The use of construction management has recently been thrown into the limelight over the question of whether a construction manager is responsible for losses caused by a failure to properly organise the trade contractors who are directly employed by the client. The case is Great Eastern Hotel Co. Ltd v John Laing Construction Ltd.
His Honour Judge Wilcox summarised construction management as follows:
“As a concept, it can be described as a method of procurement whereby the Construction Manager manages the construction of the Project without accepting the principal risks of time and cost, which remain with the client”. However he went on “Thus it is the obligation of a Construction Manager to plan, programme and organise the Project and the Trade Contractors who actually carry out the work, so that the Client’s risks in relation to time and money are minimised”.
The Great Eastern Hotel was a major 19th century railway hotel adjoining Liverpool Street Station in London. Over 100 or so years it was added to a number of times and by 1996 it was showing signs of neglect. The scheme proposed by Great Eastern Hotels Limited (“GEH”) was to completely refurbish and extend the existing buildings to procure a first class hotel for business customers. The original budget was £34.8 million.
As well as appointing a construction manager, GEH engaged a large professional team including costs consultants, project managers, engineers, architects and specialist designers.
The Judge had to consider whether an obligation to procure that each Trade Contractor complied with its obligations, and to ensure full compliance by the Trade Contractor with all the requirements of their trade contracts imposed an absolute obligation on the Construction Manager. The Judge held that the contract read as a whole did not impose an absolute obligation. It simply imposed the obligations of a professional man performing professional services.
Unfortunately for Laing they failed to perform those professional services in a competent manner.
It may be stating the obvious to state that construction management involves no construction work, but Laing staffed the project with personnel whose backgrounds were in construction rather than in construction management. The Judge described the Contract Manager as:
“a thoroughly decent man but unequipped by training or experience for the role into which he was propelled and then driven by inexperience and commercial pressures to protect Laing’s position at the expense of his client. The position was not helped at the outset by inadequate professional support being provided by Laing in relation to vital planning matters.”
Procurement and programming
One of the main problems that Laing encountered related to the temporary roof which had to be erected over the existing hotel. The responsibility for the design of the temporary roof was that of the Trade Contractor in conjunction with Laing. Both the procurement of the trade package and the erection of the roof went badly wrong. The procurement took 3 weeks longer than Laing had programmed. For some reason Laing did not provide the engineer’s concept drawings to the Trade Contractor at tender stage. The erection took 35 weeks longer than the 10 weeks programmed.
Having heard the factual and expert evidence the Judge found that Laing were clearly in breach of the Contract Management Agreement and that its acts and omissions had significantly caused delay. Further delays followed particularly in relation to demolition and protection of existing services. Again the Judge found on the evidence that Laing caused critical delay.
In addition the court found that Laing failed to act as a competent Construction Manager by allowing the removal of the temporary roof too early and not ensuring other waterproofing measures were in place.
Another area where Laing failed in its construction management duties was its reporting obligation. The Judge found that a competent Construction Manager would know of the necessity that GEH needed accurate information on the likely completion date because of the impact on pre-opening preparation, financing costs and its operational dates. Laing did report on a regular basis but it seriously under-reported the delay. The Judge found that Laing failed to report candidly and objectively as to the extent of the delay.
Further the misreporting of progress had serious effects on the following Trade Contracts some of whom commenced work on site before the works were ready for them. This lead to claims for extensions of time, prolongation and disruption costs.
GEH also included a claim for recovery of their acceleration costs. The Judge found that Laing’s advice to spend more money to achieve acceleration was bad advice because it was based on the deliberate mis-reporting of the actual state of delay.
It was Laing’s case that it was not responsible for identifying or preparing the scope of work for each Trade Contract. The Judge found to the contrary. He said:
“The scope of the packages comprised in a particular Trade Contract Package is clearly the responsibility of the Construction Manager.”…”the ultimate obligation to make sure the trade package is workable and complete is that of the Construction Manager, who is there to safeguard the position of the Employer”.
As a consequence of Laing’s failure to include all the works in the relevant packages, CMIs had to be issued to enable those works to be carried out. Carrying out work as variations is not as economical as carrying it out as part of the trade package.
Laing agreed to carry out its services as construction manager in the best interests of the client. In fact its performance was motivated by self-interest.
Some of the services of the project team members overlapped quite considerably. Nevertheless the ultimate obligation to make sure all the Trade Packages were workable lay with the Construction Manager.
Whilst under construction management the client retains the risk as to time and cost of the Trade Contracts, it is the obligation of the Construction Manager to minimise that risk. The Construction Manager must safeguard the position of the Employer.
The overall cost of the Great Eastern Hotel project increased from £34.8 million to £61 million. Laing has to pay damages of more than £10 million.
Reviewed in 2015