17 January 2013 | Richard Lane
Do project managers have a duty of care to their employer?
Ampleforth Abbey Trust engaged Turner & Townsend Project Management (T&T) to work on the construction of new accommodation.
T&T procured Kier Northern as the building contractor. The contract was never signed and Kier undertook the work under a number of letters of intent. The work was completed late and a dispute arose regarding damages for the delay. Fundamental to this was the failure of the parties to sign the contract, which allowed for liquidated damages of £50,000 per week. The dispute was resolved via mediation.
The trust then brought a claim against T&T for professional negligence. The trust argued T&T had failed to act with the reasonable care and skill expected of a project manager when it failed to procure execution of the contract.
The High Court agreed. But when awarding damages, it had to consider a limitation of liability clause found in the terms of appointment T&T had sent to the trust. Was this incorporated into the contract? And, if so, did it lose its effect under the Unfair Terms in Contracts Act?
The court found the term did form part of the contract and upheld that it was unreasonable. It pointed to the requirement that T&T should take out indemnity cover of £10 million and, as a matter of commercial reality, this cost would be passed on to the trust through the fees payable. It would be unreasonable for the trust not to then take the benefit of the insurance.
What this means
This case confirms project management companies have a duty of care to the employer organisation. But the extent of that duty will be dependent on the individual circumstances. It is important to recognise that in the above case, simply the failure to obtain an executed building contract did not give rise to the breach of that duty of care. It was the evidence the project manager had failed to take reasonable steps to obtain the execution of the building contract that was the breach.
With regards the unfairness of the limitation of liability due to insurance cover, it is not clear whether this case will be followed in future. This is especially true where the insurance cover is not specific to a single project, but covers all of the project manager’s work.
☛ Richard Lane, partner, Hugh James