Following my recent webinar for the IChemE Special Interest Group, I was asked to comment on their new Professional Services Contract (Short Form, 2015). The IChemE PSC Short Form was published to provide the IChemE’s members with a ‘standard form’ consultancy agreement for services of a “relatively low contract price and generally of a short duration“. This blog provides some factors to consider when deciding whether to adopt (and adapt) the Short Form Silver Book as part of your contract strategy.
Works into Services
It states (introductory notes) that it follows the general sequence of clauses of the IChemE forms of contract for works and plant, but with “quite different” obligations and liabilities. In my opinion, they are not different enough. For example, the Short Form Silver Book contains:
- subcontracting (clause 6.2) – a contract for personal services isn’t normally suitable for subcontracting (especially where the contract is professed to be one for limited services of short duration)
- compliance with key dates and extensions of time (clause 7)
- a defects liability provision (clause 9.2) – quite inappropriate in a services contract with its focus on inputs (skill and care)
- cross-indemnities (clause 11) – which are irrelevant where a consultant provides services remotely.
The Short Form PSC also makes completing the Agreement hard work with Schedules for the Project, Services, Deliverables, Purchaser Responsibilities, Key Dates, Rates and charges and Insurances. Phew! These could easily be amalgamated or dispensed with to create a truly ‘Short Form’ and much more user-friendly contract.
Co-operation and Trust
The Short Form Silver Book is based on co-operation between the Consultant and the Purchaser (clause 2). Its Introductory Notes state that it reflects that relationships in the process plant sector are “generally far less adversarial in nature than in other parts of the construction industry“.
As someone who believes (see our manifesto) that trust is critical to contracts, this ethos is laudable, but not followed through into the provisions, some of which are far from equitable:
- vesting of all intellectual property rights (not a licence) which is not subject to the payment of fees (clause 5)
- a one-sided right of suspension on notice but without reason (clause 14)
- a one-sided right to terminate on notice, without reason and without payment of profits (clause 15).
I know that one-person consultancy businesses are also wary of the obligations under clause 3.2 to use the skill and care of a ‘qualified, competent and experienced’ consultant when they can only rely on their own skills, knowledge and expertise. The same applies to clause 3.3 which requires ‘adequate resources’ which is a hiding-to-nothing for smaller practices. And does the Purchaser really need contemporaneous records for Services?
Limits on Liability
My biggest issue is with the limitation on liability clause.
If you’ve been following my blog, you’ll know that I am a big fan of limits on liability as they help manage risk on a project. However, they have to comply with the Unfair Contract Terms Act 1977, which means being reasonable.
Clause 9.3 provides that, if there is a breach of contract, the Consultant has to compensate the Purchaser. Under common law, the compensation should put the Purchaser in the position it would have been in had the Services been properly performed. But the clause states that those damages:
(a) will not include loss of profit, loss of revenue, loss of use production or indirect losses AND
(b) will also be limited to the price paid AND
(c) it covers claims for breach of contract and claims in misrepresentation, tort, negligence etc and claims for repudiation of the contract.
The Unfair Contract Terms Act 1977 states that a limit for negligence (see clause (c)) must be reasonable – which the contract price may not be. Although, the Sale of Goods Act might support that limit for goods, it may be too low for services, especially as the Silver Book is intended for low cost, short duration projects. So the limit in (b) might not even be enforceable (cases tend to suggest between 4 and 10 times fees is reasonable).
We also need to review the likely types of damage that the Purchaser may claim as compensation. For defective services, most of the claim will be in category (a), which are excluded. The contract could be reduced to a ‘mere statement of intent’ and, as the courts have confirmed, that would mean that the exclusion in (a) might not be enforceable.
So clause 9 could be unenforceable, leaving the Consultant with unlimited liability for all damages recoverable under common law.
Aside: the Introductory Notes also state that “No Purchaser will truly commit to an unlimited scope and expenditure” which is ironic given the number of purchasers who willingly sign letters of intent with that precise effect!