| Date | 29 June 2005 |
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| Judgment | Costain Ltd & Others v Bechtel Ltd, TCC 20 May 2005 |
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| The Issue | Duties of a project manager under the NEC contract. |
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| Implication |
General discussion of the duties of a project manager to act impartially and in good faith. |
printCorber, a consortium comprising Costain, O'Rourke Civil Engineering, Bachy Soletanche and Emcor Drake & Scull is engaged to carry out civil engineering and construction works for the extension and refurbishment of St Pancras Station forming part of the Channel Tunnel High Speed Rail Link project (CTRL). The Employer under the contract is Union Railways (North) Ltd. Union Railways has also engaged a project manager for the works called Rail Link Engineering (RLE) who also comprise a consortium of four companies; Bechtel, Ove Arup, Halcrow and Systra. Bechtel is the dominant member of the RLE consortium in that most of the RLE personnel who are performing functions under the contract are Bechtel employees. Quite apart from its project manager role in RLE, Bechtel also has a significant stake in the CTRL project. Whether that potential conflict might be seen as influencing Bechtel's ability to carry out its functions within the project manager consortium to act impartially between the employer and the contractor was considered in a recent case in the Technology and Construction Court by Mr Justice Jackson. The contract between Union Railways and Corber was based upon the New Engineering Contract which allows the contractor to be paid its defined actual costs less disallowed costs, together with a fee calculated in accordance with the contract. The contract also contains a target cost mechanism such that Corber will participate in any cost over or underrun against the target. The target cost is adjusted to reflect the actual works carried out under the contract by the valuation of "compensation events". The project manager, RLE, carries the responsibility of assessing the amount due to the contractor for each interim payment. In February 2005 payment certificate number 47 was issued by RLE showing that the total value of work carried out was approximately £264 million and that disallowed costs were approximately £1.4 million. By the following interim certificate in April 2005, the disallowed costs had risen to £5.8 million. Corber were concerned that an unreasonable approach was being taken by RLE towards the certification of monies due and this concern was heightened when they learned of a meeting that had been called by the rail operations manager of Bechtel attended by all Bechtel staff employed on the CTRL project. It seems that the manager had indicated to his staff that Bechtel, as the largest shareholder in RLE, had most to lose if that the project was not a financial success. It was clear that the target cost was outstripping the projected outturn cost of the project and the Bechtel manager encouraged a stricter attitude to the administration of the contract. The reports of this meeting which came to Corber were however rather more alarming. Corber became concerned that Bechtel had deliberately adopted a policy of administering the contract unfairly and adversely to the contractor. Corber immediately wrote to Bechtel threatening to commence proceedings unless satisfactory undertakings were given by Bechtel that they would not instruct their staff to operate the contract mechanisms otherwise than impartially and in good faith. Bechtel denied all allegations of improper conduct and bad faith and refused to give the undertakings sought. Accordingly, Corber commenced proceedings in the Technology and Construction Court claiming a series of injunctions in similar terms to the undertakings which had been sought from Bechtel. Mr Justice Jackson was satisfied that for the purposes of granting an injunction against Bechtel, the evidence did not lay the foundation for a case based on dishonesty in the sense that Bechtel staff were being directly instructed to misapply the terms of the contract. However, Mr Jackson was satisfied that the evidence did show that the Bechtel manager was telling his staff at the meeting to exercise their functions under the contract in the interests of the employer and not impartially. It was therefore appropriate to consider whether, under the terms of this contract, RLE was under a duty to act impartially when assessing sums payable to the contractor. The starting point in any consideration of this issue was a decision of the House of Lords in Sutcliffe v Thackrah in 1974. In that case the House of Lords held that a building owner and contractor made their contract on the understanding that in all matters where the architect had to make a decision which would affect the amount of money which the contractor would be paid, the architect would act in a fair and unbiased manner. Bechtel argued however that the CTRL contract was quite different. Firstly, the contractor's entitlement to payment was very detailed and very specific and did not leave the project manager any discretion. Secondly, if there was any dissatisfaction as to a decision made by the project manager, the contractor had recourse to the dispute resolution procedures in the contract. Thirdly, argued Bechtel, the project manager under this contract was specifically employed to act in the interests of the employer. Mr Justice Jackson was unimpressed by these arguments and rejected the notion that the time honoured principles stated in Sutcliffe would not apply. He commented that it would be a most unusual basis for any construction contract to provide that every doubt should be resolved in favour of the employer and every discretion exercised against the contractor. In conclusion, Mr Justice Jackson confirmed that Corber had clearly made out an arguable case that Bechtel and its manager were under a misapprehension as to RLE's legal duty. On the evidence, Corber had established that there were serious questions to be tried as to whether RLE had acted in breach of its duty and accordingly had put Union Rail in breach of its contract with Corber. Despite these findings that there were serious questions to be tried with regard to RLE's performance of its duties, on the balance of convenience Corber had failed to show that this was a proper case for granting an injunction and accordingly that application was refused.
CJ-0525
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