“A TRAP FOR THE UNWARY: THE NEED FOR ARCHITECTS TO AVOID CONFLICTS OF INTEREST AND DISPUTES OVER VARIATION CLAIMS”
By Justin Cotton, Partner, Construction and Practitioner Advocacy, Lovegrove Smith & Cotton, Construction and Commercial Lawyers
As a postscript to my article in January that focused on the tension of the dual role of an Architect contract administrator in building contracts, this week I will look at some of the common sources of disputation between Owners and an Architect in such contracts.
While it is true that an Architect fulfilling this contract administrator role can fall foul of an already terse Owner versus Builder relationship, where for example the Builder is on the ‘go slow’ or is not attending to defect rectification, the Architect must still be mindful of his/her duties to the Owner client both under statute (eg, the Architect Regulations) and under contract (the retainer agreement with the Owner ‘Client’).
As was discussed in my last article, the need to be both an independent and impartial assessor of Builder claims and also the agent of the Owner in giving directions to the Builder (eg to carry out variations), can be akin to walking something of a tightrope for an Architect.
The retainer agreement that the Architect has with the Client will state that he/she must act only in the Client’s best interests, whilst the building contract itself says that the Architect must be fair and impartial when assessing the Builder’s claims regarding payment and time.
However, while it may seem difficult to avoid becoming the ‘meat in the sandwich’ when a dispute erupts mid-contract between the Owner/Client and the Builder, the Architect needs to seek some stability and guidance from what their clear duties are under the retainer agreement and at law.
Two common snags and pitfalls are to do with ‘conflict of interest’ and even more commonly, ‘variations’ in regard to additional Architectural services.
The Architect retainer agreement will make some provision in regard to the Architect being entitled to charge for additional services at an agreed hourly rate. The caveat will be though that industry standard retainer agreements contain wording that give a measure of protection for Owners. It is not uncommon to see wording such as:
“If additional services are required during the course of the project, a description of the expected scope of the additional services and an estimate of the cost of the services will be provided prior to the work commencing”.
A common complaint we see in Owner versus Architect disagreements is that the additional Architect fee over an extended time, and the extra hourly rate charges, were not properly ‘run past’ the Owner until after the event.
Of course, the strength of an Owner’s defence to a disputed claim for payment will depend on the particular circumstances of the case, but if the Owner can show on balance that there has been a breach of the relevant clause of the retainer agreement, then a trier of fact may later decide that the Owner does not have to pay.
The sad part of these scenarios is that often times the need for extra services or extra time has simply evolved out of the breakdown in contractual relationship between the Builder and the Owner, or because one party or the other to the building contract has breached the building contract.
Further to such contractual provisions in the Architect’s retainer agreement, arguably it would be implied at common law that the Architect must seek an Owner’s consent and agreement before seeking to alter the scope and costs significantly beyond what was agreed at the outset. This is also reinforced by the Architect’s statutory duty owed to Client Owners, for example:
- Clause 6 of the Architects Regulations 2004 (Part 2, Professional Conduct) says: “An Architect must perform his or her work as an architect in a competent manner and to a professional
- Clause 7 of the Architects Regulations 2004 (Duties) says:
“An Architect must:
- Act in the interest of his or her client or prospective client; and
- Not favour his or her interest over that of his or her client or prospective client.”
Clause 7 of the Regulations then leads us to another source of angst between an Owner and an Architect, concerning the possibility of a conflict of interest.
Unfortunately there is often the temptation in a commercial sense to favour one side or another to the building contract dynamic, when carrying out the assessor role. However, the standard Architect administered building contract (eg the ABIC suite of agreements) is quite clear that the Architect must be independent and impartial when assessing or valuing such claims as progress payment claims, variations and extension of time requests.
The temptation is understandably sometimes there to favour the Owner to the detriment of the Builder, given that there is an agency role on behalf of the Owner built into the contract already, and especially so if the Owner and Architect have a long standing prior relationship.
That said, the problem is not purely in one direction. As building lawyers we have come across several files where an Architect has apparently maneuvered their preferred Builder into winning a tender, with events later proving that the Builder was not up to the task and the Architect is overly reluctant to reign the Builder in. Or the Architect may have been overly generous in assessing payment claims despite the presence of defects.
In one recent file, the Owners were having problems in convincing the Architect to direct the Builder to rectify workmanship on an expensive home construction. It was only later that it came to light that the Builder had been working on another similar home construction in another suburb for the Architect (and his wife).
When this other building contract veered into disputation, the Architect apparently allowed his new found animus to the Builder to colour his directions and actions on the first building project where he was the assigned Architect. Needless to say, all of a sudden the Builder and the Architect decided that they could no longer work together, and a series of emails came to light that showcased the extent of the Architect’s conflict of interest.
Conflicts of interest such as these by Architects are to be avoided at all costs, because what may seem at the outset to be not so problematic, can soon get out of hand, leading to a clear breach of statutory and contract duties to an Owner.