Footing the bill

William Clark Partnership was employed to undertake QS and project management services for a developer called Dock Street in respect of a site which included a new build primary health care centre. Not only did the project run £730,000 over budget but William Clark and the developer had a serious falling out. Dock Street refused to pay the consultant’s final fee instalment, arguing that the service provided was inadequate and that its mistakes had contributed to the cost overrun. William Clark sued for its fees and the case ended up being heard in the Technology and Construction Court last year. For case report, see William Clark Partnership Ltd vs Dock St PCT Ltd in the TCC.

One of the developer’s gripes was that the consultant had instructed unnecessary and costly variations which had pushed the scheme over budget. For example, the original plan had involved an external paved courtyard which was then changed part way through the project to introduce a “boulder and decorative stone design”. The developer identified seven such changes to the scope, costing in total an extra £215,000, which it argued were unnecessary and had provided no increased value or benefit for the development. It claimed the right to deduct the cost of all these items of work from the fees otherwise due to the consultant.

The court judgment analysed, in turn, each of the seven variations and concluded that the consultant could not be blamed for some of them. In particular, some of the variations were only required because the original scope was inadequate, such that the changes implemented were unavoidable. However, the court found that some of the changes, including the external landscaping, were unnecessary and because the budget was tight, the consultant should not have instructed them. The developer remained liable for part of the consultant’s final fee but subject to a substantial reduction because of these “unnecessary” variations.

The case is a timely reminder that consultants can be liable for the cost of the variations they instruct. In particular, attention needs to be paid to the appointment with the client and what it says about the consultant’s authority to instruct changes and obtain prior approval.

The case is a timely reminder that consultants can be liable for the cost of the variations they instruct

Most construction contracts will give the consultant a very wide power, as the named contract administrator, to instruct any type of additional work, with practically no proviso or limitation. In this role the consultant acts as the commercial agent of the employer and has extensive powers to bind the employer to pay the contractor additional money for extra work. The variation mechanism under a construction contract operates such that the contractor can rely on the consultant’s instruction without having to worry about getting authorisation direct from the employer. The contractor will therefore always have a right to be paid for the instructed change even if the employer knows nothing about the variation.

Precisely because the consultant has this largely unfettered power to bind the employer to pay for variations means it needs to be exercised with extreme caution.

While the variation power under the construction contract will typically contain very few provisos, the consultant’s own appointment with the employer will often place very strict limits on its discretion to instruct changes. For example, the RICS Standard Form of Consultant’s Appointment, clause 11, states that the consultant may not change the scope unless it has the prior written approval of the employer. If the consultant fails to get such approval it will be in breach of contract, potentially making itself liable for the cost of the additional, unapproved, work.

Consultants need to act with utmost caution because they will be in day-to-day email exchanges with the contractor concerning the ongoing project and the details of the scope. Any such email could amount to a variation instruction authorising a variation under the contract. After all, most construction contracts do not impose rigorous formal procedures for instructing change. Provided that the communication directing the change to the scope is “in writing” then a contract variation will have been instructed and the employer will be liable to pay the contractor.

If the consultant’s appointment is anything like the RICS standard form then unless the employer has given prior written consent, the consultant could well end up on the hook for the cost.

Michael Sergeant is a partner in the construction team at Holman Fenwick Willan and the co-author of Construction Contract Variations