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Ask the team: could paying the contract administrator a percentage fee damage its independence?

A subscriber recently asked whether, if the employer under a building contract paid its contract administrator a percentage of the contract sum, that might affect the professional consultant’s duty to act independently and impartially.

This Ask the team considers some of the practical and legal questions involved, and suggests ways of avoiding the issue.

Practical issues

Looking at the question pragmatically:

  • Based on non-scientific soundings of colleagues, experience suggests that the vast majority of construction professionals who find themselves in a position where they have to act impartially or independently always aim to do so.
  • One of the tensions they almost always experience in practice is that they are required to be independent and impartial between the person who pays them (the employer) and the contractor (whom the employer is also paying).
  • If the professional consultant is paid a percentage fee (related to the contract sum) then there must be an added pressure, in the sense that a consultant who “allows” an increase in the contract sum will realise that this may increase its fee payments too.
  • Although formal “scale fees” for many professional consultants are a thing of the past, many consultants ask to be paid a percentage fee, and such arrangements remain commonplace on some projects.

Legal factors

Looking at the question from a more legal footing:

  • An architect or contract administrator has an implied duty to act impartially when certifying (formally deciding questions) between the client and the building contract (Sutcliffe v Thackrah [1974] AC 727). This means acting independently, honestly, fairly and without bias. The professional consultant may also have a duty to act impartially by virtue of the standards of conduct demanded by its governing professional institution.
  • The courts have given guidance on what it means to be biased. In Re Medicaments, Lord Phillips said that bias is:

    “an attitude of mind which prevents the judge from making an objective determination of the issues he has to resolve.”

    If a contract administrator has maximising its fees in mind, that could prevent it making an objective determination.

  • In Costain Ltd v Bechtel Ltd, Jackson J considered a contract based on NEC terms (rather than JCT terms) and similarly concluded, albeit in judgment on an interim application, that the principles of Sutcliffe applied to the project manager’s exercise of discretion and that it was required to act impartially.
  • The contract administrator’s own professional appointment may also require it to act impartially. For example, the parties may use PLC’s form of appointment to require a consultant to “act fairly and impartially when exercising any power to issue certificates and award extensions of time under the Building Contract”.

Conclusion

Taking all this together, by itself, a percentage fee should not affect or damage a contract administrator’s impartiality. However:

  • There is always scope for an unscrupulous contract administrator to abuse its position. A client can address this by choosing a reputable and well-referenced professional consultant. Selecting a consultant who is a member of a professional institution with its own standards of conduct provides additional comfort.
  • Many clients choose to appoint professional consultants, if possible and appropriate, on alternative fee bases such as on a fixed fee or time-charge basis. That may be an attractive option for many reasons and it avoids the question of whether a percentage fee has influenced the certifier.
  • If you do find yourself in a situation where you fear that a professional consultant’s judgement has been clouded by a desire to increase its percentage fee, you must marshal your evidence carefully. A court or adjudicator will probably need expert evidence to judge whether such an allegation is made out.

3 thoughts on “Ask the team: could paying the contract administrator a percentage fee damage its independence?

  1. This seems to tie in very closely with the issue of whether contingency fees are appropriate for those professionals engaged in the role of expert witness. The courts have clearly stated that they are not – not because the expert will be influenced but because “the purity of justice will be sullied”.

    See the case law governing the responsibilities and duties of an expert in judicial proceedings (in particular the Ikarian Reefer [1993] 2 LL Rep 68, Cresswell J; Anglo Group Plc v Winther Brown & Co and others [2000] All ER (D) 294, Toulmin J).

    In short it would seem that such payment arrangements are by anaology wholly inappropriate.

  2. Is there a risk of this falling foul of s110(1A) HGCRA 1996? Paying the CA a percentage of the contract sum effectively means his fee cannot be fully calculated until the contract sum has been finalised, so it’s similar to a ‘pay-when-certified’ scenario.

  3. That risk must exist, but typically the professional appointment calls for payment:
    – against the expected/anticipated/estimated contract sum; or
    – of agreed sums against agreed milestones,
    with a final balancing payment (if any) when the contract sum is known or is found to be different to that expected.

    If making a payment is “conditional” on knowing the final contract sum, that risk must exist, but I think most fee schedules require payment, even if the contract sum is not finalised. (This may be one reason why a percentage fee can be less attractive to a client.)

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