One of the often overlooked and underrecognized issues that leads to or exacerbates disputes on construction contracts is poor contract administration and/or a failure by the Client to hold the Contract Administrator to account. I mean it can’t always be the Contractor’s fault, can it? This article explains the role of the Contract Administrator, what the key cases say and why Clients need to hold their representatives accountable.
Role of Contract Administrator
The Contract Administrator is a key role on most construction contracts, while the label changes depending on the contract (Architect, Engineer, Project Manager, Employer’s Represent are all in common use), the responsibilities are broadly similar, and include:
What does the case law say?
This role requires a bit of balance, the Contract Administrator is required to act fairly, at the very least when performing assessments. Sutcliffe v Thackrah (1974) confirmed the importance of this independence and those performing these roles must act impartially, exercising honesty and fairness and not allow themselves to be unduly influenced by the Client. Breaches of this obligation and the adoption of unreasonable positions by Administrators are a fertile ground for disputes.
Interestingly, following Pacific Associates v Baxter (1990), should the Contract Administrator fail in this obligation, it will be the Client who is liable to the Contractor, as the Contractor has no contract with the Administrator. So, Clients need to be aware that they may be liable for the Administrator’s breaches of contract and ensure they are able to recover any losses in their contract with the Administrator in question.
Boiling it down
What the case law makes clear is that the Contract Administrator should act impartially in the interest of the project and not just in the interests of the Client, these are not necessarily mutually exclusive.
Taking the current climate of procurement struggles and increasing material costs, a good Contract Administrator should be adopting a practical approach. There is little to gain from adopting a hard-line approach knowing that the 20% increases we are currently experiencing may create financial hardship for the Contractor, even if the contract allows for it. Taking a pound of flesh from the Contractor is unlikely to be the best approach and will deteriorate good working relationships, and may bankrupt the Contractor, resulting in a new procurement with a higher price. Not to mention the delay and additional associated costs becoming unrecoverable. Those adopting a hard-line approach may face awkward conversations once the dust settles. Instead, it may be more appropriate to take a proactive approach such as finding and accepting cheaper alternative materials, in recognition that completing the project without interruption is best for all involved.
Cashflow
Administrators are generally responsible for assessing and certifying payment applications and claims. In this industry, cashflow is king, and these aspects of the role should not be allowed to be impacted or delayed by the Client. The Administrator should recognise that part of this role is to ensure that the Contractor gets paid on time, this is just as important as ensuring that the Client gets value for money. In the current climate, late payments could be a death sentence. Administrators should make sure they carry out these responsibilities in accordance with the timeframes set out in the contract, and Clients should be aware of the potential consequences and the Client’s liability should this not occur.
The Two Hat Problem
Generally, we don’t recommend using the Designer as the Administrator unless there is specialist knowledge or other saving made due to the possible conflict of interest. We are involved in some disputes that are complicated by the Administrator’s underassessment of claims for which they might ultimately be liable to the Client for. In fact, we have dealt with, on occasion, the odd scenario of an Administrator assessing their own claim for delay against the Client, which the Client has passed on the contract. In those circumstances the vested interested can make impartiality difficult.
Holding the PM accountable
The underlying point is that the appointment of an Administrator is not a “set and forget” scenario. Clients must be actively involved in the project, and Administrators should facilitate this by ensuring that Clients know and understand how the work is progressing and what choices may need to be made. As a Client, if your Administrator is constantly “contractor bashing” and all you receive is invoices rather than consistent communication – then it is time to review what that Administrator is doing for you. Afterall, you’re paying for it.
What can Quigg Golden do for you?
The contractual issues on any project can place a burden on the resources of those involved. We can use our expertise and knowledge to deal with many of these contractual issues without detracting from our clients’ resources. Quigg Golden provides project management services for clients on projects where our diverse experience and skills provide cost effective solutions. We frequently lead project teams for clients, providing focus and clarity with the ability to identify potential problems and resolve them promptly and efficiently. We have developed a particular specialism in acting as Project Manager under the NEC.
As always, do not hesitate to contact us.
Published 20 February 2024
