Duties of a Project Manager

The recent judgment of HHJ Keyser QC in the TCC in The Trustees of Ampleforth Abbey Trust v Turner & Townsend Project Management Ltd [2012] EWHC 2137 (TCC) provides helpful guidance on the duties of a project manager ...

… the appropriate use of letters of intent and the enforceability of limitation clauses in a contract between a project manager and an employer.

The facts

The Trustees of Ampleforth Abbey Trust (the Trust) engaged the Defendant, Turner & Townsend Project Management (TTPM) to act as its Project Manager on three construction projects for the provision of new boarding accommodation at Ampleforth College. A dispute arose following significant delays to the completion of the third project.

Unusually, the works from commencement to completion proceeded under various letters of intent issued to the Contractor. The intended building contract referred to in the letters of intent was only executed by the Contractor long after the work had been completed and following an agreement at a mediation between the Trust and the Contractor in respect of a claim by the Trust for liquidated damages for delay. The terms of settlement following the mediation excluded any entitlement to liquidated damages. The Trust then brought proceedings against TTPM alleging that, had TTPM acted with reasonable skill and care, it would have ensured that the Contractor executed the building contract and not allowed the works to proceed to completion on the basis of letters of intent. The Trust further alleged that, had the building contract been executed, it would have achieved a significantly more advantageous result in the dispute with the Contractor because the building contract provided for liquidated damages of £50,000 for each week that the project was delayed.

Role of Project Manager

HHJ Keyser QC found that in may be impossible to define with any precision the expression "project manager" and much will depend on the terms of engagement in each case. However, in general terms, it can be said that a project manager will "act as the representative of the employer for the purpose of co-ordinating the different aspects of a construction and engineering project" and that a central part of the role of project manager was as "co-ordinator and guardian" of the employer's interest. The Judge concluded that this would "involve the exercise of practical judgement and even common sense".

Breach of Duty

It was common ground between the parties that TTPM owed the Trust a duty to act with reasonable skill and care in the performance of its functions both in contract and at common law. On the question of whether TTPM were in breach of that duty, the Judge found that it was highly unusual for such a project to proceed to completion with only letters of intent in place. Whilst this would not automatically lead to a finding of negligence, it did "suggest that something went wrong with the project". He went on to find that the execution of a building contract could not be considered as "a mere aspiration but rather as fundamental." The contract defines the rights duties and remedies of the parties. The "skeletal" nature of letters of intent made them appropriate for their "classic" use (i.e. as a means of paving the way for the formal contract) but that they "do not protect, and are not intended to protect the employer's interests in the same manner as would the formal contract".

On the facts, the Judge found that TTPM had treated the contract as a "dispensable luxury" and that, in breach of its duty to the Trust, "had failed adequately to focus on the matters that remained outstanding before a contract could be signed, to work urgently to resolve those matters one by one, to advise the Trust of the need to ensure that a contact was signed, and to bring proper pressure to bear on [the Contractor] and on the situation generally to that end."

Causation

Having found that TTPM were in breach of duty, the judge went on to consider causation. He found that:

1. Had the Trust received appropriate advice from TTPM it would have acted on that advice:
2. Had it done so, there was a two-thirds chance that the Contractor would have signed the contract including the liquidated damages clause;
3. That the signed contract would have materially improved the Trust's position in its claim against the Contractor;
4. The value of that benefit was £340,000 and, applying the two-thirds loss of chance, the Trust was entitled to damages of £226,667.

Limitation Clause

Of particular interest to professionals and their indemnity insurers was the approach taken to a limitation clause in TTPM's standard terms. The limitation clause, which had been incorporated into the contract, sought to limit TTPM's liability to the amount of its fees for the project, which totalled £111,321.

Judge Keyser QC found that the clause did not satisfy the requirement of "reasonableness" set out in the Unfair Contract Terms Act 1977 (UCTA). In reaching this conclusion, the Judge paid particular attention to a clause in the contract which required TTPM to maintain professional indemnity insurance cover of £10m. The Judge found that it was implicit in the contract that the cost of that cover would be passed on to the Trust by way of TTPM's fees and that to allow the limitation clause to have effect would render the cover illusory.

The Judge was also critical of the way in which the limitation clause (which had not been included in the two previous projects involving the same parties) had been introduced within a standard term document at the fee proposal stage without specific notice or discussion with the Trust.

Comment

The case should act as a reminder to project managers that, whilst letters of intent are an acceptable mechanism in which to allow works to begin whilst specific obstacles prevent execution of the building contract, they should not be considered as a replacement for the contract. It should be the project manager's priority, so far as it is able, to take steps to remove those obstacles and secure an executed building contract at the earliest opportunity.

The case also highlights the importance of bringing limitation of liability clauses to the attention of the employer at the outset. Furthermore, the amount of any limitation should be set at a realistic figure in each case taking into account such factors as the likely size and cost of the project rather than by reference to an arbitrary figure such as the amount of the professional fees.