Contracts for engineers – thoughts on professional appointments
28 November 2013
Authors: Stephen Chessher, partner, Beale & Co and Fiona Mackey, solicitor, Beale & Co
In this article, we look at professional appointments for consulting engineers: how to ensure that an enforceable contract has been formed, how to ensure as far as possible that the terms of the contract will be upheld and, in the event of a dispute, how to provide the best means of resolving that dispute.
The first thing to bear in mind is that professional appointments are contracts that are fundamentally the same as any other contract and are governed by the normal laws of contract. There must be an offer and an acceptance. Consulting engineers are often invited to tender for a project. An invitation to tender will not normally be construed as an ‘offer’. It is the tender itself that will generally comprise the ‘offer’ which is then accepted, or not, by the client.
What if the client seeks to negotiate on the tender and/or seeks to impose its own terms? The revised proposals from the client are likely to be deemed a counter offer which, in turn, is capable of acceptance or rejection by the consultant. This sometimes leads to what lawyers call a ‘battle of the forms’ where, in the event of a dispute, each side asserts that its own terms and conditions prevail.
It is not unusual for work on a project to be commenced before terms have been finalised or any formal appointment is put in place. If clear terms have been proposed by one party and no objection is raised by the other party in the full knowledge that work has started, it is likely that the terms will be deemed to have been accepted.
A fundamental characteristic of a contract is consideration: the concept that each party to the contract is receiving a benefit or suffering a detriment. This is not normally an issue in professional appointments. The consideration flowing from the client to the consultant will invariably be the payment of a fee and the consideration flowing in the opposite direction will be the provision of services.
TERMS OF CONTRACT
It is implicit in the concept of offer and acceptance that there should be clarity and certainty as to the terms of the contract: there should be consensus ad idem. This is a fertile area for disputes. It is common practice in professional appointments (and even more so in construction and engineering contracts) for the contract to be concluded before all terms have been fully agreed. That is in order provided that the contract sets out a mechanism to determine how outstanding terms may be finalised or, just as important, how and when terms may be changed or varied. If, however, the mechanism is vague and unclear, the entire contract may be struck down for uncertainty.
The final basic constituent of a contract is that there must be an intention on the part of both (or all) parties to create legal relations. This is generally self-evident for business relationships but even here, there are traps for the unwary. For example, what happens if a client asks for informal advice? The lawyer can only answer, “It all depends.”
In general terms, only the parties to a contract will be bound by the terms of the contract. This is known as the privity of contract rule. It follows that it is important to identify the parties with precision. In a straightforward professional appointment, there will normally be two parties: the client and the consultant. But who is the client? Suppose that all dealings with the consultant are conducted by or through a project manager or other lead consultant.
Is the consultant’s client intended to be the ultimate client or is it intended to be the other consultant? If the latter then the arrangement is likely to be a sub-consultancy agreement with potentially very different rights and responsibilities from an agreement between ultimate client and consultant.
In any event, is there any doubt as to the nature of the contracting entity? If it is a company and there is a group of associated companies, has the correct company been named? If it is a partnership, is that clear?
FORM OF CONTRACT
As with most contracts, there is ordinarily no requirement for a professional appointment to be in writing but if it is not, the scope for disagreement as to the terms of the contract (or even whether a contract existed) is magnified.
Consultants will commonly use standard forms of contract prepared by the professional bodies such as SE9101 or ME2000. These terms of engagement are comprehensive and will cover most if not all issues that the consultant should have regard to. But the client may, of course, seek to impose its own conditions or, on large projects, bespoke terms may be put forward (generally on a take it or leave it basis). If a non-standard form of contract is used, the important thing is to make sure that key areas are dealt with. These will include but are not necessarily restricted to:
If the proposed fee is anything other than lump sum, is the basis of calculation set out clearly? If the fee is to be paid in stages, are the payment arrangements set out clearly?
Are the services to be provided by the consultant set out clearly and unambiguously? The extent of site services is often a particular bone of contention. What is expected? Engineers are not generally paid to supervise works and should avoid using that term. Terms such as periodic inspection are generally to be preferred.
- Amendments and variations
How is the contract to be varied? If the client imposes design changes, is there a clear method of recalculating the fee?
- Standard of care
The appointment should not provide for any more onerous obligation than to perform the contractual services with due skill and care. In particular, a consultant should be extremely wary of giving any form of warranty of fitness for purpose, which may well not be covered by professional indemnity insurance.
- Limitation of liability
It is desirable to seek to limit liability under the appointment, both to a specified monetary sum and by reference to the type of losses that may be claimed, for example to exclude liability for certain types of consequential loss. The courts take a restrictive view of limitation clauses which are considered to be a type of exclusion clause. For example, it is necessary to use very clear words in order to exclude or limit liability for negligence. If there is any ambiguity, the ambiguity is likely to be construed against the party that drafted the clause (the contra proferentem rule).
The amount of any limitation of liability should be considered in conjunction with the consultant’s limit of indemnity under its professional indemnity insurance. Clearly, the limitation of liability should be no more than the amount of insurance cover and there will often be good reasons for seeking to impose a lower limit.
A particular type of limitation clause found in professional appointments is a net contribution clause by which the consultant seeks to limit its liability to that proportion for which it is fairly responsible on the assumption that other parties who are jointly responsible pay their proportionate share. This is intended to avoid the inequity (for defendants) which arises as a result of joint and several liability rules where one of two or more parties may be held responsible for the entirety of a loss even though its degree of culpability may be low.
How is the contract to be terminated and is there (or should there be) provision for suspension? It is impossible to provide for all possible future circumstances but, as a minimum, an appointment should provide for suspension and / or termination in the event of non-payment of the fee or insolvency of the other party.
- Law and jurisdiction
Is the contract to be subject to Irish law and the jurisdiction of the Irish courts? If both parties are based in Ireland there is unlikely to be any issue but what if one of the parties is foreign (‘foreign’ of course including the United Kingdom)? Each party is likely to want its own law to apply and for its own courts to have jurisdiction. Disputes over jurisdiction and choice of law can be avoided by including appropriate law and jurisdiction clauses.
If a dispute arises, how is it to be resolved? The default position is that the courts will have jurisdiction to hear any dispute under the contract but it may be preferable for the parties to agree an alternative mechanism. The parties may prefer to provide for arbitration (which is private) and / or more informal arrangements for dispute resolution such as mediation or conciliation. The new Construction Contract Acts 2013 (which will be the subject of a future article) will provide for statutory adjudication.
INCORPORATION OF TERMS OF CONTRACT
Everything that we have said so far points to the desirability of having a written contract which is signed by both parties. That is counsel of perfection but standard terms may none the less apply by incorporation even in the absence of a signed contract. If, for example, the consultant says in writing that SE 9101 terms of engagement are to apply, that may be sufficient to incorporate those terms by reference.
That is far more likely to be the case if a copy of the standard contract form has been provided to the client or the consultant can point to a previous course of dealing such that there can be no doubt that the client has seen and is aware of the nature of those standard terms. At the other extreme, if the client is a private client and the project is a one-off house extension, the client could not be expected to be aware of standard terms of professional appointments and it is highly unlikely that a court would accept that those terms were incorporated by reference.
If work is carried out but there has been no agreement on fundamental terms such that there is no contract between the parties, it does not follow that the consultant has no entitlement to be paid. In these circumstances, he is likely to be entitled to what is known as a quantum meruit. Essentially, he is entitled to a fair rate for the job. Needless to say, what is a fair rate is itself likely to be the subject of a dispute.
A written and signed contract is both the consultant’s sword and his shield in the event of dispute. No signed contract equals uncertainty which equals a threat to the bottom line!
Beale and Company is a law firm that specialises in advising construction professionals. For further information, please contact Stephen Chessher at (01) 775 9505 email: firstname.lastname@example.org or Fiona Mackey at (01) 775 9505 email email@example.com.
Stephen Chessher advises construction and other professional consultants working in Ireland and the UK on professional appointments, collateral warranties and other contractual issues. In his professional negligence practice. he acts for architects, engineers, surveyors and valuers, financial institutions, insurance brokers, solicitors and accountants and he has particular expertise in matters involving suspected fraud, insolvency and regulatory issues both in Ireland and the UK. He also advises Irish, London Market and international insurers, brokers and loss adjusters on coverage issues and disputes including policy avoidance and where necessary conducts mediations and arbitrations in Ireland and London.
Fiona Mackey is admitted as a solicitor in Ireland and England and Wales. She joined the Dublin office of Beale and Company in 2009. Her area of speciality is professional indemnity defence litigation. She acts for engineers, architects, solicitors, brokers, law searchers and their professional indemnity insurers. She also advises on complex policy disputes and alternative dispute resolution procedures, including mediation and arbitration.http://www.engineersjournal.ie/2013/11/28/contracts-for-engineers-thoughts-on-professional-appointments/http://www.engineersjournal.ie/wp-content/uploads/2013/11/Contract-1-1024x735.jpghttp://www.engineersjournal.ie/wp-content/uploads/2013/11/Contract-1-300x300.jpgCivilconstruction,contracts,tender