A project manager's duty

The growing use of project managers in the construction industry in recent years appears to be giving rise to an increased incidence of litigation concerning the standards of care to be provided by project managers.

The case of Pozzolanic Lytag Limited-v-Bryan Hobson Associates gives an example of the type of duty owed by a project manager to its client, the breach of which may create a right to recover damages.

Pozzolanic is a company which buys pulverised fuel ash (PFA) from power stations for sale to the construction industry for use in concrete. It was negotiating with Powergen for the purchase of PFA from a power station known as "Fiddlers Ferry."

In order to secure this contract, Pozzolanic needed to have designed and constructed handling and storage facilities on the site of the power station. Accordingly, it entered into an agreement with Hobson Associates to carry out design and project management services in relation to the works.

The works included the construction of a dome or spherical silo for the storage of PFA, and the necessary groundworks. A main contract was entered into with a company called HP Domes on the basis of JCT 1980 Standard Form of Contract with a contractor's design portion supplement applicable to the dome.

specialist

It was a part of the contract that HP Domes would engage a specialist design sub-consultant to check the structural design of the dome. Hobson Associates remained responsible for the design of the rest of the works.

Within a short period after completion the dome collapsed causing losses to Pozzolanic in excess of £600,000. It was accepted that the collapse was caused by defects in design which would ordinarily be covered by professional indemnity insurance of the type required to be provided under clause 21A of the JCT Standard Form.

This clause provides "without prejudice to his liability to indemnify the employer under clause 2.6 the contractor shall maintain and shall cause any sub-contractor to maintain such insurances as are necessary to cover the liability of the contractor or, as the case may be, of such sub-contractor in respect of his obligations under clause 2.6.

The amended clause 2.6 provided "the parts of the works comprising the contractor's designed portion shall be fit for the purpose for which they are required."

Reviewing its options Pozzolanic discovered that matters were not as clear as it would have wished. The main contractor, HP Domes, was worthless. Worse, this company had failed to put in place the relevant design insurances.

The sub-consultant design checker did have in place a relevant professional indemnity insurance, but no direct warranty had been placed between this company and Pozzolanic. In the absence of a contractual link to the sub-consultant, any action by Pozzolanic in negligence would simply be 'speculative' litigation.

Accordingly Pozzolanic turned its attentions to its project manager. The background to the matter of project insurances was extremely confused.

To its credit, Hobson Associates had recommended the use of a designed portion supplement for the dome and had drawn to the attention of the main contractor the requirement for relevant project insurances including insurances in respect of the liabilities under clause 2.6.

Undoing this sound advice, Hobson had however written to the main contractor suggesting that the sub-consultant would carry the relevant professional indemnity insurance. Hobson had failed to question whether or not the main contractor would benefit from such a policy of insurance held in the name of the sub-consultant, or whether the sub-consultant should be required to enter into a collateral warranty.

Evidence

The main contractor replied by sending evidence of its own project all risks insurance cover, which did not embrace design liability, together with copies of its sub-consultant's design liability policies. Hobson Associates had failed to comment upon the inadequacy of these documents.

His Honour Mr Justice Dyson QC had to decide whether Hobson Associates owed a duty to Pozzolanic to take reasonable care to ensure there was in place insurances, as required by the contract, which would cover the main contractor's liability in respect of design obligations.

The terms of engagement of Hobson Associates made no express mention of such a duty even though today it would be commonplace to expect such a clause in a contract for project management services.

Expert evidence was called by both parties directed to the question of whether an engineer appointed to undertake contract and project management services had a duty to ensure that all insurances required of the contractor by the contract documents were in place.

Text books and codes of practice referring to the role of the project manager were cited but neither expert could agree.

conclusion

Nevertheless Judge Dyson concluded that a project manager did indeed owe a duty to its client to ensure the placing of relevant contract insurances.

It was unimportant that Hobson Associates did not have the expertise necessary to assess the adequacy of the proposed insurances. It could have obtained expert advice in that regard. Furthermore, whilst Judge Dyson could see that certain clients might be contributorily negligent where, for example, they possessed relevant insurance expertise, this did not apply in the present case to Pozzolanic.