Under most construction contracts, the contractor takes on the ground conditions risk. However, a recent case has demonstrated that the risk can fall on the employer.
Sadly, today the climate is such that there is no guarantee that a contractor will have the ability to pay. In those circumstances clients need to be asking themselves the question: ‘Could this have been avoided if the consultant team had handled the situation differently?’ The question is an important one for any client or consultant to ask but it is particularly important for an SME client or a publicly funded body, who no doubt will be working to very tight budgets and time constraints.
Let me give you a recent example of a case that we handled. They were constructing a building as part of their regeneration plan for the region. They had appointed a reputable team of Project and Cost Managers, with wide ranging duties to manage the project. The professionals devised a two stage procurement process; stage one was designed to get the contractor on board early, to be part of the process to finalise the design and to introduce cost certainty before the client proceeded to stage two – the main works. Time and cost were, as you would expect, very important to the client, not least because of external funding deadlines.
The contractor did not perform from an early stage and the situation went from bad to worse. When we came on the scene to advise, the client was in a very difficult situation:
- There was no cost certainty.
- The contractor was on site under letters of intent and refusing to let key packages until they had a signed contract.
- Supervision was poor with serious concerns over the quality of work.
And yes - you’ve guessed it, the contractor ended up going into administration leaving the client with a huge bill to get a replacement contractor in to remedy the serious defects and to complete the works.
‘Bad luck on the client’? Well yes, but bad luck on the consultants too. They should have:
- given early warnings to the client, whatever the pressure to proceed with the project;
- told the client before the stage two works commenced that it was unwise to begin building until the design had been finalised, costs had been ascertained and a contract had been entered into;
- set out clearly the risks involved in not following such advice.
However, they did not do so and did not blow the whistle until it was far too late.
In this case settlement was reached between the consultants and the client at mediation, a reminder that when things do go wrong they don’t necessarily need to end up being decided by a Court. Suffice it to say, this was an expensive exercise for the consultants’ professional indemnity insurers!
This is a salutary lesson for SME consultants doing everything they can to please their clients. Whatever the pressures, they will be under a duty to give early warnings of risks facing clients as construction projects proceed. Greater control is required now than ever in the construction process, as mistakes made by contractors may not be capable of remedy later.
For more information
Contact Andrew Lancaster on email@example.com or 0121 212 7421 if you'd like to know more.
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