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Ask the Team: Does a contract administrator owe a duty of care to a contractor?

PLC Construction recently received an enquiry asking whether a contract administrator owes a contractor a common law duty of care.

This question is particularly relevant in the current economic crisis. More and more contractors are faced with an insolvent employer and are asking whether they can recover their losses from third parties, such as a contract administrator.

For the purposes of this question, the term “contract administrator” includes any professional consultant engaged to administer a building contract. Sometimes this role is described by another name, such as architect, engineer, employer’s agent or project manager.

Implied duty to act impartially

The law has long recognised that some of a contract administrator’s tasks during a project require it to act fairly when deciding matters between the employer and the contractor. This was underlined in Sutcliffe v Thackrah [1974] AC 727, where the House of Lords acknowledged that a professional consultant had an implied duty to act impartially when deciding questions between its client and the contractor. This means acting independently, honestly, fairly and without bias.

However, Sutcliffe v Thackrah was a claim by an employer against a contract administrator (in that case, an architect). It did not decide the contract administrator’s liability to the contractor.

No duty of care in negligence

Historically, commentators widely believed that a contract administrator did owe a duty of care to a contractor. However, the Court of Appeal rejected that proposition in Pacific Associates v Baxter [1988] 44 BLR 33, where it held that an engineer did not owe a contractor a duty of care in negligence when certifying payment. While this case is controversial, it is the leading authority on this area of the law.

The decision in Pacific Associates has been criticised by some commentators, who suggest that it was based on its own facts and would not be followed today. The Court of Appeal itself acknowledged this, saying that each case turned on its own facts and the role of the contract administrator in a particular project. This may open the door for Pacific Associates to be distinguished in future cases. Despite this, the courts have followed Pacific Associates. For example, in Leon Engineering & Construction Co Ltd v KA DUK Investment Co Ltd (1989) 47 BLR 139, the court dismissed a contractor’s application to make the contract administrator a second defendant to proceedings.

In a tortious claim by a contractor against a contract administrator, the contractor is almost always claiming damages for pure economic loss. This is a complex area that underlies much of the reasoning in cases such as Pacific Associates. The TCC recently provided construction-specific guidance on claiming economic loss in its judgment in Galliford Try Infrastructure Ltd v Mott MacDonald [2008] EWHC 1570 (TCC).

Is there any way around Pacific Associates?

Commentators have suggested that it may be possible to by-pass the Pacific Associates decision by:

However, a claim based on negligent misstatement or third party rights will be impossible in many situations. For example, a building contract usually includes express provisions excluding the Third Party Rights Act.

Deliberate collusion is unacceptable

Regardless of the decision in Pacific Associates, a court is likely to view a contractor’s claim with sympathy if the employer and contract administrator have colluded together against it. For example, in John Mowlem & Co v Eagle Star Insurance & Others [1992] 62 BLR 126, the court considered the possibility of a certifier being liable under the tort of inducing breach of contract.

While this offers some comfort to a contractor, it is of limited value. Proving bad faith, fraud or collusion between an employer and contract administrator is a difficult task, and one that rarely succeeds in practice.

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