CAN AN EMPLOYER GET RID OF IT’S PRINCIPAL AGENT AND TAKE ON THE JOB ITSELF?
Can an employer dismiss its Project Manager or Principal Agent part way through a project and appoint itself instead? This was the question that the judge had to answer in the British case of Scheldebouw BV vs St James Homes (Grosvenor Dock) Ltd. In many respects the decision is of general importance.
St James was the employer and it had decided to tackle a project using a project management method. This entailed employing a number of contractors and a professional team, which included a project manager, an architect and a cost consultant. Scheldebouw was the specialist cladding contractor and Mace was the project manager. After a substantial amount of work had been done, Scheldebouw received a letter from St James announcing that Mace was no longer to be the project manager and that it would itself undertake all the responsibilities of the project manager under Scheldebouw's contracts. Scheldebouw expressed concern. St James replied that there was no reason why it could not do so and it was entitled to replace the project manager. So, the argument went, there was no reason why St James should not step into Mace's shoes.
The judge did not agree. He analysed the role of the project manager. Under this contract it had two separate and distinct functions. First, it was the agent of the employer and gave effect to the employer's wishes and instructions; as in the case of variations. Its second function was quite different. It had to reach decisions on matters where the contractor and the employer might have opposing interests. The first role the judge called "the agency function", the second "the decision-making function", a similar function in fact to the Principal Agent in our own JBCC 2000 Series building agreement.
There is a long number of cases which have created a body of law on the duties of certifiers and others with decision-making functions in construction contracts. The judge drew two central propositions from these cases: first, the precise role of the decision-maker depended on the terms of the contract; and secondly; generally, the decision-maker in performing its function has to act independently, impartially, fairly and honestly.
The judge found that St James did have the power to dismiss and replace the construction manager but that it could not appoint itself.
He said that it was so unusual for the employer to be the certifier and decision-maker that it would need express term of the contract to bring this about. Furthermore the whole structure of the contract was built on the premise that the employer and the project manager or principal agent were separate entities. In addition, the project manager had to make decisions in a fair, impartial and honest manner. While not impossible, this would be much more difficult for the employer than for a professional agent. While it was true in one sense that both the employer and the contractor have a common interest in ensuring the project manager's decisions are correct, anyone who has had experience of construction disputes will have seen how each party is often driven by its own commercial interests.
The judge also pointed out that under most forms of construction contract the contractor has dual protection. Decisions are made by a professional who, though employed by the employer, is separate from it. And that professional has to act fairly, impartially and honestly. If the employer becomes the project manager, one of those protections is lost. Other professionals might be involved in the decision -making but that was not a sufficient protection. Finally, although there are reported cases where the decision-maker was a direct employee of the employer, the judge's research showed that this had only occurred when the contractor had known of this situation from the outset. That was not so in this case.
The lesson here is that Members should never enter into an agreement using the JBCC Series 2000 documentation or similar contracts where the employer wishes to appoint himself as Principal Agent.
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