Back to basics: consultant appointments

Professional consultants are routinely appointed to provide a wide variety of different services in construction projects.  They play a vital role at all stages from the early design process through to the construction phase, practical completion and beyond.

In broad terms, a consultant’s role is to provide specialist advice on their area of discipline, which contrasts with contractors and sub-contractors who carry out physical building work.  Typical disciplines found in construction are architects, mechanical and electrical engineers, structural engineers, project managers, acoustic consultants, cost consultants, principal designers, archaeological consultants and planning consultants.  They are often collectively called the ‘professional team’.

Whilst contractors and sub-contractors are instructed through building contracts and sub-contracts, consultants are engaged through ‘appointments’ which govern the parties’ relationship.

Why are written consultant appointments important?

The key reasons why an employer benefits from a written appointment in place with a consultant are:

• Contractual relationship – as well as clearly setting out the responsibilities of the parties and what each has promised to do, establishing a contractual relationship is important to protect against negligence in the performance of the professional services as it is difficult to bring a claim without a contractual duty of care in place.
• Payment certainty – an appointment provides a record of the agreed level of the consultant’s fees and how and when they will be paid. It will also provide a mechanism for calculating payment for additional services beyond the scope of the agreement or if the services required are less than envisaged.
• Services – a schedule of services is typically included in the appointment setting out the services expected of the consultant. This should be compiled by somebody with a full technical understanding of the requirements of the project and serves as a reference point for monitoring the consultant’s performance.
• Copyright licence – for design consultants in particular, it is important that the employer obtains a copyright licence to use and reproduce their drawings and specifications for the purposes of carrying out the project and for other purposes such as the maintenance and repair of the building afterwards. Without a licence, using the documents means that an employer runs the risk of infringing the consultant’s intellectual property rights.

Key terms

Looking more in depth at a typical appointment structure, you would expect to find the following:

Duty of care

The appointment will set out the consultant’s obligation to perform the services required. This establishes the contractual foundation of the relationship and the grounds to make a claim if the services are not provided to the required standard.

The typical standard of care imposed is one of ‘reasonable skill and care’ in performing the services. This is not the highest degree of skill and care but judges the consultant against the usual standards of its profession. The consultant is not guaranteeing a result.  The exact threshold to meet can be adjusted – for example, to the standard of a consultant with specific qualifications or who has experience of projects of similar size and value, etc.

A higher standard is ‘fitness for purpose’, where the consultant essentially guarantees that the final project will be fit for its intended purpose. Consultants will typically resist this as they generally cannot be insured for this standard.

Payment

The appointment will record the agreement on fees to be paid to the consultant along with the drawdown schedule for invoicing.  If there is no payment clause or the existing clause is inadequate, the Construction Act ‘steps in’ to provide a default payment mechanism. This provides certainty to the consultant regarding how and when they will be paid for their work.

A typical payment mechanism will establish a ‘due date for payment’ (which is usually receipt of the consultant’s invoice) and then a ‘final date for payment’ when the invoice needs to be paid by.  There should be the opportunity for the employer to query or disagree an amount claimed in the invoice through the submission of a payment notice or a pay less notice.  If the employer does not issue either of these notices by the final date for payment, the employer must pay the amount claimed in the invoice, whether reasonable or not.

If payment is withheld and no payment notice or pay less notice was submitted in time, the consultant has a statutory right to suspend work upon 7 days’ notice.

Professional Indemnity Insurance

Professional Indemnity Insurance (PII) insures the consultant against claims made against them for professional negligence.  The appointment should contain an obligation on the consultant to maintain PII at a level and of a type appropriate for the project (e.g. £5 million for each and every claim).  The consultant should maintain this cover for an appropriate period with an insurer of ‘good repute’.

Prohibited materials

The appointment will typically prohibit the specification of deleterious materials known to be either harmful to human health or the durability of the completed structure.

Collateral warranties

Collateral warranties grant third parties to the appointment a right to also rely on the consultant’s obligations in circumstances where they also have an interest in the completed project.  Typical examples are tenants accepting a full repair responsibility under a lease, external funders for the works or future purchasers of the building.  The appointment should set out exactly who is entitled to collateral warranties and annex an agreed form of warranty to be provided.

Copyright

Typical copyright licence wording involves the grant of an ‘irrevocable, non-exclusive and royalty-free’ licence over any documents (including drawings, designs and specifications) produced by the consultant for the project and allows the documents to be used and reproduced for any purposes in connection with the particular project.  It would not typically extend to use for other projects.

Novation

When the works are being procured under design and build procurement, the key designers are usually novated to the contractor for the construction phase.  If applicable, wording should be included setting out this procedure and ensuring that the consultant expressly agrees to the novation. This is important to ensure a smooth transfer of the appointment at the appropriate time.

Adjudication and dispute resolution

The Construction Act introduced adjudication as a method of resolving disputes quickly without stopping the project.  The aim is to reach a decision within 28 days.  Consultant appointments within a construction context will usually qualify as ‘construction contracts’ under the Act meaning that the ability to adjudicate disputes is mandatory.  However, if a particular dispute is complicated or covers multiple issues, adjudication may not be appropriate and the dispute could either go to the courts or arbitration instead.  The appointment should incorporate appropriate dispute resolution clauses to cover this.

Termination and suspension

Appropriate provisions should be incorporated governing the circumstances in which either party may suspend or terminate the appointment together with clear procedure to effect these rights.  For example, either party may wish to be able to terminate if the other party becomes insolvent or is in material breach of their obligations.

Limitation of liability clauses

It is common for consultants to request limitation or exclusions of liability as part of the appointment negotiation process, often prompted by their insurance providers.  Such clauses may include a request for an overall cap on liability set at a certain level, separate individual caps on certain heads of loss (such as indirect or consequential losses) and/or net contribution clauses.  Each such request should be considered in the context of the project.

Summary

Consultant appointments form an essential part of the contractual framework required for a successful construction project.  They not only establish a contractual duty of care for the professional services in case something goes wrong but they also create certainty over the scope of services to be carried out, fee levels and the right for the employer to use the consultant’s intellectual property.

If you would like any more information about consultant appointments, please get in touch with the team and we will be happy to help.