Who’s next in the firing line?

When construction disputes arise, it is quite common for a client to assert that the contractor has been paid too much.  Sometimes the client is right.  But how does he get his money back?

The familiar JCT valuation rules say that payments are to include the total value of work “properly executed”.  Often the overvaluation claim will be based upon an allegation that the valuation wrongly included defective work, which by definition is not “properly executed”.  

The client’s most obvious route to recovery of the overpayment is to have the situation rectified in the next payment or to ask an adjudicator, arbitrator or court to review and revise the relevant payment certificate.  But what happens if the contractor is unable to make repayment?  In that case no amount of reviewing and revising will get the client’s cash back for him.

If the contractor cannot repay, who is liable for the client’s loss?  Is it the quantity surveyor who carried out the valuation or the architect who certified the payment?

These issues were addressed earlier this month in the decision of Mr Justice Coulson in Dhamija v Sunningdale Joineries, Lewendowski Wlilcox and McBains Cooper. The three defendants were, respectively: the contractor, the architect and the quantity surveyor.  

The quantity surveyor applied to strike out the claim against him on the basis that quality issues were for the architect to deal with.  He argued that the quantity surveyor was only required omit defective work from a valuation when the architect notified him that there were such defects.  

Previous authority points a finger at the architect.  In Sutcliffe v Chippendale & Edmondson (1971) 18 BLR 149, the court said “the architect … should first satisfy himself as to the acceptable quality of the work, before requiring his employer by way of certificate to make payment for it, and in particular should keep the quantity surveyor continually informed of any defective or improperly executed work which he has observed”

In Dhamija, matters were not helped by the fact that that the quantity surveyor had no written appointment.  The court rejected the argument that their appointment included an implied term that the quantity surveyor would “only value work that had been properly executed by the contractor and was not obviously defective”.  The court held that the term to be implied was a rather less onerous duty to act with the reasonable skill and care of quantity surveyors of ordinary competence and experience when valuing works properly executed for the purposes of interim certificates. 

On the facts, the judge decided not to strike out the claim against the quantity surveyors but was doubtful of the claimants’ ability to prove a breach of the skill and care based duty. 

What does all of this tell us? 

First, quality is primarily the domain of the architect.  He should make sure that he has systems in place for notifying the quantity surveyor of defective work which should be excluded from valuations.
 
Secondly, the quantity surveyor should be mindful of his duty of skill and care.  If he sees things that he should recognise as defective but nonetheless includes them in his valuations, he could still find himself footing the bill for the contractor’s errors. 

Thirdly, it is important that a proper written appointment is put in place, paying particularly careful regard to the scope of what the professional is engaged to do and, equally importantly, what he is not engaged to do.  The industry in general remains very lax in getting contracts in place in good time and many professionals have still not grasped the importance of making sure that the scope of their obligations is defined clearly and in detail.

Finally, in these difficult economic times, clients should take appropriate security in the form of bonds and/or guarantees to give an additional line of recourse in the event that their contractor is unable to meet a claim from his own resources.
 
Dhamija addresses a traditional procurement structure with a quantity surveyor and architect dealing with valuation and certification.  In many cases a different structure will be used, particularly these days, design and build.  In this case, the JCT form assigns the valuation and payment administration duties to the client.  Normally, he will discharge those duties through the ‘Employer’s Agent’.  The client will need to be sure that the appointment of the Employer’s Agent places responsibility for proper valuation, identification of defective work and payment recommendations with the Employer’s Agent.

Mark Clinton

Head of Construction at

Thomas Eggar LLP