Project Manager's Liability

Can a project manager's failure to procure execution of a building contract amount to professional negligence? Is a cap on liability for professional negligence always enforceable?

A recent High Court case has considered the above points and reached some surprising conclusions which may have wider implications for construction professionals.

A large construction consultancy was appointed as project manager by a college in the construction of a new boarding house. The works were carried out under eight letters of intent and were completed late. The college could not claim liquidated and ascertained damages for delay because the project manager had failed to procure an executed building contract from the contractor.

The Judge held that the project manager had been negligent as it had failed "to focus on the matters that remained outstanding…to advise [the employer] of the need to ensure that a contract was signed, and to bring proper pressure to bear on [the contractor]".

The project manager argued that it was entitled to rely on a limitation of liability clause contained in its standard terms, which limited liability to "the fees paid to Us or £1 million whichever is the less". Under the Unfair Contract Terms Act 1977, a cap on liability for breach of contract contained in standard terms is enforceable only if it satisfies the requirement of reasonableness. The contract imposed an obligation on the project manager to take out professional indemnity insurance of £10 million, yet the limitation clause limited liability to substantially less. The Judge held that this was unreasonable.

Advice

Case: Ampleforth v Turner & Townsend [2012] EWHC 2137 (TCC)