Shot by both sides: Collateral warranties for project managers

Project managers are a brave bunch. Call yourself a “project manager” and you seemingly set yourself up to be blamed for just about anything that can go wrong on a construction contract. To undertake the role on an NEC project is especially dangerous – there are no fewer than 91 express duties for the project manager in NEC3.

If the job overruns, the employer will, of course, blame the contractor and claim delay damages – but why didn’t the project manager see the problem coming and initiate reprogramming and acceleration? The contractor’s design turns out to be defective. The employer may have a good claim against it – but why did the project manager accept the design in the first place? And if the project manager accepts an excessive quotation for a compensation event, the employer will be after them for that as well.

Project managers often fail to realise the extent of the responsibility they take on. Quantity surveyor project managers have been held responsible for checking design and supervising workmanship, for example, which was absolutely not what they thought they were supposed to do. They have been held liable for failing to check insurance arrangements and advise their client on gaps in cover, even if they had no insurance expertise. It has also been held that an employer’s failure to sue another member of the professional team in time, so the action becomes statute barred, is the project manager’s fault.

Traditionally, project managers have taken comfort from knowing that at least all the arrows have been coming from the same direction. If they get something wrong, the contractor may moan a bit, but it has to make its claim against the employer for an extension of time or extra money. Project managers may face a claim from the employer, but they will not have to face a claim from the contractor, because there is no direct duty of care.

This can be a little frustrating for the contractor. If the project manager is responsible for certifying extensions of time, and fails to do so, the employer will deduct liquidated damages for any delay. The contractor will then bring a claim against the employer to recover them. That’s all fine, unless, of course, the employer goes bust, when the contractor would like to make a claim against the project manager, but normally cannot.

PFI projects are different. The procuring authority, the special purpose vehicle and the bank that is providing the finance all rely on consistent certification of things such as practical completion and rectification of defects. It has become standard practice for the certifier, often a construction consultant, to be appointed jointly by all three. That way, the certifier owes a contractual duty of care to them all.

Traditionally, project managers have taken comfort from knowing that at least all the arrows have been coming from the same direction

There is no logical reason why contractors should not require similar arrangements in more conventional construction projects, and increasingly they are doing so. The certifier will probably be the project manager who is likely to have been appointed some time before the contractor’s tender is accepted.

By the time the contractor knows it has got the job, it is too late to be a party to the project manager’s appointment. But it can require a collateral warranty from the project manager, offering the assurance that it will carry out its duties under the construction contract with reasonable skill and care.

If the project manager fails to certify an extension of time when one is due, or fails to value the works properly, or wrongly states that work is defective and requires it to be done again, or refuses to certify practical completion, the contractor can still argue the case against the employer. If the employer becomes insolvent, the contractor can use the collateral warranty to claim from the project manager, which will no doubt try to pass the claim on to its insurer. Whether or not the insurer pays depends on the terms of the insurance policy.

Project managers that give such warranties to contractors can expect unpleasant pressure at all stages. Applications for valuations will be accompanied by an implicit threat – certify what we want or face a claim. For this reason employers are advised to resist requests by contractors for their project managers to give warranties, but the number of such requests is increasing, particularly on large projects, and some of them are getting through.

John Redmond is head of construction at Osbourne Clarke