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for liquidated damages and the existence of such a contract would have been of a material benefit to the college in its dispute with the contractor when completion of the works was delayed.
Second, the quantity surveyor typically prepares interim valuations of work done, which are used by the architect to prepare interim payment certificates. In preparing such valuations, the quantity surveyor’s duty is limited to issues of quantity and does not extend to issues of quality. In Dhamija v Sunningdale Joineries Limited and Others30 the court refused to imply a positive obligation on the quantity surveyor not to value works that were obviously defective. In the absence of any evidence to the contrary, a quantity surveyor does not have a duty to examine the quality of works. It remains the architect’s duty to ensure that work valued by the quantity surveyor was free of defects and to notify the quantity surveyor of any defects that might affect the valuation of the works.
18.2CONTRACT ADMINISTRATOR AS INDEPENDENT CERTIFIER
As mentioned at the beginning of this Chapter, a contract administrator has a significant part to play in exercising judgement and reaching decisions on various matters under the contract. In so doing the contract administrator acts, not as the agent of the employer, but as an independent professional.
18.2.1Certification
The most important aspect of these decision-making powers relates to the issue of certificates. These have been defined by Wallace (1995), in a definition approved by the Court of Appeal,31 as the expression in a definite form of the exercise of the judgement, opinion or skill of the engineer, architect or surveyor in relation to some matter provided for by the terms of the contract. However, this does not mean that every expression of opinion or decision given by the contract administrator will amount to a certificate. It will only be a certificate if it is so described in the contract, or can be so treated by implication.
The general law of building contracts does not require a certificate to be given in any particular form. Indeed, it may be given orally unless the contract provides otherwise. Interestingly, neither JCT SBC 11 nor ICC 11 specifically states that certificates are to be issued in writing. However, since both forms of contract require certificates to be sent to the employer, with a ‘copy’ to the contractor, the assumption is clearly that they are to be issued in writing.
Types of certificate
There are three main types of certificate found in construction contracts:
30[2010] EWHC 2396.
31Token Construction Co Ltd v Charlton Estates Ltd (1973) 1 BLR 50.
Role of the contract administrator 295
1.Interim certificates. These are issued at intervals as the work proceeds, and their issue entitles the contractor to be paid a certain proportion of the contract price. Under JCT SBC 11 clause 4.9.2, the period between interim certificates is whatever is stated in the contract particulars. If none is stated then it is one month, which is the usual period. As mentioned in Section 15.1.2, the regular flow of cash can be critical to a contractor’s survival. The amount to be included in an interim certificate under JCT SBC 11 should cover the value of work done and materials delivered to date, plus the value of certain off-site materials. The contract places the responsibility for carrying out interim valuations upon the quantity surveyor. However, it is important to note that the QS should not do more than merely carry out the valuations; it is for the contract administrator to calculate what is due and to issue the interim certificates.
2.Final certificates. The final certificate can signify the contract administrator’s satisfaction with the work, or the amount that is finally due to the contractor, or both of these things. The extent of its effect depends on the terms of the contract, but under JCT SBC 11 it clearly applies to both these issues. Under clause 4.15, the obligation is in general to issue the final certificate within two months of the end of the rectification period. In practice, it usually takes much longer than this to issue final certificates (Latham 1994). Indeed, on some projects final certificates are only issued years after completion, rather than months (Hughes 1989). There are three potential reasons for this situation. First, the last portion of the retention may be too small to worry a contractor, especially if the employer has deducted some part for any reason. Second, consultants may find that other projects, at earlier stages in their development, are more lucrative than those that can yield only the final part of the fee account. Third, on issuing the final certificate, the project will be covered by the consultant’s professional indemnity insurance, and the premium may have to change to reflect this.
3.Certificates recording an event. In addition to confirming that a sum of money is due to the contractor, certificates may be needed to confirm that a certain event has occurred (or has not occurred). The use of this kind of certificate varies from one form of contract to another, but a good example of their use and importance may be drawn from JCT SBC 11, where the contract administrator is required to issue the following certificates:
Non-Completion Certificate. Issued under clause 2.31, this records the contractor’s failure to complete the works by the completion date. It triggers the contractor’s liability to pay liquidated damages.
Practical Completion Certificate. Issued under clause 2.30, this records the contract administrator’s opinion that practical completion of the works has been achieved. The contractor’s liability for liquidated damages ceases, half the retention money is released and the Rectification Period begins.
Certificate of Making Good. Issued under clause 2.39, this records the contract administrator’s opinion that defects appearing within the defects liability period and notified to the contractor have been duly made good. The contractor is then entitled to the remainder of the retention money.
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Duties as certifier or decision-maker
In many forms of building contract, a professional person retained by the employer, and sometimes a professional person directly employed by the employer, is allocated decision-making functions. The decisions which such a person makes are often required to be in the form of certificates, but this is not always so. For example, there are many contracts (and, particularly, sub-contracts) in which extensions of time do not take the form of certificates.
The starting point from the authorities concerning the position of the decisionmaker is that the precise role and duties of the decision-maker will be determined by the terms of the contract under which he or she is required to act. Generally the decision-maker is not, and cannot be regarded as, independent of the employer. But when performing a decision-making function, the decision-maker is required to act in a manner which has variously been described as independent, impartial, fair and honest. These concepts are overlapping but not synonymous.
Where a decision has to be made which affects the amount that the contractor will be paid, the architect must act in a fair and unbiased manner, reaching decisions fairly. In issuing certificates, an architect must act fairly and impartially between employer and contractor.32 While this has been confirmed in a number of decisions involving architects preparing valuations, it is now clear that a quantity surveyor preparing an interim valuation of work done is under a similar duty.33
An engineer’s decision under clause 66 of the ICE form is susceptible to review by an arbitrator and so the engineer is in the conventional position of a certifier. The duty is to make decisions independently and honestly. There are no additional duties deriving from the label ‘quasi-arbitrator’. The engineer is obliged to retain independence in exercising judgement, but, unless the contract so provides, there is no need not go further and observe rules of natural justice. There will be circumstances in which an engineer, using personal knowledge of the course of the contract and its progress and incidence, can properly make a decision under clause 66 on request from one of the parties without formal reference to the other. There will be other occasions when the engineer needs information from one or both of the parties. If an engineer entertains representations from one party over and above those inherent in making the request for a decision in the first place, fairness may require him/her to invite representations from the other party. This is not a straightjacket requirement in all circumstances, since the engineer may be well aware of what the other party’s position is.34
For a project manager under the NEC3 ECC form, when assessing sums payable to the contractor, the duty is to act impartially between employer and contractor and not (as might have been thought) as an agent of the employer.35
As to the duties of a construction manager, in relation to the decision-making function, the duty is not simply to implement the instructions of the principal, but rather to hold the balance fairly as between employer and contractor. This principle applies also to a construction manager. The fact that the CM acts in conjunction
32Sutcliffe v Thackrah [1974] AC 727.
33Dhamija v Sunningdale Joineries Ltd [2010] EWHC 2396.
34Amec Civil Engineering Ltd v Secretary of State for Transport [2005] EWCA Civ 291.
35Costain Ltd & Ors v Bechtel Ltd & Anor [2005] EWHC 1018 (TCC).
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with other professionals when performing a decision-making function (because some certificates are signed by both the CM and architect) does not water down this legal duty. When performing that function, it is the CM’s duty to act in a manner which is independent, impartial, fair and honest. In other words, the CM must use professional skills and best endeavours to reach the right decision, as opposed to a decision which simply favours the interests of the employer.36
Conclusiveness of certificates
One of the most important issues concerning certification in building contracts is whether a certificate is legally binding upon the parties as to what it certifies. This question of conclusiveness depends upon the terms of the particular contract, but it would be extremely unusual to find any certificate except the final certificate treated in this way. JCT SBC 11, for example, makes it clear in clause 1.10 that nothing in any other certificate is conclusive evidence that work or materials are in accordance with the contract. This means that it is open to the employer to show that, despite the certificate, the contractor is not entitled to payment. It also means that any interim certificate can be corrected by the contract administrator when the next interim certificate is issued.
As mentioned, the issue of conclusiveness arises in practice only in relation to final certificates. The first point to make about this is that any contract clause that permits an arbitrator or adjudicator to ‘open up, review and revise any certificate’ inevitably destroys the conclusiveness of the certificate, at least to that extent. However, the limits of such clauses may be tightly drawn. In JCT SBC 11, for example, clause 1.9 states that the final certificate is ‘conclusive evidence’ in adjudication, arbitration or legal proceedings of certain matters, except where those proceedings have already commenced before the final certificate is issued, or are commenced within 28 days thereafter.
The matters on which the final certificate is ‘conclusive evidence’ are as follows (JCT SBC 11 clause 1.9.1):
1.That where the quality of materials or the standard of workmanship are expressly required to be to the reasonable satisfaction of the contract administrator, they are to his or her satisfaction.
2.That all appropriate additions and deductions have been made to the contract sum (though clerical or arithmetical errors can still be corrected).
3.That all extensions of time are correct.
4.That all the contractor’s money claims have been properly accounted for.
As to the first of these matters, the Court of Appeal in Crown Estate Commissioners v John Mowlem & Co Ltd 37 interpreted the predecessor of clause 1.10 in such a way that, unless proceedings in respect of any defects were commenced within 28 days of the issue of the final certificate, the employer would lose all rights to complain of those defects. This decision was a controversial one, but it has been followed in a case where an architect, having been sued by the
36Scheldebouw BV v St. James Homes (Grosvenor Dock) Ltd (2006) 22 Const LJ 394, [2006] EWHC
89(TCC), 105 Con LR 90, [2006] BLR 113.
37(1994) 70 BLR 1.
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client, sought to hold the contractor partly responsible under the Civil Liability (Contribution) Act 1978. This claim failed, since it was held that the contractor could not have been liable to the client in view of a conclusive final certificate.38
The ruling in Crown Estate Commissioners v Mowlem was a much wider interpretation of clause 30.9 than the Joint Contracts Tribunal had intended, and the matter was duly dealt with by an amendment to JCT 98 which is now adopted by JCT SBC 05. This means that, unless the parties have made it clear that they intend the contract administrator to be the sole judge as to whether or not materials or workmanship comply with the contractual standards, the issue of the final certificate does not bar the employer from subsequently claiming that the contractor is guilty of a breach of contract through defects in the work.
An example of a conclusive final certificate may be found in the Institution of Chemical Engineers Model Form of Conditions of Contract for Process Plants (revised 1981) (the ‘IChemE Red Book’). It has been held that clause 38.5 of that contract makes the issue of the final certificate conclusive evidence that the contractor has completed the works and made good all defects in accordance with his obligations under the contract; the only exception to this is where the issue of the certificate was procured by fraud.39
The JCT Design and Build form (JCT DB 11) makes no provision for a final certificate as such, but provides that agreement on the final account is conclusive evidence that, where it is stated in the employer’s requirements that materials or workmanship are to be to the reasonable satisfaction of the employer, they are to his satisfaction. In Barking and Dagenham LBC v Terrapin Construction Ltd,40 it was held by the Court of Appeal that the wording of this clause’s predecessor (in JCT with Contractors Design (1981) Form of Contract) produces a similar effect to that in Crown Estates v Mowlem in respect of workmanship and materials but that, since it does not mention defects of design, it has no relevance to these.
Even where a final certificate is not stated by the contract to be conclusive, a question which troubled the courts for a time was how exactly that certificate was to be challenged. In the notorious Crouch case41 it was held by the Court of Appeal that, where a contract gave power to an arbitrator to ‘open up, review and revise’ certificates, this meant that a court would have no equivalent power. Hence, if the strict time limits for going to arbitration were not complied with, the certificate would become in effect unchallengeable. This decision, after years of receiving heavy criticism, was finally overruled by the House of Lords in Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd.42 Their lordships held that, although the power of the courts to overturn certificates can be excluded or restricted by clear words in a contract, and also (at least in theory) by implication, the mere presence of an arbitration clause certainly does not have any such effect.
It should finally be noted that, even where a certificate is conclusive and unchallengeable on its merits, there are still grounds on which it can be set aside. The most important circumstances in which this will occur are:
38Oxford University Fixed Assets Ltd v Architects Design Partnership (1999) 64 Con LR 12.
39Matthew Hall Ortech Ltd v Tarmac Roadstone Ltd (1997) 87 BLR 96.
40[2000] BLR 479.
41Northern Regional Health Authority v Derek Crouch Construction Co Ltd [1984] QB 644.
42(1998) 88 BLR 1.
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1.Where the certificate is not issued in the correct form at the correct time by the correct person. A departure from such contractual requirements will
invalidate a certificate where it is no longer clearly and unambiguously the required certificate in form, substance or intent.43
2.Where the contract administrator has ‘certified’ on something on which the contract gives no power to certify.
3.Where there is fraud or collusion between the certifier and one of the parties.
4.Where the employer has improperly pressurized or influenced the certifier.
Recovery without a certificate
Is a contractor entitled to demand interim payments in the absence of an interim certificate? Is the employer entitled to deduct liquidated damages without a certificate of failure to complete the works on time? The answers to these questions depend on whether the issue of the relevant certificate by the contract administrator is a ‘condition precedent’.
The general principle adopted in such cases is that, where the contract provides for payment of money following the issue of a certificate, this is indeed a condition precedent. Thus, where a certificate of non-completion is followed by the grant of an extension of time, a further certificate of non-completion must be issued before it is lawful for the employer to deduct liquidated damages.44 Conversely, a contractor who feels that work has been undervalued on an interim certificate should either demand a further certificate from the contract administrator or seek arbitration under the contract. Such an undervaluation does not justify the contractor in leaving the site.45
Notwithstanding this general principle, a contract administrator’s refusal or failure to issue a certificate is no more conclusive and binding upon the parties than the issue of one would be. Thus, if the circumstances are such that the issue of a certificate could successfully be challenged, it seems that its non-issue can equally be bypassed. This means that the points mentioned in the previous section on the conclusiveness of certificates are equally relevant.
In accordance with these principles, contractors have succeeded in recovering where an employer improperly ordered the architect not to certify more than a particular amount,46 and where the certifier based a decision on whether work had been done economically (a question not within the certifier’s remit).47 Similarly, where an employer’s claim against the contractor for defective work would have been barred by a ‘conclusive’ final certificate which should have been issued, it
was held that the employer could not rely on the absence of the certificate to bring a claim.48
43Cantrell v Wright & Fuller Ltd [2003] BLR 412.
44A Bell & Son (Paddington) Ltd v CBF Residential Care & Housing Association (1989) 46 BLR 102.
45Lubenham Fidelities & Investments v S Pembrokeshire DC (1986) 33 BLR 39.
46Hickman & Co v Roberts [1913] AC 229.
47Panamena Europea Navegacion v Leyland & Co Ltd [1947] AC 428.
48Matthew Hall Ortech Ltd v Tarmac Roadstone Ltd (1997) 87 BLR 96.
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18.2.2Other decision-making functions
Although the issue of certificates is the most important aspect of the contract administrator’s ‘independent’ role, it is not the only one. Construction contracts may also use other forms of words, such as requiring the contract administrator to ‘make decisions’ or to ‘give opinions’. It seems reasonable to assume that the principles outlined above as to ‘conclusiveness’ and ‘conditions precedent’ in relation to certificates would apply equally to these similar functions.
An example of ‘certification by another name’ is provided by JCT SBC 11 clause 2.33, which states that the employer may take possession of part of the works before practical completion is achieved. Where this occurs, the contract administrator is required to issue a ‘written statement’ identifying the part taken into possession. This statement is then treated for most purposes as if it were a certificate of practical completion for the relevant part.
An extremely important function of this kind was contained in clause 66(3) of ICE 7 before the amendment of this clause in 2004. The old version of the clause provided that any dispute whatsoever between the employer and the contractor arising out of the contract or the work must be referred in writing to the engineer for settlement. The engineer must then give a decision in writing on the dispute. Only when this has been done (or when the engineer has failed to give a decision within a prescribed period) could the matter be taken to adjudication or arbitration. This provision has caused serious problems, because the contract does not lay down any particular form which the engineer’s ‘decision’ must take, and it can sometimes be difficult to know whether a decision has been given or not. However, according to the new version of clause 66 of ICC 11 it is no longer necessary to refer a dispute to the engineer before a referral to arbitration. Instead, the parties now have a free choice between several means of dispute resolution (see Section 23.5).
18.2.3Liability for negligent decision-making
A question that has been the subject of important litigation in recent years is whether a contract administrator can be held liable to either of the contracting parties for any decisions.
Liability to the employer
It was for many years believed that, in issuing certificates, a contract administrator was acting in a ‘quasi-judicial’ capacity. By this was meant that, in exercising judgement about the quantity of work done, and making decisions about how much the contractor should be paid, the architect was acting in a manner similar to that of an arbitrator. This led to the conclusion that the contract administrator should enjoy a similar immunity from claims in negligence as an arbitrator (an immunity which is itself based on that which protects a judge in court).
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The principle that a contract administrator could not be sued in negligence by the employer was laid down by the Court of Appeal in 1901.49 However, in the important case of Sutcliffe v Thackrah50 this principle was overturned by the House of Lords. In that case the architect over-valued a series of certificates and the employer duly paid the contractor on them. Unfortunately the contractor then went into liquidation before the job was completed, with the result that the employer could not recover the money that had been overpaid. It was held by the House of Lords that the architect was not acting in a quasi-judicial capacity and had no immunity from liability. The architect was accordingly liable to compensate the employer for the money lost.
The decision of the trial judge in the Sutcliffe case51 is of considerable interest in examining the practical implications of a duty of care in respect of certification. In particular, it appears that the contract administrator must notify the quantity surveyor in advance of any work regarded as not properly executed, so that it can be excluded from the quantity surveyor’s valuation.
It appears that the duty of care a contract administrator owes to the employer applies, not only to certification as such, but also to the other decision-making functions. Liability may thus arise where a contract administrator, by negligently granting extensions of time to which a contractor is not in truth entitled, causes the employer to forfeit liquidated damages.52
Liability to the contractor
Once it had been decided that a contract administrator could be liable to the employer for negligent over-certification, a question which naturally arose was whether there would be an equivalent liability to the contractor for negligent under-certification. It was said that under-certification could cause a contractor substantial loss because, even if the certificate were ultimately corrected (for example by an arbitrator), so that the contractor recovered the correct amount from the employer, there would still be an expensive interruption of the contractor’s cash flow.
The idea that a contract administrator would owe a duty of care in tort to the contractor was suggested by Lord Salmon in Sutcliffe v Thackrah itself, and this view attracted some support in subsequent cases.53 However, it was disapproved by the Court of Appeal in the important case of Pacific Associates Inc v Baxter.54 That case arose out of a dredging contract, made in a standard form (FIDIC 2nd edition), under which the claimant contractors undertook work for the ruler of Dubai. The contract provided that the contractors would be entitled to extra payment if they encountered hard material which could not have been reasonably foreseen by an experienced contractor, and made it the responsibility of the engineer to decide on any claims for extra payment on this basis. The contract also contained an
49Chambers v Goldthorpe [1901] 1 KB 624.
50[1974] AC 727.
51Sutcliffe v Chippendale & Edmondson (1971) 18 BLR 149.
52Wessex RHA v HLM Design Ltd [1994] CILL 991.
53FG Minter Ltd v Welsh Health Technical Services Organization (1979) 11 BLR 1; Shui On Construction Ltd v Shui Kay Co Ltd (1985) 4 Const LJ 305; Salliss & Co v Calil (1988) 4 Const LJ 125.
54[1989] 2 All ER 159.
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arbitration clause (which meant that any decision of the engineer could be challenged) and a special condition stating that the engineer should not incur personal liability for ‘acts or obligations under the contract’. In the course of dredging the contractors encountered a great deal of such material, but the engineer consistently rejected their claims (which amounted in total to some £31 million). The contractors duly settled in arbitration against the employer for £10 million and sued the engineer in negligence for the shortfall.
There is no doubt that an engineer in this situation could reasonably foresee that negligence in making a decision might cause loss to the contractors. However, the Court of Appeal held that it would not be ‘just and reasonable’ to impose a duty of care upon the engineer. This was because, given the contractual background, it could not be said that the engineer had ‘voluntarily assumed responsibility’ to the contractors, nor that the contractors had ‘relied’ on him. If any extra responsibilities were to be undertaken, this could have been done by means of a collateral agreement at the time that the contract was negotiated. In the absence of any such agreement, and given that the contractors were fully aware of the contract provisions when tendering, the court would not allow the law of tort to import additional obligations into a carefully structured contractual environment.
Precisely how far this decision extends is not clear, because all three judges in the Court of Appeal stressed the importance of both the arbitration clause and the exemption condition. It might be therefore that the absence of one or both of these factors would lead to a contrary decision. Nonetheless, the court clearly did not favour tort claims in such circumstances, as a matter of general principle. In any event, the case has since been used by a court to justify its decision that an architect owes no duty of care whatsoever to a contractor in relation to certification duties under the contract.55
Quite apart from any possible liability in negligence, it appears that the contract administrator is not subject to the rules of natural justice in carrying out an independent decision-making role.56 On the other hand, a contract administrator who colludes with the employer instead of exercising independent judgement, or who deliberately misapplies the contract, will probably be liable to the contractor under a tort known as wrongful interference with contract.57
55Leon Engineering & Construction Co Ltd v Ka Duk Investment Co Ltd (1989) 47 BLR 139.
56AMEC Civil Engineering Ltd v Secretary of State for Transport [2005] BLR 227.
57John Mowlem & Co plc v Eagle Star Insurance Co Ltd (1992) 62 BLR 126.