| Date | 28 September 2005 |
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| Judgment | Great Eastern Hotel Co Ltd v John Laing Co Ltd, TCC 24 February 2005 |
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| The Issue | Examining the extent of duties imposed by construction management. |
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| Implication |
Whilst
the standard construction management agreements impose upon the construction
manager obligations of a professional person, breach of those obligations
can give rise to damages similar in scope to those which might be
faced by a traditional main contractor operating under a lump sum
contract. |
printConstruction management is a relatively recent development in the construction industry reflecting the reluctance of major contractors to undertake all the risks inherent in the standard main contract. As a concept, it has been described as a method of procurement whereby the construction manager manages the construction of the project without accepting the overall risks of time and cost, which remain with the client. The case of the Great Eastern Hotel v John Laing decided earlier this year may cause these basic principles to be viewed in a different light. Great Eastern Hotel Ltd (GEH) was a consortium of hotel operators and owners who engaged Laing as construction managers for the redevelopment of the Great Eastern Hotel adjacent to Liverpool Street Station in the city of London. The project was substantial involving extensive demolition and rebuilding to create a hotel containing over 260 bedrooms, 5 restaurants, bars and conference facilities. At the commencement of the project, the client's budget was in the order of £35 million, including contingency. The overall cost for the project ended up in excess of £61 million. In addition to this massive overspend, completion of the project was almost one year late. GEH commenced proceedings against Laing, claiming its trading losses for the period of delay, and seeking reimbursement of substantial elements of the overspend. The construction management agreement contained fairly standard terms that the construction manager would carry out its services using the reasonable skill, care and diligence to be expected of a properly qualified and competent construction manager. The services to be carried out by the construction manager were set out in a schedule to the agreement and included, by way of example, that the construction manager "shall procure that each trade contractor complies with all of its obligations under their respective trade contracts", and that the construction manager would "provide such management, control, administration and planning with the work of the trade contractors so as to ensure full compliance by the trade contractors with their respective trade contracts". GEH argued that those clauses amounted to absolute obligation to achieve regular and diligent progress and completion by the due date. Laing contradicted that view by maintaining that this was a contract for the provision of services, quite distinct from the responsibilities of a traditional main contractor or management contractor. On this point Judge Wilcox agreed with Laing. The contract as a whole imposed upon the construction manager obligations of a professional man performing professional services as set out in the agreement. This however did not leave Laing free from liability. Judge Wilcox carefully reviewed the allegations of failure against Laing and concluded that in a variety of crucial respects, Laing had been in breach of the various duties contained within the construction management agreement. For example, there were considerable delays to the procurement and completion of a temporary roof which was critical to the whole project and which caused substantial delay. Judge Wilcox concluded on the evidence that Laing had failed to place and manage this package of works effectively and in consequence, by their acts and omissions, had been proved to have significantly caused delay during this early critical phase of the works. Further delay in the demolition works exacerbated by a failure to protect existing services was also held to be the responsibility of Laing. Similarly, a failure to correctly check the setting out of steelwork which had been erected out of tolerance was held to be a breach of the construction manager causing more delay. Judge Wilcox was also satisfied that Laing had ordered the removal of the temporary roof too early, causing significant areas of the building to be exposed to water ingress. Laing were also found to be in breach of an obligation to take reasonable steps to include all of the necessary works in the relevant trade contract packages with the result that on numerous occasions variation instructions had been issued to the trade contractors giving rise to additional and unnecessary costs. Central to the case against Laing however, were the allegations concerning Laing's programming and co-ordination of the works of the trade contractors. Laing's attempts to reprogramme the works to recover delays were held to be inadequate. This was caused in part by a failure of Laing to accurately report the true progress of the works. Judge Wilcox plainly regarded this as a serious failing, which had prevented Laing from reorganising the project in such a way that the trade contractors could be properly coordinated in accordance with the actual progress of the works. The upshot of all this was that although the construction manager did not guarantee that the works would be completed for a fixed lump sum or by a defined completion date, the construction management agreement nevertheless imposed clear obligations upon Laing which were enforceable against them. Since it was held that Laing were in breach of these fundamental obligations to manage, administer and coordinate the works of the trade contractors, GEH substantially succeeded in its claims for damages. These included the loss of profits from hotel operation as a consequence of the late completion, the abortive acceleration monies paid to trade contractors and the majority of the loss and expense claims paid to trade contractors who had been delayed and disrupted in the carrying out of their works predominantly as a consequence of Laing's failings. Whilst construction management remains the only viable option for the procurement for certain large and complex projects, as a result of this case clients and construction managers may well view the process with greater caution leading to a tightening of the performance requirements and reporting procedures expected from construction managers.
CJ-0538
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