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.


Carefully consider the scope of the services to a project manager's appointment. In this case the project manager was to "participate in contractor selection and appointment" but this was held to extend to procuring the execution of the building contract.
Employers should be careful to only use letters of intent as temporary arrangements while the parties conclude formal building contract negotiations.
If a project manager is encountering difficulties in procuring execution of the building contract, they should advise the employer of the limited protection afforded by letters of intent and take resolute action because "execution of a contract is to be seen not as a mere aspiration but rather as fundamental".
A cap on liability should be considered in light of the particular facts of each project including the required amount of professional indemnity insurance which a consultant is obliged to take out under its appointment. In this case the liability cap was held to be unreasonable, particularly because it was included in the standard terms and conditions and was "inconsistent with the requirement for substantial professional indemnity insurance without specific notice and any discussion".

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