Expert Views - Contract Engagement Risk Void

"In most cases the terms of engagement relating to the Contract Administrator/Project Manager and Fund Monitoring Surveyor expose the developer/employer and funding parties to contractor’s claims and potentially 10 to 20%, and more, additional liability".

An open invitation to make a claim

Most engagement models include provisions for additional cost and/or loss and expense claims and extensions to delivery dates. Even if the engagement model does not contain such provisions, other rights not expressly stated in the terms and conditions may subsist in specific jurisdictions such as inflation costs and damages etc which may relate to acceleration, prolongation or disruption costs. As such on most development projects contractor’s claims may increase the development cost by 10 to 20% and more. Regardless as to the actual additional cost further hidden costs are also incurred surrounding management and staff time in processing and dealing with any submitted claim.

The risk void within the terms of engagement

It is common for the terms of engagement relating to a fund monitor to include commentary on such matters as, what building contract is being used, amendments and suitability, procurement route, insurances, bonds and guarantees, consultant appointments, fee levels, collateral warranties, construction costs, programme cash flow and general arising issues. The fund monitor is not charged with ensuring that all contract correspondence, reporting systems and appropriate records are in place to either rebut any claims made by the contractor or at least enable an appropriate evaluation of any reasonable liability and how that liability has arisen. The additional liability may arise

Further, the terms and conditions that relate to the appointment of a contract administrator/project manager are likely to include such matters as; general contract administration including the management of the interface between all parties, delivery of the project, certification of valuations and instructions for additional works, conducting site meetings and client reports etc.

The terms and conditions are also likely to exclude the administration of claims because of the uncertainty surrounding resource requirements, timing and cost.

As such the same scenario subsists as with the terms and conditions of a fund monitor in that the contract administrator/project manager is not charged with ensuring that all contract correspondence, reporting systems and appropriate records are in place to rebut or appropriately evaluate any liability that may arise in respect of contractors claims until such time that the contract administrator/project manager is instructed to do so at some later time.

Furthermore, it is also likely that the contract administrator/project manager will not be charged with setting and implementing any appropriate dispute avoidance or dispute resolution strategy.

Plug the contract risk void

Until such time that the contract risk void is plugged and someone is charged with setting and implementing dispute avoidance and dispute resolution strategies, including ensuring that all contract correspondence, reporting systems and appropriate records are in place, both the developer/employer and funding parties will be at risk surrounding additional liability and costs of 10 to 20%, and more, on all projects and hidden costs of management and staff time in retrospectively dealing with contractors claims.

What is more is that the developer/employer and funding parties will have no idea whatsoever as to why the potential additional cost liability has arisen and therefore will possibly lose the opportunity to offset the additional liability and cost against an offending consultant.