifying duties of a project manager be exercised in the interests of the Employer? 

One day the Project Manager called a meeting of his staff. He outlined the challenges faced by everyone working on the project to ensure it was successfully completed. He said there was a gap between the Target Cost and the project Outturn cost and it was important to reduce this gap by adopting a stricter attitude.

Reports of this meeting came to the attention of the Contractor who became concerned that legitimate costs were being disallowed when its payments were assessed. In its February 2005 payment certificate its disallowed costs had been £1.4 million. By the next certificate in April disallowed costs had increased significantly to £5.8 million and this certificate had been issued shortly before the Project Manager’s announcement about adopting a stricter attitude.

Ultimately the Contractor applied to the courts alleging that the Project Manager, Bechtel, had unlawfully procured breaches of contract by the Employer. The Contractor argued that the Project Manager had sought to encourage Bechtel’s employees to operate the assessment and certification provisions of the contract partially and in bad faith.

The main issue the Judge had to consider was whether when assessing sums payable under the contract, it was the Project Manager’s duty (a) to act impartially as between Employer and Contractor or (b) to act in the interests of the Employer.

The Judge considered the starting point was the House of Lords’ decision in Sutcliffe v Thackra (1974), where they discussed the role of an architect issuing interim certificates under a standard RIBA form of building contract.

“The building owner and the contractor make their contract on the understanding that in all such matters the architect will act in a fair and unbiased manner and it must therefore be implicit in the owner’s contract with the architect that he shall not only exercise due care and skill but also reach such decisions fairly, holding the balance between his client and the contractor.”

However in the present case of CORBER (a consortium of contractors working on the CTRL) v Bechtel Limited the issue was not about the duty of certifiers in general, but the specific duties of the Project Manager under the present contract. Counsel for Bechtel submitted that the present contract could be distinguished from conventional contracts for four reasons. In summary:

  1. Its terms were very detailed and specific. They did not confer a broad discretion so there was no room for an implied term of impartiality;
  2. A dissatisfied contractor had recourse to dispute resolution procedures set out in the contract, thus excluding the effect of any implied term about impartiality;
  3. The Project Manager’s position was not analogous to other certifiers under conventional contracts. He was specifically employed to act in the interests of the Employer;
  4. Specific clauses in the contract prevented any implied term arising that the Project Manager would act impartially.

 

His Honour Judge Jackson found that although the contract was more specific than conventional contracts there were residual areas of discretion where the principles stated in Sutcliffe would still apply. It could not be that every exercise of discretion would be against the Contractor.

He could not find any relevant distinction between the dispute resolution procedures of this contract and those of conventional contracts. There was nothing in the provisions to militate against the existence of a duty to act impartially.

Whilst it was correct that in discharging many functions under the contract the Project Manager acted solely in the interest of the Employer, for example deciding which of two quotations to accept, this did not detract from the normal duty which any certifier has to hold the balance between Employer and Contractor.

Of the two specific contract clauses relied upon by the defence one did not bear directly on the impartiality question and the other did not impact on the issue. As the application by CORBER was only on an interim basis the Judge did not have to reach a final decision. Nor was the Employer a party to the proceedings. Nevertheless he concluded that there was a proper argument that Bechtel were to act impartially as between Employer and Contractor when assessing sums payable to CORBER.

Curiously the remedy applied for by CORBER was an injunction. Despite the Judge’s findings that there were serious questions to be tried, other remedies such as damages were available under the contract and he held it was not a proper case for the grant of an injunction.

Note: A new range of JCT contracts was published between May and December. These are the JCT ‘05 contracts.

Reviewed in 2015