On a simple house refurbishment project in Putney, London, Mr & Mrs West ended up with an extended house with no proper waterproofing, serious defects in the plumbing and all the newly installed M&E services needing replacing. Disaster!
Although they were relatively unsophisticated clients ie new to the industry, they were nonetheless savvy. However, it is was during the contract inception and contract creation stages that they were failed by both their architects. Their experienced consultants could and should have done more to create suitable and effective appointments for their clients and this project.
Appointment 1: Unsigned
A childhood friend initially advised the Wests about how to refurbish their newly-bought property. His estimates of the likely cost of the work involved, which the Wests relied on when buying the house, were woefully inadequate. More than six months’ after his first involvement with the project, the Wests decided against continuing to use his firm’s services.. “By this time the Wests had still not received terms of engagement from Foundation Architecture...”
No signed contract? No agreed terms? No agreed fees? Definitely a recipe for an unhappy client.
Appointment 2: Unclear
The Wests were then introduced to Mr Finlay and emphasised their priorities again which were “the fundamental damp, structural and services work which would only make sense to do “once” as part of this major renovation“.
3 months later the Wests and Mr Finlay signed a formal engagement. One clause came back to haunt them:
We confirm that we maintain professional indemnity insurance cover of £1,000,000.00 in respect of any one event. This will be the maximum limit of our liability to you arising out of this Agreement. Any such liability will expire after 6 years from conclusion of our appointment or (if earlier) practical completion of the construction of the Project. Our liability for loss or damage will be limited to the amount that it is reasonable for us to pay in relation to the contractual responsibilities of other consultants, contractors and specialists appointed by you
The final sentence is a form of net contribution clause ie a clause allowing each member of the project team to only pay their share of any losses suffered, provided those losses are partly caused by their own breach.
A signed contract! Agreed terms! Agreed fees! Although they are doing better than appointment 1, the TCC judgment records that:
“It is common ground that Mr Finlay took no steps to explain what this paragraph meant, if, indeed, he understood it himself. In answer to a question from the court he said that he did not think that this was a clause limiting his liability, although when it was pointed out to him that the £1 million limit was not much over half the cost of the house, he accepted that there could be circumstances in which the clause might limit his liability to his client. Mr West said in his witness statement that he and his wife did not consider this clause at the time and therefore did not appreciate its effect…”
What on earth is the use of a contract that neither of them have read or understood? How can they possibly use it properly? How can it manage risks for them?
In evidence, Mr Finlay accepted that “there were no material circumstances in which the [net contribution clause] could operate for the benefit of the Wests.” The architect has created a monster, a contract with pitfalls for the client and it was only because this client was savvy that they didn’t suffer excessively from the disaster that befell their new home.
Create Contracts Fit for Their Purpose
Contracts can help forge, record and continue the good relations between the clients and their project team. Properly used, they help the parties to build trust and avoid disputes. Poorly created, they are disasters waiting to happen. This quote from the TCC judge sums it up:
In the context of a domestic building contract, the emotional commitment of the employer is invariably high and so the demands on the contractor and architect are correspondingly increased: the maintenance of good relations between employer, architect and builder is therefore crucial.
Why? Why do we continue to use contracts to tie us in knots? Surely the point of contract inception and creation is to produce a contract that is fit for its purpose? A contract must be read and understood, agreed and signed and then used. If you want to see whether I think standard contracts are fit for their purpose, see my article in CICES Annual Law Review.