Construction disciplinary trends analysis #2: engagement letters – worth more than the paper they're written on!

This article is the second in our mini-series analysing trends in disciplinary decisions involving construction professionals, with insight from our specialist disciplinary team.

The regulatory landscape

Last time, we highlighted:

• The areas under the regulatory spotlight (building safety, sustainability, climate, and diversity & inclusion);
• The steep increase in disciplinary investigations proceeding to disciplinary panel stage; and
• The revised conduct rules.

Our analysis of recent disciplinary decisions has revealed 3 key trends, the first of which was disciplinary decisions concerning continuing professional development (CPD), which we discussed last time. The second trend relates to decisions on inadequacy, or lack of, engagement letters.

Engagement letters

It is best practice, and good risk management, to set out clearly the scope of a professional appointment in writing. Doing so not only reduces the scope for disputes (because the client is clear on what work the professional will, and will not, be carrying out), but also places the professional in a much stronger position to defend any subsequent complaint or claim.  Preparation of an engagement letter is a valuable opportunity to let the client know about any limitations on what the professional will be able to do and when costs will exceed the sum quoted.  There can be a temptation for busy professionals to regard this as an ancillary administrative task, but recent decisions show that failings do not just impact upon the resolution of the claim: they can have disciplinary consequences too.

The Architect's Registration Board identify engagement letters as the most common topic of complaints, with 50% of cases considered by their Professional Conduct Committee between 2018 and 2020 involving a breach of Standard 4.4 of the Architect's Code.

Standard 4.4 of states that an architect is expected to ensure that, before undertaking any professional work, they enter into a written agreement with the client which adequately covers:

i. the contracting parties;
ii. the scope of the work:
iii. the fee or method of calculating it;
iv. who will be responsible for what;
v. any constraints or limitations on the responsibilities of the parties;
vi. the provisions for suspension or termination of the agreement, including any legal rights of cancellation;
vii. a statement that the architect has adequate and appropriate insurance cover as specified by ARB;
viii. the existence of any Alternative Dispute Resolution schemes that the contract is subject to and how they might be accessed;
ix. that the architect has a complaints-handling procedure available on request;
x. that the architect is registered with the Architects Registration Board and subject to this Code.

We found that three architects in the last six months have been sanctioned for engagement letter-related failures; two by the ARB and one by the Royal Institute of British Architects (RIBA). One architect was struck off. At least two of the cases proceeded to disciplinary panel stage.

Case studies

(1) GDS – reprimand imposed by ARB, August 2023

The client became dissatisfied with the firm's service and reported him to the ARB, which brought disciplinary proceedings against him for failing to provide adequate terms of engagement contrary to Standard 4.4 of the Architect's Code. 

There was evidence that GDS had provided a numerous documents which he contended complied with Standard 4.4.  However, the disciplinary panel disagreed, finding GDS' terms of engagement inadequate in a number of material respects

The allegations having been proven, the tribunal went on to conclude that GDS' actions amounted to unacceptable professional misconduct.  Compliance with Standard 4.4 was described by the panel as a fundamental requirement and GDS' terms of engagement represented a "serious failing" that left the client without "essential" information. The public was entitled to expect that an architect's terms of engagement complied with the Code. 

(2) OJ – expelled by RIBA, August 2023

RIBA found that OJ failed to provide adequate terms of engagement to his client, although no information is available explaining why the terms were inadequate.  OJ also failed to progress the project, bungled the complaint handling and failed to provide evidence of adequate professional indemnity cover. 

Paradoxically, it can sometimes be the case that a client relationship is actually strengthened following a complaint, provided the complaint is handled properly and the client's concerns addressed.  That was clearly not the case here. 

OJ also failed to cooperate with RIBA, something which can make a bad situation worse, as in this case where OJ was expelled from the profession.

(3) KS – financial penalty imposed by ARB, September 2023

This is a particularly interesting decision as it is difficult not to have some sympathy with the architect's predicament: a client demanding copies of documents but refusing to pay the architect's fees for preparing them.

KS was engaged to survey, design and obtain planning permission for an extension and remodel of a property. After the survey had been completed, and KS produced some designs, the client asked for an up-to-date invoice and told KS they wished to terminate the retainer. The client agreed to pay for the survey but disputed that KS was entitled to charge for preparing the design proposals.  KS had produced six proposals and accompanying AutoCAD drawings incurring costs of £4,500 which had not been charged and refused to release the drawings until the client had settled the invoice. A fee dispute followed culminating in the client issuing proceedings against KS.  KS issued a counterclaim for unpaid fees and the parties settled the claim on a "drop hands" basis. When the claim was settled, PDF copies of the AutoCAD drawings were provided to the client, together with native versions which contained another client's details. The client then complained to the ARB. 

The ARB alleged that KS:

• Failed to provide adequate terms of engagement (as these did not comply with Standard 4.4);
• Issued an invoice for additional fees of £500 that had not been discussed with or agreed by the client (and this showed that KS lacked integrity); and
• Failed to provide evidence of his expenses of £47.50.

The panel found KS in breach of Standard 4.4 as his terms of engagement did not comply with points (vi) and (x) above.
KS had also breached the Code by invoicing for a sum not discussed or agreed with the client.  Further, he lacked integrity by failing to abandon this mistaken belief once more information came to light. When the client accepted KS' offer to settle the dispute for £3,013.80, KS should have abided by that agreement and it was "outrageous" of him to continue to seek the additional £500 that he believed the client had agreed to pay.  The panel found that KS had "closed his eyes to the obvious impropriety of reneging on his offer to settle". 

The panel concluded that KS' breaches amounted to unacceptable professional conduct.  KS' lack of integrity was a serious failing and his breach of Standard 4.4 was also serious: "it is not simply an administrative burden but is the route by which members of the public are made aware of their rights under the contract."

In considering sanctions, the panel took into account that KS had not acknowledged his failings; lacked insight and remorse and had not taken remedial steps, save for instructing lawyers to amend his terms of engagement. KS' conduct during the hearing also weighed against him: he had baselessly accused the client of a vendetta, alleging that he was "manoeuvring, nitpicking [and] ungrateful." The panel concluded that KS' conduct was of modest seriousness and, while his conduct was not fundamentally incompatible with continuing to be an architect, nor were there "entrenched integrity issues", the panel struggled to get past KS' perceived lack of insight. As a result, they imposed the maximum penalty order available (£2,500).

Comment

Had KS had access to compassionate but realistic defence lawyers from an early stage, the outcome of this case might have been different. It is wholly understandable that a professional accused of misconduct may struggle to remain impartial and measured when defending their livelihood, which is where experienced regulatory defence solicitors add value. 
 
As in our last article, better outcomes are likely to be achieved by:

• Engaging with the regulator during the disciplinary process;
• Producing a well-drafted mitigation arguments; and
• Securing experienced legal representation (ideally funded by insurers).  

Top 5 risk management takeaways

Our top 5 risk management takeaways on the topic of engagement letters are:

1. Go through the Standard 4.4 requirements one by one and check that your standard terms of engagement comply (or instruct RPC to carry out a review of your terms for extra peace of mind).  Some requirements may seem unnecessary (such as stating that you are an architect registered with the ARB), particularly if you are trying to make your terms as short and simple as possible; however, the cases above show that the panel takes into account whether engagement letters comply with the letter of the rules, not just the spirit. 
   
   
2. Make sure that your current up-to-date terms of engagement are saved centrally as "read only", so that all staff sending out engagement letters are working from the same version and no one can inadvertently change the template.
   
   
3. Have a policy in place requiring staff to send out terms of engagement on every new instruction; even better, set up an automated reminder for a specified period (eg a fortnight) after accepting a new instruction. 
   
   
4. Spot check files periodically to double check whether compliant terms of engagement have been sent out.  
   
   
5. Check your insurance cover to see whether you have cover for disciplinary cases (if not, speak to your broker) and check at what point advice and support is available (the earlier the better).

We would be delighted to discuss any queries or comments arising out of this article, which should be addressed to our specialist construction regulatory lawyers Emma Wherry or Ben Goodier.  RPC frequently carry out reviews of terms and conditions of business for busy constructions professionals – contact Ben Goodier or Alex Anderson if you would like to instruct us to do so.

The third article in this series concerns fraud, dishonesty and lack of integrity and can be read here.