Episode 86:

Hello and Welcome to the Part3 with me podcast. 

The show that helps part 3 students jump start into their careers as qualified architects and also to provide refresher episodes for practicing architects. I am your host Maria Skoutari and this week we will be talking about how to avoid disputes. Todays episode meets PC1, PC2 & PC4 of the Part 3 Criteria.

Unfortunately, however good a job an architect does on a project and how professionally they handle it, there will always come a time where a client will raise a claim or dispute the architects duty and professionalism and the architect will need to be prepared to handle such situations. 

Some of the most common causes for disputes in the construction industry include:

• Failing to properly administer the contract
• Employer, contractor or subcontractors failing to understand or comply with their contractual obligations
• Conflict in party interests
• Incomplete design information or employer requirements 

All these essentially highlight failure of a party’s compliance to an agreement, obligation or duty which in the context of a construction project will have legal implications so parties need to be familiar with the law surrounding them to be able to respond accordingly when a dispute arises.

Duty is essentially the one that relates to almost everything with regards to:

• Duties generated by agreement between two or more parties, known as contractual duties and failure to fulfil such duties is known as breach of contract
• Or duties owed under the common law known as duties of care or tort and failure to fulfil such duties is referred to as negligence

Lets first look at Contractual Duties:

In order for such duties to be enforceable, the creation of a legally binding contract should be exchanged adhering to 4 essential requirements, including, a clear offer, clear acceptance of that offer, then the intention on the part of the parties to create legal relations and lastly consideration. So in a professional appointment, the consideration received by the client is the professional service and the consideration received by the professional is usually payment. If an RIBA form of appointment is used these will be clearly set out in what services the architect is offering and what consideration the client is agreeing to provide in return. This is where its key for both parties to understand the obligations that have been agreed to be undertaken because any failure to fulfil one of them may be considered to be a breach of contract. The party who suffers a loss as a result of a breach of contract may claim compensation from the other party.

Now when it comes to the Duty of Care in Tort: 

The common law of tort imposes a general duty of care on everyone not to harm the interests of others as result of any careless or reckless behaviour. Tortious duties of care are imposed whether or not we specifically identify them and agree to undertake them.

Refer to Episode 40 to learn more on the laws of contract & tort. 

So, under both duties, what standard of care is owed:

In contract, the standard of care is to be agreed between the parties which is typically either:

• The use of reasonable skill and care
• Or fitness for purpose

Architects and other professional consultants normally do not guarantee that their work will result in any particular outcome or that the outcome will be fit for the purpose for which it was intended, they simply agree to carry out professional work with reasonable skill and care which is also outlined within forms of professional appointment.

Building contractors, however, are required to provide a product which is fit for the purpose for which it was intended, which is a more onerous standard, under the provisions of the Sale and Goods Act 1979. Architects should take care to avoid assuming the ‘fitness for purpose’ standard when entering into a contractual relationship with the contractor which may occur in design and build procurement. PI insurers do not provide insurance cover for anything other than reasonable skill and care. 

Now, to whom might the duty be owed:

The main agreement is essentially between the architect and their appointment with the client. This may be the client who commissioned the architect to design the building or it can be the contractor under design and build procurement where the architect is novated to them. In addition to the duty to the client or contractor client, the architect may also have a number of other contractual duties of care to third parties, which they may not be necessarily aware of. 

Looking at the duties owed to the main client in the first instance, under their appointment with the architect, they will be required to provide:

• Advice
• Skills and resources for the work
• Design services
• Technical design services
• Assistance and advice in selecting a contractor
• Contract administration services
• Site visits
• Certification of the value of work carried out by the contractor
• Certification of practical completion of the works 

Failure to perform any of the activities contracted for to the standard expected of a competent architect acting with reasonable skill and care may leave the architect open to allegations of breach of contract or professional negligence, or both.

Now lets look at the duties owed to the contractor which the architect will be required to provide under their appointment. As mentioned, such a contractual relationship typically occurs under a design and build contract whereby the architect accepts the transfer or novation from the employer and also the potential of either the architect or contractor being able to sue each other for a breach of any of the conditions of the appointment. Although the appointment between contractor and architect are separate from the construction contractor,  the existence of such an appointment does allow the contractor to seek to pass liability on to the architect for any claim of negligence or breach of contract that the employer pursues against the contractor under the construction contract. 

Now when it comes to instance of Contract Administration, the architect of course needs to act impartially between the parties to the building contract, but the contractor can potentially raise proceeding against the architect in tort for negligence if they believe the architect did not act fairly when assessing entitlement of extensions of time for example. In such instances, the architect may also be challenged by the ARB and/or RIBA for breaching their codes of conduct. 

So what happens with duties owed to sub consultants, sub consultants are typically directly appointed by the client or the contractor, there are instances, however, where the employer or contractor will insist on having one single point of contact with the design team and request that the architect appoints and provides all the additional consultancy services. In such instances where the architect enters into an appointment with a sub consultant they will taken on all the obligations and duties to that subcontract that the appointment entails, they will therefore, need to consider how to best minimise the risks associated with appointing subconsultants by minimising their likelihood of failing and also minimising the effect it will have on the architect if they do fail.

So the architect needs to be aware that when they enter into a sub consultancy arrangement, they will be liable to the employer not only for their own performance but also for that of any of the sub consultants. Therefore, the architect should ensure that the range and level of duties imposed by the sub consultancy appointment are similar to those imposed on the architect by their own appointment with the client, this is referred to as ‘back to back’ agreement. This may necessitate taking legal advice on the compatibility of the standard forms of appointment issued by the various professional institutes. It may also require amendments to be made to these standard forms or, in some cases, the drafting of bespoke agreements. The architect should also take all reasonable steps to establish that all subconsultants are capable and have the necessary skills, experience and resources in order to carry out the work. It is important to ensure that these are available at the time of the project and will continue to be available throughout its course. The simplest way to minimise the likelihood that the subconsultant will fail is by working with consultants they have previously worked with and found to be satisfactory, however, sometimes it will be expected to appoint someone new and a proper assessment should be made in such instances to determine their suitability. 

Now when it comes to Third Party duties, these can arise through the Contract (Rights of Third Parties) Act 1999 whereby a third party may enforce a term of a contract if the contract expressly provides that they may or provides a benefit on them. In such cases, the third party must be expressly identified in the contract by name, as a member of a class, or as answering a particular description but doesn’t need to exist when the contract is entered into. 

So what I outlined so far in terms of duties related to contractual duties, now in terms of duties arising through tort:

These don’t arise just between the architect and the client but can also arise from situations where there is a close association between parties and there are a number of ways which an architect may find themselves closely associated with a third party to give rise to a liability of tort. For example, by providing information or reassurances to a neighbour, either directly or via the client, regarding the likely impact of works on the neighbour’s property. If the neighbour relies on such information to allow work to proceed which eventually causes the neighbour a loss, then they might claim recompense from the architect by an action in tort. Some third parties that architects should be aware of that may seek remedies against an architect include adjoining owners, future purchasers or future tenants. 

Architects should also be wary of duties arising through subrogation. Subrogation is a legal doctrine that, in certain circumstances, allows a third party to enforce the rights of a party to a contract for its own benefit. This may occur in circumstances where an employer who has suffered a loss that is covered by a property insurance policy they have taken out makes a claim on that policy and is compensated by the insurer. If the loss was caused by some fault of the architect, then the principle of subrogation may allow the insurer to ‘step into the shoes’ of the employer and pursue the architect, under the contract between the architect and the employer, in order to recover the money that it has paid out so architect need to be wary of such instances occurring and take reasonable steps to minimise their liability to the employer.

So what happens if the architect ends up breaching their duty of care:

In such instances, the architect may be required to compensate the other party for any losses they have suffered as a result of the breach. This compensation is known as ‘damages’ and is intended to restore the injured party to the position they would have been if the other party didn’t breach their duty. Or in some other instances, the court may order specific performance of the contract requiring the party in breach to perform the obligation that they failed to perform rather than provide compensation by payment of damages. This strategy is rarely used though since the courts can’t monitor and prompt performance of what they ordered.

How can these risks then be minimised:

Firstly, by ensuring clarity of agreement, its very difficult to resolve disputes that result from a lack of understanding of what each party has agreed. It is, therefore, advised to put the agreement in writing demonstrating what has been agreed and can be referred to if there is uncertainty or disagreement. 

In order to be as clear as possible with appointment agreements they should identify not only what the architect will provide in terms if services but also provide a list of exclusions from the architect services, such exclusion of providing cost estimations services and detailed valuations. Included and excluded services are important to highlight especially to inexperience clients. Misunderstandings tend to arise over the exact scope of the work that is to be carried out within the services that has been agreed. The most common items to cause issues include:

• The scope of the technical design that the architect will undertake: an architect will often rely on the contractor’s subcontractors to carry out the detail design of major of components, such as windows and other joinery. Clients tend to believe that the architect will design these elements
• Another includes the scope of contract administration duties: an inexperienced client may understand contract administration to include project management duties.
• Another is the scope of any project management duties undertaken: an inexperienced client may expect the architect to be far more involved in the degree of control over the activities of the contractor than the terms of the construction contract allow.
• The scope of site inspections can also be a cause for misunderstandings, especially where contract administration or project management services are being undertaken: a client may consider inspection to be the equivalent of supervision of the contractor’s work.

Looking at site visits more specifically:

Claims tend to rise either when a client is disappointed with the quality of the finished work and they expect the architect to supervise the work of the contractor, monitor all their activities and direct and guide them to ensure that the works meet the exceptions of the client or because the contractor goes into liquidation or dissolves as a company meaning the client will be unable to recover damages from defects to the completed works and they, therefore, seek to recover damages from the architect that they should have noticed the defects when they occurred and instructed the contractor to correct them and deduct the sums from certified payments. In such instances, the architect should:

• Have a clear view on what’s appropriate frequency for site visits
• Ensure this is clearly communicated to the client and its set out within the appointment
• Be prepared to vary the visiting frequency if circumstances require it and ensure they are carried out as required

In any case, the architect will need to inform their PI insurers straight away if they have any chance of recovering. 

In addition to minimising risks through clearly setting out the scope of services within the appointment documentation, a net contribution clause may also be beneficial to allow for in the appointment. 

A net contribution clause, is a term in an agreement that limits the liability of a contracting party where the responsibility for loss or damage is shared with another party. Liability is limited to a share that is proportionate to the party’s contribution to the loss or damage. The net contribution clause is advantageous to the architect as it protects them and their PI insurers, from having to pay out in full and then take the risk of recovering contributions from others who might have shared responsibility for the loss. The net contribution clause, however, does run counter to the principle of joint and several liability that would otherwise prevail and is advantageous to employers because it allows them to recover their losses in full from only one of the parties who caused the loss. Generally, however, including the net contribution clause provides an effective limitation of liability where others share responsibility for causing a loss and is beneficial to include within the appointment. 

Now, another potential area where the architect can minimise their risk is by being clear with a consumer client about the cooling off period, failing to inform them at the start of the project introduces risk of the appointment being cancelled with the client being able to either avoid paying any fees or to seek reimbursement of any fees paid.  

Similarly with minimising risks with clients, also applies to contractors and subcontractors and where situations arise where the architect is not a party to the contract with the contractor, such as in traditional procurement and the risks this type of casual relationship can carry and how important it is for the Contractors Design Portion elements to be clearly identified and what elements will be left over for the architect to take on and the level of design detail that the architect is expected to supply. If the architect is to transfer design responsibility to the contractor or subcontractor, they should most definitely:

• Have a contract in place with an appropriate Contractors Design Portion in place
• Ensure that the requirements and formalities of the contract are adhered to 

Therefore, its important to select the right form of contract to ensure that design liability is properly identified and apportioned. 

This is where settlements come in to resolve a dispute, there are two methods, consensual or third party determination. 

Consensual includes settlements and agreements being made through informal discussion, through the complaints procedure, negotiation, expert valuation or mediation.  

Whereas under third party determination, such settlements involve adjudication, expert determination, arbitration or litigation. 

Consensual settlements, however, should really be the parties the first route to resolving and settling disputes. The most beneficial aspect of consensual settlement is that it enables the parties to retain control over the process of achieving settlement and its outcome also also enables them to consider settlement options which would not be possible under third party determination. If such methods, however, seem to not be working then parties will need to refer the matter to third party determination. 

Resolving disputes in the first instance with informal discussion allows the architect to:

• focus on their actual work in producing great design for their clients
• avoid the stress, expense and aggravation that are an inevitable part of resolving a full-blown dispute
• preserve long-term relationships, which can promote further business through recommendations and an enhanced reputation
• preserve good working relationships
• save time

Generally, the existence of a dispute and any inability to settle it is likely to harm a good practice reputation. Therefore, for informal discussion to be successful, it should be approached with the willingness to settle, be objective and see both parties perspective and be cooperative and willing to compromise. Key items to cover in the discussions should include:

• clarifications or misunderstandings relating to the scope of service
• the nature of the roles of other parties
• the requirement for, and nature of, client inputs
• specific practical matters that may affect the achievement of the brief, such as design constraints or regulation constraints.

Discussions should be continued as long as they remain constructive and make progress towards an agreement, if it becomes clear that neither side is prepared to make any further movement in their position to find a resolution then it is time to consider an alternative means of progressing the issues.

This is where an in-house complaints procedure is beneficial as it provides the client with reassurance that any complaint will be taken seriously, the method in which the complaint will be addressed and dealt with and provides the opportunity for it to be dealt with early on before a more serious dispute arises. From the practices perspective, such an approach demonstrates professionalism, gives the client confidence that complaints are being dealt with effectively, saves time and reduces stress by providing a pre-arranged structure to follow. 

A formal complaints procedure is typically used when a client is dissatisfied with specific aspects of the service provided by the architect, such as:

• delays to the production of design or construction information

• queries related to amounts invoiced

• poor performance or unacceptable behaviour on the part of specific staff members

• matters that have been the subject of informal discussions which recur or are not completely resolved.

The practice then needs to demonstrate that they take the complaint seriously by ensuring the client is made aware of the practices complaints procedure, then place an independent complaints manager to handle the matter, and ensure the whole process is simple and easy to follow for the client and the practice.

Then if those two processes fail, that’s when the practice moves on to negotiations or expert valuation or mediation and if that doesn’t resolve matters, move on to third party determination using adjudication, expert determination, arbitration or litigation.

So to sum up what I discussed today:

• Unfortunately, there will always be some sort of dispute that arises within the construction industry, in which the architect has either contractual duties to adhere to or a duty of care in tort. 
• Under both duties the standard of care between the parties is typically either the use of reasonable skill and care or fitness for purpose
• If the architect ends up breaching their duty of care they may be required to compensate the other party for any losses they have suffered as a result of the breach
• Architects should therefore seek to minimise their risk by putting the agreement in writing and if they can include a net contribution clause within the appointment to minimise their liability a share that is proportionate to the party’s contribution to the loss or damage
• If a claim, however, does arise thus is where settlements come in to resolve it, either through consensual or third party determination.
• Consensual includes settlements and agreements being made through information discussion, through the complaints procedure, negotiation, expert valuation or mediation.  
• And third party determination, such settlements involve adjudication, expert determination, arbitration or litigation.