CONVENTIONAL construction
contracts provide for an Engineer or Architect (the initial capitals
distinguishing their role from that of other engineers or architects working
on the project) to act for the employer and to administer a contract.
An Engineer in this role has two functions. One is to act on the
employer's instructions whether he agrees or not.
The other is to use his judgement on matters such as valuations, the
existence of defects, entitlements and in deciding disputes referred to him.
In this second function, the Engineer is required to reach decisions
fairly, holding the balance between the employer and the contractor.
When adjudication was introduced in 1998, expectations of how a dispute
should be resolved changed. People became more aware of
"impartiality" and "natural justice". This has led to
the role of the Engineer being reconsidered. Two recent cases provide
insights.
The first is the judgment of Judge Jackson in Costain v Bechtel (May 20,
2005). One issue was whether or not the project manager under a contract
based on the New Engineering form of contract was required to act
impartially.
Under NEC the Engineer's role is largely taken by the project manager,
which in this case was a consortium ? RLE ? of which Bechtel was a member.
Most of the RLE personnel working under the contract were Bechtel employees.
Bechtel argued that in NEC, the role is different to conventional
construction contracts because it was more specific and contained more
objective criteria.
Judge Jackson did not accept this. He said there were instances in NEC
where the project manager had to exercise independent judgment to determine
whether criteria were met and what precisely should be paid to the
contractor.
Bechtel put forward a number of other arguments as to why the project
manager was not required to act impartially, such as: that his decision is
not final and that only the adjudicator has an express obligation to act
impartially ? none of which convinced the judge.
He held that when the project manager under the NEC exercises his
discretion in the residual areas, he was required to act impartially.
The second case is the judgment of the Court of Appeal in Amec Civil
Engineering v Secretary of State for Transport decided on March 17, 2005.
This case concerned the role of the Engineer under the ICE form of contract.
The Highways Agency had referred a dispute with Amec to the Engineer's
consultant Pell Frischmann to be decided under Clause 66, a pre-condition to
arbitration. At the same time the Highways Agency informed Pell Frischmann
that it (Pell Frischmann) was responsible for defects in the works. The
Highways Agency was thus in dispute with both the contractor and the
Engineer.
The Engineer decided that Amec's work was defective and that it was in
breach of contract.
The matter proceeded to arbitration. Amec challenged the jurisdiction of
the arbitrator on several grounds, including the assertion that the
Engineer's decision had been invalidated by his failure to observe a duty of
fairness.
Amec alleged, for instance, that it had not been given a copy of the
Highways Agency's request for a Clause 66 decision; that it was not given an
opportunity to make submissions to the Engineer; that the Engineer had
substantially drafted his decision before receiving the formal request for a
decision under Clause 66; and that the Engineer reached a decision with
undue speed.
Amec also alleged that the Highways Agency's parallel claim against the
Engineer caused a conflict of interest.
Appeal Court judge Lord Justice Rix observed that if there had been no
reference to arbitration and the Highways Agency had instead relied solely
on the Engineer's decision as a final and binding resolution of its dispute
with Amec, then the invalidity of the Engineer's decision would mean the
case against Amec would collapse. But even if the Engineer's Clause 66
decision was invalid and unenforceable, that did not affect the arbitrator.
Under Clause 66, the failure of the Engineer to render a decision within
three months of a reference allows either party to refer the dispute to
arbitration ? so a valid decision by the Engineer is not a pre-condition of
arbitration. The Court of Appeal made observations on the role of the
Engineer:
Lord Justice May stated that the rules of natural justice were formalised
requirements of those who acted judicially.
Compliance with them was required of judges and arbitrators and those in
equivalent positions, but not of an Engineer giving a decision under Clause
66 of the ICE Conditions.
The Engineer's decision is not reached by a judicial process.
Under Clause 66 the Engineer is required to act independently and
honestly. "Impartiality" does not overlay independence and honesty
with a need for natural justice.
Lord Justice May recognised that circumstances could arise in which the
Engineer would use his knowledge of the project, and would properly make a
decision under Clause 66 on request from one or the parties without formal
reference to the other.
The Engineer could give a speedy decision where the limitation period for
arbitration was a problem. The Court of Appeal decided that the decision was
valid. The role of the Engineer in deciding disputes is not the same as an
adjudicator's and the full judicial requirement of natural justice does not
apply.
Key points Under conventional contracts, the Engineer or Architect must
administer the contract, using his knowledge to decided disputes between the
Employer and the Contractor Under Clause 66 of the ICE Conditions, an valid
decision by the Engineer is not a precondition to arbitration An Engineer or
Architect must act impartially and fairly in deciding disputes. But 'natural
justice' does not apply.