GRAND AMBITIONS OR LEGAL RISK? MANAGING THE STANDARD OF CARE IN INTERNATIONAL CONSULTANCY AGREEMENTS

As more international consultants enter the market to help deliver the Kingdom of Saudi Arabia’s goals for Vision 2030, we are regularly considering the risks arising from the various forms of contract which are being used by the Public Investment Fund, quasi state-owned entities and local developers who have been tasked with meeting these goals.

The size, scale and complexity of these projects are immense.  They can offer great reward, however also come with heightened risks and consultants need to ensure (i) that what they have agreed to deliver is clearly understood, and (ii) that the risk that might arise as a result of any breach of their appointment is within the limits of their insurance policies.

A fundamental step in the risk management of any appointment is in relation to the duty of care which is to be used when performing the services. In this regard we are seeing references to differing standards of care scattered across proposed appointments.

Ideally, an appointment should contain a single clause that sets out the overarching duty to be used by the consultant in the performance of the services. That, however, is becoming increasingly rare and there are five key areas we regularly come across, which have the effect of extending a consultant’s duty of care such that it is unreasonable and potentially incompatible with its Professional Indemnity Insurance policy.

1. The Standard of Care goes beyond that of “Reasonable Skill and Care”

It is not uncommon to see a standard of care clause which:

• Excludes an element of “reasonableness ”;
• Goes far beyond the requirement to act in accordance with the usual practice and professional standards current at the time the design was carried out;
• Uses a definition of ‘Good Industry Practice’ or similar which imports additional onerous and unreasonable standards to be met;
• Introduces a requirement to use “foresight”.

2. Fitness for Purpose Obligations – both overt and in disguise

A fitness for purpose obligation imposes a strict obligation to achieve a specified result. If the resulting services do not meet the desired outcome (which is often subjective and unknown at the time design was being completed), there is no requirement to establish negligence in the performance of the services in order to establish a breach. In most cases, a consultants Professional Indemnity Insurances will not cover such breaches.

We are seeing the inclusion of fitness for purpose obligations ‘in disguise’, in the form of:

• Warranties that the Services when complete will meet the Employer’s Requirements or any Performance Specifications;
• Guarantees or assurances that when completed, the Services will be suitable for the purpose set out in the appointment.

3. Additional obligations that are not defined

We are also seeing examples of a consultant’s duty of care extended as a result of ambitious, subjective and undefined obligations, including appointments with terms which have no reasonable way of determining how they might or might not, have been complied with.  These obligations are designed to have the consultant ensure, for example:

• The commercial viability of a project; and
• single point responsibility for all parties engaged on the project and its successful completion.

Similarly, we have also seen poorly drafted “design to budget” clauses which extend the consultant’s standard of care to an unreasonable level, often resulting in the consultant being held liable for the conflict between a limited budget, and lofty design aspirations.

4. RFP documents containing fitness for purpose / strict obligations being included as a contract document

The use of Requests for Proposals as a contract document, either as an attachment to the contract or, more concerningly, as the scope of services itself, is becoming increasingly common. The aspirational language that is included in these documents in relation to project goals and the intentions of the client, can have the effect of introducing additional contractual obligations on the consultant which are unreasonable, and may be deemed strict obligations which are incompatible with a consultants Professional Indemnity Insurance policy.

We have seen Requests for Proposals which import obligations to:

• Design an “iconic” and “instantly recognisable” building;
• Create a “world leading project”;
• Design a project that “increases the value of the supporting infrastructure and surrounding areas”;
• Design a project such that “it provides a positive return to the company’s shareholders”.

The inclusion of this kind of aspirational language often results in confusion as to what the consultant’s contractual obligations actually are.

5. Collateral Warranties with a more onerous duty of care than that agreed in the Contract

Finally, avoid, at all costs, collateral warranties which contain:

• fitness for purpose obligations; or
• an agreed standard of care in relation to the services or rectification of any defects, that is higher than that as agreed in the contract.

As clients seek to get more from their consultants as the size, scale and complexity of projects becomes larger and more intricate it is more important than ever that parties sensibly consider the standard of care which is reasonably expected to be provided by a consultant, to ensure that they are well placed to deliver the transformative, and highly ambitious projects of the future.