The Engineer s Role in Contract Management

The Engineer’s Role in Contract Management

Tony Dymond*3)

[ 目次 ]

Ⅰ. The Engineer and his relationship

with the Employer

Ⅱ. The Engineer’s Role

1. Authority of the Engineer

2. The duties of the Engineer

Ⅲ. Disputes

1. Decisions of the Engineer

2. Procedure for Engineer’s Determination

of Contractor’s Claims for additional

time or payment

Ⅳ. Conclusion

Ⅰ. The Engineer and his relationship with the Employer

This article analyses the Engineer’s role in Construction Contracts governed by English Law. Similar principles will apply whether governing law is that of other Common Law jurisdictions.

In most standard (and indeed bespoke) forms of engineering contracts the Engineer will be named in the contract if he is to exercise a role under it. He will not generally be a party to the contract However, where a partnering approach is to be adopted (such as in the UKPPC 2000 form published by the Association of Consultant Architects) he may be a party. His pre-contractual role is not generally addressed in engineering contracts but is discussed here for the sake of completeness.

Whether the engineering contract is to be let on the traditional (Employer’s design), designed portion or full design and build basis, the Engineer will have had input into the design produced on behalf of the Employer. This may be a comprehensive service where a traditional approach is adopted and the Contractor is provided with a full design at the tender stage. In other cases where a Contractor’s designed portion approach is taken, some but not all of the design will be produced by the Engineer, leaving the Contractor to produce proposals for part of the design. Where the contract

[논문접수일: 2013. 6. 20. / 심사개시일: 2013. 7. 6. / 게재확정일: 2013. 7. 24.]* Lawyer, Herbert Smith Freehills(Partner)

40 國際去來法硏究第 22 輯第 1 號

is to be let on a design & build basis, the Engineer’s role will initially comprise design services for the preparation of Employer’s Requirements. In relation to both a designed portion and Contractor’s Proposals for Design & Build, the Engineer will have a checking role, where he will ascertain whether the Contractor’s proposals meet the Employer’s Requirements. The Engineer’s employment maybe novated to the Contractor after the contract is let.

The Engineer may also have a role,albeit more limited, in the evaluation of tender proposals, particularly if two-stage tendering is adopted and some measure of value engineering is undertaken at the tender stage. This process may also continue after award of the contract, for example under Clause 13.2 of FIDIC.

The Engineer may be engaged under standard or bespoke terms of appointment, in the latter case sometimes amounting to no more than a simple letter of engagement. In standard forms (for example, the FIDIC White Book client/consultant model services agreement), the standard to be adopted in performance of the Engineer’s obligations will generally be spelt out. In the FIDIC Form at Clause 5 it is stated that “the consultant shall exercise reasonable skill, care and diligence in performance of his obligations under the Agreement”. The consultant will therefore only be liable where he has failed to exercise reasonable skill, care and diligence. If he has performed this obligation but, notwithstanding this, the completed works are not fit for purpose, the consultant will generally have no liability.

However, if no standard is stated for the performance of the client’s services (as maybe the case in bespoke forms) liability will generally only arise where negligence can be shown on the part of the Engineer, judged against the standard of ordinary skilled engineers. If the Engineer can show that he acted in accord with general practice, he will usually have a good defence against allegations of negligence.

It is, of course, possible for the Engineer to assume a greater liability and effectively warrant that a particular result will be achieved. Such special circumstances were found in the English case of Greaves v Baynham.1) In that case there was an implied warranty that a floor would be reasonably fit for the purpose for which the engineers knew it was required. However, the Court stressed that this was a special case.

1) Greaves & Co. (Contractors) Ltd. v Baynham Meikle & Partners (1975) 3 All ER99

The Engineer’s Role in Contract Management 41

Ⅱ. The Engineer’s Role

1. Authority of the Engineer

Taking the FIDIC conditions as an example, the Engineer has,by clause 3.1in the Red and Yellow Books, the duties assigned to him in the contract but has no authority to amend the contract. He may exercise the authority attributable to the Engineer specified in or necessarily to be implied from the contract. Particular Conditions may specify whether the Engineer is required to obtain the approval of the Employer before exercising the specified authority. However, the Employer undertakes not to impose further constraints on the Engineer’s authority, except as agreed with the Contractor.

There is a provision protecting the Contractor in the same clause which states that, whenever the Engineer exercises a specified authority for which the Employer’s approval is required, then (for the purposes of the contract) the Employer shall be deemed to have given approval. Therefore the Contractor can comply with Engineer’s instructions (given pursuant to Clause 3.3) without needing or being entitled to investigate whether the Employer’s approval has in fact been obtained, even though the contract otherwise requires such approval. Any issue as to an excess of authority will be a matter to be resolved between Employer and Engineer.

(1) The Engineer as Contract Administrator under FIDIC

There are two approaches to the role of the Contract Administrator under FIDIC. In the Red (Employer’s Design) and Yellow (Plant and Design Build) Books the Engineer fulfils this role and is referred to as the “Engineer” in both Books.

In the Gold Book (Design, Build and Operate) an Employer’s Representative is appointed, but in practice it is likely that he will be an Engineer. This Book says at clause 3.1 that the Employer’s Representative “shall be suitably qualified and experienced”.

The Engineer or Employer’s Representative, although named in each Book, is not a party to the contract and the terms of his employment will be contained in a separate agreement between the Engineer or Employer’s Representative and the Employer. This may be on the terms of the FIDIC White Book, although other terms are encountered, whether bespoke or on standard forms produced by professional bodies such as the Association for Consultancy and Engineering (“ACE”).

By contrast the Employer is the contract administrator under the Silver Book (EPC/Turnkey Projects). Clause 3.1 permits him to employ an Employer’s Representative to act


on his behalf under the contract. There are no restrictions on who may be appointed to act in this capacity and it may be that an Engineerwill also be appointed to fulfil this role where the Silver Book is used. There are, however, differences between the roles of the Employer’s Representative under the Silver as opposed to the Gold Book as to which see below.

(2) Replacement of the Engineer

The Engineer or Employer’s Representative will be named in all the FIDIC Books and therefore it is necessary to have provision for replacing the Engineeror Employer’s Representative if this becomes necessary due to incapacity or for some other reason. Previous editions of the Books required the Contractor’s approval to appointment of a replacement Engineer but, as this was capable of leading to deadlock, different provision is now made in the Books. In the Red and Yellow Books, Clause 3.4 requires the Employer to give the Contractor not less than 42 days’ notice of the identity of the proposed replacement before intended replacement. The Contractor may object on reasonable grounds. What is reasonable is not stated but will no doubt include reference to the experience of the replacement Engineer to carry out the roles specified under the contract.

Under the Red and Yellow Books a dispute as to whether reasonable objection had been raised would be decided by a Dispute Adjudication Board (“DAB”) leading if necessary to arbitration or litigation.

In the Silver Book, the Employer’s Representative may be replaced at any time simply by informing the Contractor of the identity of the replacement. He has no right to object.

(3) What are the roles of the Contract Administrator under the various Books?

The functions of the Engineer fall into a number of categories which can be summarised as follows:

• Design role-see above• Approvals and supervision• Management including instructions and variations• Valuation and certification• Determinations

FIDIC at Clause 3.1(a) specifies that whenever carrying out duties or exercising


authority, specified in or implied by the contract, the Engineer shall be deemed to act for the Employer. Effectively this means that the Engineer acts as the Employer’s agent for such purpose.

There are cases, as was recognised in Costain v Bechtel,2) where the Engineer acts solely in the interests of the Employer. This might occur where,as it was said,the Engineer is “deciding which of two alternative quotations to accept”. However, even where the contract does not refer to Clause 3.5 (in relation to determinations) when setting out details of the Engineer’s powers, it is likely that the Engineer would be required to act fairly and impartially when deciding issuesbetween the Employer and Contractor.

An example might be the Engineer’s power under Clause 7.6 to require removal and replacementof any plant or materials or removal and re-executionof any other work,in both cases if they are not in accordance with the contract. In the Costain case it was said that “it would be a most unusual basis for any building contract to postulate that every doubt should be resolved in favour of the Employer and every discretion should be exercised against the Contractor”. By reference to Clause 1.3 the determination must not be unreasonably withheld or delayed. It may be that any such delay would itself constitute a dispute which could be referred to a DAB for determination.

(4) Determinations

Continuing to adopt the distinction set out above as regards the Silver Book against all other Books, the Engineer in those latter Books is required to make “fair determinations” wherever it is provided that he is to agree or determine any matter. Clause 3.5 of the Red and Yellow Books stated that, “wherever these conditions provide that the Engineer shall proceed in accordance with sub clause 3.5 to agree or to determine any matter, the Engineer shall consult with each party and endeavour to reach agreement. If agreement is not achieved, the Engineer shall make a fair determination in accordance with the contract, taking due regard of all relevant circumstances”.

Unlike the position under the new 2013 I Chem E Form, there is no express requirement on the Engineer to act impartially.However by taking into account the case law referred to below, there can be little room for doubt, at least in common law countries, that he has an implied obligation to this effect and express wording may be unnecessary. There are many clauses which require a determination to which the

2) Costain Ltd. v Bechtel Ltd. (2005) TCLR 6


provisions of3.5 apply. These are set out in a table annexed to this paper and it will be seen that many of the issues most likely to result in disputes are contained in this list. A further table is also annexed of issues which may be determined by the Engineer under the parallel provisions of Clause 2.5 relating to amounts due to the Employer, which itself cross refers to Clause 3.5 so that fairness is expressly required.

Some examples of these issues are the valuation of work under clause 12.3, valuation of variations under clause 13.3, determination of claims for extension of time under clause 8.4, determination of claims for additional payment under various clauses e.g. consequences of suspension under clause 8.9 and evaluation of unforeseeable physical conditions under clause 4.12. As well as all of these matters (and others referred to in the table) requiring determination, an express reference to a fair determination is also found at clause 14.6 (or 14.7 in the Gold Book) in relation to payment certificates.

So far as all these duties are concerned, it is readily apparent that the Engineeror Employer’s Representative is acting to resolve issues arising between the parties as to which, at least so far as the authorities referred to below indicate, the Engineer is required to act impartially as well as fairly between the Contractor and the Employer.

By contrast, in the Silver Book the Employer is his own contract administrator. The difference in approach has proved somewhat controversial and it is thought to be not uncommon for an Employer’s Representative to be appointed so to mitigate the apparent potential for unfairness that may arise from the Employer being a “judge in his own cause” when making determinations as described above. This is expressly permitted by clause 3.1 which allows the Employer to appoint an Employer’s Representative to act on his behalf under the contract. He is to carry out duties assigned to him and [to] exercise the authority delegated to him by the Employer. However, the Contractor may assume, unless informed otherwise, that the Employer’s Representative has the full authority of the Employer. This also arises from clause 3.1, which states that unless and until the Employer notifies the Contractor otherwise, the Employer’s Representative shall be deemed to have the full authority of the Employer under the contract except in respect of clause 15 (termination) [of employment].

By reference to authorities such as Scheldebouw (see below), it can be seen that the courts have had doubts as to whether an Employer can properly perform the role of Contract Administrator in particular due to the requirement that he must act fairly between the parties. The court said in that case that “a senior and professional person within an organisation can conscientiously put his Employer’s interest on one side and make an independent decision…it is more difficultfor the organisation itself to make a decision which is contrary to its own interests”. Therefore it may be more appropriate


for a suitable person (who may be an Engineer) to assume the role of Employer’s Representative. With some exceptions (for example, clause 1.9 relating to errors in the Employer’s Requirements and clause 4.12 relating to unforeseeable physical conditions), the roles of the Employer or Employer’s Representative in the Silver Book are similar to those in the Red, Yellow and Gold Books, for which see the table below. The provisions of clause 3.5 requiring a fair determination to be made are also the same.

However, any determination made by the Employer or Employer’s Representative will not take effect under the Silver Book if the Contractor gives notice to the Employer of his dissatisfaction with such determination within 14 days of receiving it. Either party may then refer the dispute to the DAB in accordance with sub-clause 20.4. By contrast in the Red and Yellow Books, the provision requiring effect to be given to determinations is unqualified.

2. The duties of the Engineer

The roles which the Engineer is called upon to play as a result of the commonly encountered terms of standard form and bespoke contracts are wide. In many situations he will need to exercise judgment in deciding an issue between the Contractor and the Employer. For example, he may value and certify the work, decide on extensions of time and loss and expense or give a decision as a precursor to the DAB’s involvement prior to arbitration or litigation. In other situations, for example in advising the Employer on tenders or issuing a variation instruction, he does not decide any matter which is in issue between the Employer and Contractor but effectively acts as the Employer’s agent.

(1) Managerial Duties

Under this heading may be grouped the Engineer’s role’s in relation to approval and supervision of works and giving instructions including those applicable to variations. As regards supervision, there is no specific reference in FIDIC to the role played by the Engineer, save in respect of the reference to Clause 3.2 of the Red and Yellow Books to delegation by him to assistants. Clause 3.2 provides that any approval or similar action by an assistant in accordance with the delegation shall have the same effect as though the act had been an act of the Engineer. However, any failure to disapprove any work, Plant or Materials will not constitute approval and does not therefore prejudice the right of the Engineer to reject the work, Plant or Materials. A determination or


instruction of an assistant may be referred by the Contractor to an Engineer who may confirm, reverse or vary it.

The Engineer’s duties in relation to supervision of work are owed to the Employer and it has been held in the English Courts that “the building owner is entitled to expect his [Engineer] so to administer the contract and supervise the work, as to ensure, as far as is reasonably possible, that the quality of work matches up to the standard contemplated. (Sutcliffe v Chippendale).3) The Engineer’s duty is not strict and he does not guarantee that a particular result will be achieved or that all defective work has been detected. The times and manner in which inspections are carried out will depend on the individual circumstances of each contract and more intense supervision may be necessary where work will be covered up by the Contractor in due course. On major projects a resident Engineer or a team may be appointed where more intense inspection may be the norm.

As regards instructions for variations, Clause 3.3 of FIDIC gives the Engineer power to issue at any time instructions and additional or modified drawings which may be necessary for the execution of the work and the remedying of any defects. These instructions must be given in writing whenever practicable. If the Engineer or delegated assistant gives an oral instruction and receives either a written confirmation within two days or no reply, then the instruction is confirmed as a written instruction of the Engineer or delegated assistant. Instructions may constitute a variation which may be issued at any time prior to issuing the taking-over certificate for the works. The Contractor must execute such variation instructions unless he promptly gives notice to the Engineer stating that he cannot commercially obtain the goods required for the variation. However, the Engineer may confirm or vary the instruction if he does not choose to cancel it.

It should be noted that any instruction given by the Engineer must be “necessary” for the works so that an instruction which is merely preferable in the view of the Engineer or the Employer may not be justified unless the instruction also constitutes a variation. The effect of this requirement is that the Engineer or Employer’s Representatives cannot instruct changes to the Contractor’s methods of working unless they are to constitute a variation, in which case additional time and cost may be available.

Reference has already been made to the concept of value engineering as part of the tender process. This may also take place during the course of the contract pursuant to Clause 13.2 of FIDIC. The procedure is for the Contractor to submit to the Engineer a written proposal which will be of benefit to the Employer in a number of stated ways

3) Sutcliffe v Chippendale & Edmonson (1971) 18 BLR 149


such as accelerating completion or reducing costs. The Engineer may approve this proposal. Should it include a change in the design of part of the works then the Contractor takes responsibility for designing that part and not the Engineer, but he will of course have to comply with any conditions of approval imposed by the Engineer. Under the Red Book the Engineer must determine a fee payable to the Contractor if the change results in a reduction of the contract value of the relevant part which is half the difference between the reduction in contract value and the reduction in the value to the Employer of the varied works, but a fee is not payable if the first element is less than the second.

Under the Silver Book it is the Employer who consults with the Contractor and if agreement is not reached, makes a fair determination. The Employer may delegate under Clause 3.1 to theEmployer’s Representativethe power to consider proposals and to make determinations.

There are a number of other responsibilities of the Engineer which are not stated to result in a determination under Clause 3.5. For example, the Engineer must decide under Clause 11.9 of the Red Book whether the Contractor has completed obligations under the contract and under Clause 14.9 of the same book he must decide whether any work remains to be executed under the defects liability provisions at the time of certifying release of retention monies. Whilst the Engineer or Employer’s Representative is not expressly required in this regard to act fairly or impartially, the various authorities referred to below indicate that, at least in common law countries, a duty to that effect would be employed.

In all relation to the Red, Yellow and Gold Books, the Engineer or Employer’s Representative may delegate authority to assistants which may include a resident Engineer or independent inspector to inspect/or test items of Plant or Materials. However, the Engineer may not delegate the authority to determine any matter in accordance with Clause 3.5. The Silver Book does not directly address this issue but the same interpretation is likely. A Contractor who questions any determination or instruction of a delegated person may refer to the matter to the Employer who is to confirm, reverse or vary the determination or instruction.

(2) Deciding issues between Employer and Contractor

When deciding issues between the Employer and Contractor, what is the nature of the Engineer’s role? Does he act as quasi-arbitrator, independently or merely “fairly”? This issue has received considerable attention from the Courts in England and Wales and further afield and a number of relevant authorities are referred to below.


Both in relation to construction contracts and similar contractual arrangements where functions such as certification are to be carried out, this question has been considered in cases stretching back some 70 years. In point of time, the first was the English case of Frederick Leyland v Panamena4) where a surveyor in relation to ship repair was held to be “not either an arbitrator or a quasi-arbitrator … but only an expert whose opinion in regard to the quality of the work done the Contractor has to satisfy as a condition precedent to the owner’s [Employer’s] undertaking to pay.”

The Court referred here to the duality of the surveyor or Engineer’s duties so that, for example, he may be carrying out surveillance or inspections on his Employer’s behalf and reporting to him. In such a situation, the decisive opinion would be of the Employer. However, when the surveyor certifies a value the deciding opinion is his and therefore this should be an independent opinion. His role is not judicial or quasi-judicial, a point which attains some relevance in relation to later cases, in particular the AMEC case referred to below.

There is something of a paradox here. The Engineer is not an independent person in the sense of one who is employed by neither party. Arbitrators or judges by comparison are truly independent even though the parties may meet some fees for their services. Rather, the Engineer has a duty to act in an independent manner, despite himself not being an independent person.

In the Australian case of Perini v Commonwealth of Australia,5) the Engineer was an officer of the defendant Government. The Court held that he was not an arbitrator, but rather an employee of the body on whose behalf he undertook his work. He was merely charged with the duty of resolving disputes between the Contractor and the Employer or certifying as to the quality of work done or as to the value of it. He remained an employee of the Employer in such a capacity but was “vested with duties which oblige him to act fairly and justly and with skill to both parties to the contract”. The basis of such a finding is the contract itself. The parties have agreed that the Engineer will hold these dual functions and to accept his certificate or opinion on the matters which he is required to decide.

Subsequently in the English case of Hounslow v Twickenham Gardens6) (a very influential judgment) the Court confirmed that the architect (for which read Engineer) must retain his independence in exercising his judgment but need go no further and observe the rules of natural justicein the sense of giving due notice of all complaints

4) Frederick Leyland & Company Ltd. v Panamena Europa Navigacion (Compania Limitada) (1943) 76 Lloyd’s Reports 113 and (1947) AC 428

5) Perini Corporation v Commonwealth of Australia (1969) 12 BLR 826) London Borough of Hounslow v Twickenham Garden Developments Ltd.(1971), Ch. 233


and affording both parties a hearing. The AMEC case below shows the importance of such a finding. The Court concluded that:

“It is the position of independence and skill that affords the parties the proper safeguards

and not the imposition of rules requiring something in the nature of a hearing”

In the subsequent leading English case of Sutcliffe v Thackrah7) the House of Lords considered again the duality of the architect’s or engineer’s functions. The House noted that the building owner and the Contractor “make their” contract on the understanding that in matters [where the Engineer decides between the parties, he] will act in a fair and unbiased manner and it must therefore be implicit in the owner’s contract with the [Engineer] that he should not only exercise due care and skill but reach such decisions fairly, holding the balance between his client and the Contractor. The House of Lords reiterated that an Engineer was not an arbitrator in exercising such functions and that his duty to act fairly does not conflict with, but rather is part of, his duty to safeguard and look after the interests of the building owner who has employed him.

The subsequent English decision of Beaufort v Gilbert Ash8)considered the basis upon which architects and engineers give certificates for payment under the JCT Standard Form of Building Contract. The House describes such certificates as having “provisional validity”. The rights and the duties of the parties at any given moment can, at least provisionally, be determined with some precision. However it was also said that the architect is the agent of the Employer. He was a professional man but can “hardly be called independent….One would not readily assume that the Contractor would submit himself to be bound by his decisions subject only to a challenge on the grounds of bad faith or excess of power”.

The House concluded that in the light of the architect’s orEngineer’s duties as described above one would require clear words before construing a contract as giving an architect orEngineer power to make a certificate conclusive.

It was however noted in the English case of Scheldebouw v St. James Homes9) that the architect or Engineer’s decisions may be binding if they are not challenged and that this is consistent with the Court’s approach outlined above. The Engineer is not independent but this is consistent with the proposition that he is required to act in an independent manner in certain situations. His certificates may not, in fact, be challenged by either party and may attain binding status if the Contractor and Employer accept this

7) Sutcliffe v Thackrah (1974) AC 7278) Beaufort Developments (NI) Ltd. v Gilbert Ash (NI) Ltd. (1999) AC 2669) Scheldebouw v St. James Homes (Grosvenor Dock) Ltd. (2006) BLR 113


to be case. But it seems that certificates which are automatically conclusive without the opportunity for challenge may be unenforceable if made by an architect or Engineertaking into account the duties set out above.

In the English case of AMEC v Secretary of State for Transport,10) the limits of the Engineer’s duties of fairness were tested. In this case limitation was a problem for the Employer and he had sent a request for a decision to the Engineer without copying to the other side. The object was to obtain an Engineer’s decision so that the Employer would be able to commence arbitration before the limitation period expired.

The Contractor objected to a decision having been reached by the Engineer without his being allowed to make representations. The Court held that the Engineer is under no obligation to abide by the rules of natural justice in reaching his decision. These provide(inter alia) that anyone acting in a judicial or quasi-judicial capacity must hear what the other party has to say. If the rules apply then it would usually be improper for a decision to be reached on the basis of having considered one party’s submissions alone, unless the other party had failed to make submissions or had indicated that it does not want to make them. However, the Court in AMEC decided that the Engineer’s obligations in reaching his decision only required him to act independently and honestly and that the rules of natural justice were not implied. It may also be said that he should act “fairly” but “what is regarded as fair is flexible and tempered to the particular facts and occasion”.

In the Scheldebouw Case, the Court reiterated that the precise role and duties of the decision maker are determined by the terms of the Contract under which he is required to act. He may not be regarded as independent of the Employer but must act in a manner which is independent, impartial, fair and honest. These concepts are overlapping but not synonymous and the intention is that the decision maker reaches the right decision, as opposed to a decision which favours the interests of the Employer.

This point was also addressed in the English case of Costain v Bechtel11) where the Court confirmed that a Project Manager under an NEC Form of Contract had essentially the same duties as the architect or Engineer described above. The Court noted that a situation where the Project Manager always gave the benefit of the doubt to the Employer would not be one in which the Project Manager was properly exercising his role. Similarly, it was said by the Employer inScheldebouw that the construction manager acted entirely as the Employer’s agent in protecting his interests. The Court said that this was not a proper analysis in the light of the above authorities.

10) AMEC Civil Engineering Ltd. v Secretary of State for Transport (2005) BLR 22711) Costain Ltd. v Bechtel Ltd. (2005) TCLR 6


(3) Liability of the Engineer to the Contractor

If the Engineer fails to perform, for example, by negligently under-certifying or carrying out valuations, what potential liability will he have? It is unlikely that a Contractor or subcontractor can claim against him. Any such claim would have to be bought in tort as there is, in normal circumstances, no contract between the Engineer and the Contractor. There are a number of factors militating against the existence of a duty of care in this situation.

In the first place, any such claim would be for economic loss which is not generally recoverable in tort with certain well defined exceptions.12) These generally relate to physical damage to another person or another’s property and are clearly inapplicable in this context. Secondly, the contractual structure which generally applies also indicates that a duty of care would not arise. In this structure, the Contractor’s claim is against the Employer in respect of under-certification.

In the leading English case of Pacific Associates v Baxter13) the Contractor claimed against the Engineer in tort in respect of negligent under-certification and failure to act fairly and impartially in his administration of the contract. There was an arbitration clause in the contract between the Employer and the Contractor. There was also a clause in the Building Contract to the effect that the Engineer would not be personally liable “for the acts or obligations under the contract … or … any default or omission on the part of the Employer”. The Court decided that no duty of care arose as the Contractor had remedies available against the Employer through arbitration.

It is likely that the same decision would be reached where the Contractor’s remedies against the Employer are in litigation rather than arbitration. Whilst the Court said the result might have been different had there been no arbitration clause, it is invariably, in the writer’s experience, the case that a building contract provides either for arbitration or litigation or leaves the matter silent, in which case litigation will be the sole remedy.

In any of these cases, the Contractor has his remedies against the Employer and there is no need to look to the Contractor thus indicating that no duty of care will arise. A similar result was achieved in the Court of Appeal of Singapore in Spandeck v Defence.14)

However, in the case of Edgeworth v Lea,15) the Supreme Court of Canada held that engineers may have duties in respect of negligent misstatement to a Contractor in

12) Spartan Steel v Matin [1973] 1 QB 2713) Pacific Associates v Baxter (1990) QB 99314) Spandeck Engineering(S) Pte Ltd. v Defence Science & Technology Agency (2007) SGCA 3715) Edgeworth Construction Ltd. v Lea & Associates Ltd. (1994) 66 BLR 56


respect of errors in tender documents despite the existence of a contract between the Contractor and the Employer.

The contract between the Contractor and the Employer excluded liability on the part of the Employerfor errors in tender documents prepared by the Engineer. There was no exclusion of liability on the part of the Engineer although he was not, of course, party to the contract. The Court held that, in these circumstances, liability may arise for negligent misstatement by the Engineer since he knew that this tender documentation would be considered by the Contractor who would rely on the information contained therein when preparing his tender. The Court said that, if there was no potential for liability, the Contractor would need to engage his own Engineer rather than rely on the Employer’s Engineer as regards liability for any negligent misstatement.

This is a different factual situation from Pacific v Baxter and it can be seen that, unlike that case, the Contractorin Edgeworth had no material claim against the Employer by virtue of an express contractual provision. However, against this it may be argued that the Contractor has committed himself to this contractual structure and did not expressly reserve his rights against the Engineer. It is doubtful that this case will be followed in either England or Singapore.

In Galliford v Mott16)the Court addressed the issue of liability of an architect or Engineer to tendering contractors. It said “in the ordinary course of events, I have no doubt that an architect or Engineer engaged by a developer would not owe any duty of care (at least in relation to economic loss) to tendering contractors even though the latter had been supplied by the architect or Engineer with tender information, drawings and specification upon which to base their tenders. The successful tenderer will be considered to have taken the risk in respect of that information”.

The Court considered whether this general view would be displaced in that case by exceptional circumstances, for example by specific representations made, but concluded it was not. It had been planned that the engagement of the engineers would be novated to the Contractor and the novation would provide for an assumption of responsibility by the Engineer to the Contractor. However, this did not take place and was not considered material to the outcome. A novation, if entered into, will create direct rights between the Engineer and Contractor.

In the English case of Jarvis v Castle Wharf17) the court considered the position of a quantity surveyor in respect of an alleged negligent misstatement made where there was

16) Galliford Try Infrastructure Ltd. v Mott MacDonald Ltd. (2008) 120 Con LR117) J Jarvis & Sons Ltd. v Castle Wharf Developments Ltd. & Others, Unreported 19th January

2001


no contract between the Employer and the Contractor at the time that the misstatement would have occurred. The Pacific case was distinguished by reason of the general disclaimer of liability in the contract between the Employer and Contractor and it was said that “the actual decision was based on the inconsistency created by the chain of contracts with a duty of care”.

The Court concluded that “there is no reason in principle why the professional agent of the Employercannot become liable to a Contractor for negligent misstatements by the agent to a Contractor to induce the Contractor to tender, if the Contractor relies on those misstatements. But whether a duty of care in fact arises in any given situation must depend on all the circumstances, including in particular the terms of what was said to the Contractor.”In the case itself, it was found that there was no reliance by the Contractor on the misstatement and it may be that cases where such reliance can be shown will be rare.

Ⅲ. Disputes

1. Decisions of the Engineer

The process of decision making in engineering contracts has evolved towards impartial dispute resolution by a person independent of the parties and administration of the contract. Previously under provisions such as clause 67 in the FIDIC Red Book 1987 the Engineer decided disputes between the parties and produced a decision or determination which was enforceable through arbitration or litigation depending on the parties’ choice under the contract.

An example of the mode of enforcement of such a decision can be found in the ICC International Court of Arbitration case 10619 (2002) reported in their Bulletin Volume 19 number 2-2008 pages 85-90. In that case the tribunal decided that an arbitral award could be made to enforce a binding but not final decision of the Engineer under the 1987 conditions. In an earlier case (no. 3790 in 1983) the Court had decided that a binding and final decision could be enforced in this way.

FIDIC has now replaced the Engineer’s decision procedure by a DAB’s decision in the 1999 Booksto which it is likely that the same approach to enforcement would be taken. Engineers’ decisions in relation to claims or determinations are now, therefore, the precursor to the consideration by a DAB of the matters raised in the decision or determination. In general, this approach is found in other standard form contracts (for


example NEC and ICC) with the result that the Engineer’s decision or determination is no now intended of itself to produce an enforceable decision but may constitute the substance of a dispute between the parties leading to such a decision by a DAB or similar body or person. In some jurisdictions (for example in England and Wales under the Housing Grant (Construction and Representation) Act1996 and in some states of Australia) statutory adjudication applies so as to impose upon the parties a compulsory scheme of dispute resolution, itself also enforceable through the courts or arbitration.

It can be seen from the annexed table that the Engineer provides a vital role in contract administration in deciding the day to day issues capable of being referred to him under the contract. Although the point has not been tested, it does not appear that his decisions or determinations in this capacity will be enforceable by arbitral award or order of the court since they do not result from the application of a dispute resolution mechanism which is intended to produce an enforceable decision. None of the standard form contracts any longer provide that theEngineer will produce a binding decision which is intended to be enforceable, unless the parties subsequently agree it to be.

However, FIDIC sets out alternative wording in respect of sub-clauses 20.2 and 20.3 which provides that the Engineer is to act as a DAB in which case his decision will have the same effect as those of the Board and may be enforceable. FIDIC’s guidance on this issue states that this approach may be appropriate if the Engineer is an independent professional consulting Engineer with the experience and resources required for the administration of all aspects of the contract. Even so, it notes that the Employer must not prejudice the Engineer’s impartiality. It was primarily due to concerns as to impartiality that led to the introduction of the independent Disputes Adjudication Board and it is not thought that this alternative has been widely taken up.

2. Procedure for Engineer’s Determination of Contractor’s Claims for additional time or payment

This is set out in Clause 20 of FIDIC and is materially the same in all three Books, save that the Silver Book refers to the Employer instead of the Engineer. It can be summarised as follows:

• If the Contractor considers himself to be entitled to an extension of time and/or additional payment he must give notice as soon as practicable and not later than 28 days after he became aware or should have become aware of the events giving rise to the claim.


• He is debarred from claiming if he does not give such notice.• The Engineer may, after receiving such notice, monitor the Contractor’s record

keeping and/or instruct the Contractor to keep further contemporary records. The Engineer may inspect such records or require copies.

• Within 42 days after the Contractor became aware or should have become aware of the event in question, unless the Engineer extends time, the Contractor must send to him a fully detailed claim which may be considered as interim if the events in question have a continuing effect. In this case further interim claims are to be sent.

• Within 42 days thereafter the Engineer must respond with approval or with disapproval and detailed comments.

• He determines the extension of time and/or claim for additional payment in accordance with Clause 3.5.

• Claims can be referred to a DAB once a dispute has arisen and FIDIC’s guidance indicates that this will occur after the Contractor’s rejection of a final determination or the breakdown of negotiations.

There are variant provisions in the Gold Book:

• The Contractor may obtain a ruling from the DAB that it is fair and reasonable that a late claim submission be accepted and the 28 day limit may then be overruled.

• If the Employer’s Representative does not respond within the specified 42 day period, either party may consider that the claim has been rejected by the Employer’s Representative and may then refer the matter to the DAB.

• Either party may, within 28 days of issuing a notice of dissatisfaction with the Employer’s Representative’s determination, refer a dispute in writing to the DAB.

• If the Contractor fails to provide the Employer’s Representative with the basis of the claim within the 42 day period for submission of the detailed claim, the first notice given (even if within the 28 day period) is deemed to have lapsed, and it will no longer be considered as a valid notice. However the DAB may overrule the time limit on the Contractor’s application.

The Contractor has an obligation to keep contemporary records as may be necessary to substantiate the claim whether or not the Engineer has instructed him to do so. In a


decision of the Falkland Islands’ Supreme Court (Attorney-General of the Falkland Islands v Forbes18)) the Court interpreted “contemporary records” to be “original or primary documents” rather than witness statements produced after the event. By virtue of the last paragraph of Clause 20.1, any failing by a Contractor to comply with this obligation may be taken into account in assessing any extension of time/or additional payment to the extent that the failure has prevented or prejudiced proper investigation of the claim.

There is no specific sanction in the Red, Yellow or Silver Books if the Engineer does not respond to the Contractor’s claim within 42 days and it is unclear whether a dispute is deemed to have arisen in the event of such failure so that a reference to the DAB can be made. It may also be necessary for a determination under Clause 3.5 to be made before reference to the DAB. However, if the Engineer approves the claim (whether in whole or in part) it may be that a separate determination under Clause 3.5 is not needed. In the Gold Book, as stated above, either party may refer the dispute to the DAB if the Employer’s Representative fails to respond within 42 days after receiving a fully detailed claim on the basis that they may consider the claim has been rejected.

(1) The Effect of the Engineer’s Determination

In the Red, Yellow and Silver Books any sum determined by the Engineer to be payable under the provision of Clause 3.5 will be paid through the mechanism set out in Clause 14 as to payment certificates. These are to be issued by the Engineer to the Employer within 28 days after receiving the Contractor’s statement and supporting documents. At this point, the Engineer must state the amount which he fairly determines to be due with supporting particulars. However Clause 20.1 states that a payment certificate must include such amounts for any claim as have been “reasonably substantiated” as due under the relevant provisions of the contract. Such a stage may be reached before a determination is formally made under Clause 3.5, for example in the case of part or parts of the claim which have been approved as against those for which further information is still required.

In the Gold Book there is a procedure for a notice of dissatisfaction to be given by either party in order to refer to the DAB a dispute concerning an Employer’s Representative’s determination. This must be done within a 28 day period or the determination of the Employer’s Representative will be deemed to have been accepted

18) Attorney General of the Falkland Islands v Gordon Forbes Construction (Falklands) Ltd. (2003) BLR 280


by both parties and therefore binding on them. Further, by Clause 20.6, failure to refer the dispute to the DAB within the 28 days of issuing a notice of dissatisfaction will have the same effect.

(2) Employer’s Claims

These are governed by Clause 2.5 which in turn refers to Clause 3.5 in relation to the procedure for determining such claims. These may refer either to the amounts to be paid to the Employer by the Contractor and/or to any extension of the defects notification period. Any amount determined may be included as a deduction from the contract price in payment certificates. The Employer may only set off against or deduct from an amount certified in a payment certificate or otherwise claim against a Contractor in accordance with Clause 2.5. In the Silver Book set off is made against payments due to the Contractor as there are no payment certificates. A table of clauses referring to Clause 2.5 is appended.

Ⅳ. Conclusion

The Engineer’s role in contract administration is a wide one, encompassing an extensive range of duties as set out above. These can broadly be split into two categories. First, there are administrative roles such as issuing variation instructions as part of design management. Secondly,there are roles where he decides issues as between the Employer and Contractor, for example in relation to Contractor’s claims for extra time and payment as well as determinations as to valuation and Employer’s claims. In all the roles he performs, the scope of the Engineer’s duties is a creature of contract. However, case law indicates that significant terms may be implied into the contract to affect his duties, for example as to the duty to act impartially. A body of case-law has also developed in relation to potential liability of the Engineer to the Contractor, although in the common law world this is likely to be rare and confined to special facts.

◇ KEY WORDS ◇

Engineer, Liabilities, FIDIC, Dispute Resolution, Contractor’s Claims, Supervision

Valuation, Variations


<국문초록>

국제건설계약관리에서의 엔지니어의 역할

토니 다이먼드

Herbert Smith Freehills 파트너

본 논문은 국제 건설 계약에서 계약 담당자로서의 엔지니어의 역할을 고찰한 것으로, FIDIC과 IChem E 국제기관 등 표준 계약에서의 엔지니어의 역할을 조명한 논문임. 디자

인, 승인, 매니지먼트, 평가 및 분쟁 해결에서의 엔지니어의 역할에 대해 논하고, 이러한

역할을 수행함에 있어 공정성을 강조, 역할을 제대로 수행하지 못했을 경우 발생할 수 있

는 법적 책임을 고려해 보며, 여러가지 역할 수행에 있어 발생할 수 있는 잠재적 충돌을

분석한 바, 국제건축계약 판례를 포함한 판례법을 통해 상기 문제들에 대해 고찰해 보는

바이다.

◇ 주제어 ◇

엔지니어, 법적 책임, FIDIC, 분쟁해결, 계약업자의 클레임, 관리, 평가, 변형


Clause Red/MDB Yellow Silver Gold

1.9Delayed Drawings or Instructions

Errors in the Employer’s Requirements

N/A N/A

2.1Right of Access to the Site

Right of Access to the Site

Right of Access to the Site Right of Access to the Site

2.5 Employer’s Claims Employer’s Claims Employer’s Claims 20.2 Employer’s Claims

4.7 Setting Out Setting Out N/A Setting Out

4.12 Unforeseeable Physical Conditions Unforeseeable Physical Conditions N/AUnforeseeable Physical Conditions

4.19Electricity, Water and Gas

Electricity, Water and Gas

Electricity, Water and Gas N/A

4.20Employer’s Equipment and Free-Issue Material

Employer’s Equipment and Free-Issue Material


Employer’s Equipment and Free-Issue Material Fossils

4.24 Fossils Fossils Fossils Fossils

7.4 Testing Testing Testing Testing

8.4Review of Extensions of Time for Completion*

Review of Extensions of Time for Completion*

Review of Extensions of Time for Completion*

9.3 Review of Extension of Time for Completion*

8.5 Delays Caused by Authorities* Delays Caused by Authorities* Delays Caused by Authorities*9.4 Delays caused by Authorities

8.9Consequences of Suspension

Consequences of Suspension

Consequences of Suspension9.8 Consequences of Suspension

9.4 Failure to Pass Tests on Completion Failure to Pass Tests on CompletionFailure to Pass Tests on Completion

11.11 Failure to pass Tests Prior to Contract Completion

10.2Taking Over of Parts of the Works

Taking Over of Parts of the Works

N/A11.6 Commissioning of Parts of the Works

10.3Interference with Tests on Completion

Interference with Tests on Completion

Interference with Tests on Completion

N/A

11.4Failure to Remedy Defects

Failure to Remedy Defects

Failure to Remedy Defects12.3 Failure to Remedy Defects

11.8 Contractor to Search Contractor to Search Contractor to Search 12.6 Contractor to Search

12.2 N/A Delayed Tests Delayed Tests N/A

12.3 Evaluation N/A N/A N/A

12.4 OmissionsFailure to Pass Tests after Completion

Failure to Pass Tests after Completion

N/A

13.2 Value Engineering N/A N/A N/A

13.3 N/A Variation Procedure Variation Procedure Variation Procedure

13.7Adjustments for Changes in Legislation

Adjustments for Changes in Legislation

Adjustments for Changes in Legislation

13.6 Adjustments for Changes in Legislation

13.7 (Gold only)

N/A N/A N/AAdjustments for Changes in Technology

14.4 Schedule of Payments Schedule of Payments Scheduled of Payments Schedule of Payments

15.3 Valuation at Date of Termination Valuation at Date of Termination Valuation at Date of TerminationValuation at Date of Termination

15.4Payment after Termination*

Payment after Termination*

Payment after Termination*Payment after Termination for Contractor’s Default*

15.6 N/A N/A N/AValuation at Date of Termination for Employer’s Convenience

FIDIC: Contract clauses requiring Engineer’s determination under Clause 3.5


16.1Contractor’s Entitlement to Suspend Work

Contractor’s Entitlement to Suspend Work



17.4 Consequences of Employer’s Risks Consequences of Employer’s RisksConsequences of Employer’s Risks

17.6 Consequences of Employer’s Risks of Damage

18.1General Requirements for Insurances*

General Requirements for Insurances*

General Requirements for Insurances*

N/A

18.2Insurance for Works and Contractor’s Equipment*

Insurance for Works and Contractor’s Equipment*

Insurance for Works and Contractor’s Equipment*

N/A

19.4 Consequences of Force Majeure Consequences of Force Majeure Consequences of Force Majeure18.4 Consequences of an Exceptional Event

20.1 Contractor’s Claims Contractor’s Claims Contractor’s Claims Contractor’s Claims

* denotes an indirect application

Clause Red/MDB Yellow Silver Gold

4.19 Electricity, Water and GasElectricity, Water and Gas

Electricity, Water and Gas N/A

4.20Employer’s Equipment and Free-Issue Material



Employer’s Equipment and Free-Issue Materials

5.2 N/A N/A N/A Contractor’s Documents

7.5 Rejection Rejection Rejection Rejection

7.6 Remedial Work Remedial Work Remedial Work Remedial Work

8.6 Rate of Progress Rate of Progress Rate of Progress 9.5 Rate of Progress

8.7 Delay Damages Delay Damages Delay Damages9.6 Delay Damages relating to Design-Build

9.4Failure to Pass Tests on Completion

Failure to Pass Tests on Completion

Failure to Pass Tests on Completion

N/A

10.6 N/A N/A N/ADelays and Interruptions during the Operation Service

11.3Extension of Defects Notification Period

Extension of Defects Notification Period

Extension of Defects Notification Period

N/A

11.4 Failure to Remedy DefectsFailure to Remedy Defects

Failure to Remedy Defects N/A

11.10 N/A N/A N/ADelayed Test Prior to Contract Completion

12.3 N/A Retesting Retesting11.12 Retesting Prior to Contract Completion

15.4 Payment after TerminationPayment after Termination

Payment after TerminationPayment after Termination for Contractor’s Default

18.1General Requirements for Insurances

General Requirements for Insurances

General Requirements for Insurances

N/A

18.2Insurance for Works and Contractor’s Equipment

Insurance for Works and Contractor’s Equipment

Insurance for Works and Contractor’s Equipment

N/A

FIDIC: Contract Clauses Requiring application of clause 2.5


[토론문]

“The Engineer’s Role in Contract Management”에 대한 토론

김지형 미국 변호사

포스코에너지

FIDIC and other EPC contracts generally grant some of the pivotal functions for the Engineer from the perspective of Project management. As well stated in Mr. Dymond’s paper, the Engineer is contractually hired by the Employer and provides crucial functions in not just managing the contract but for the purpose of “progressing” of the Work.

As stated in Mr. Dymond’s paper, the Engineer is actively involved in most of the Projects and very actively involved in some of the selective cases. For example, he has a role to provide input for the design of the Project at the very early stage when he’s involved in FEED process or design of the Employer’s Requirements. The Engineer also has power to “approve/disapprove” the drawings provided by the EPC Contractor or his subcontractor, which is critical for progressing the Work from the Contractor’s point of view. He also drafts and sends out all formal written instructions and variations on which the Employer or the Contractor may base his claims. He also certifies key documents which evidence the approval of the work or testing results of the Work by the Contractor and is even involved in a FIDIC unique process called “Determinations.” He can call-and often does call-for a weekly progress meeting for the Work by the Contractor. He governs the Site.

As such, and as well hinted in Mr. Dymond’s paper, this extensive scope of the Engineer in the Project works out well in the best scenario only. In other words, everything will go smooth as planned only when the Engineer is able to perform as he is supposed to perform. For example, what happens when the Employer hires a wrong engineer? Or what happens when there simply is no one available in the country?

For instance, if you are building a complicated port complex in a country A where the local law provides that as a project owner, you have to hire a “local” engineer in concert with an international engineer. So you decide to hire the joint venture company of a local engineer and an international engineer. The local engineer takes the role of examining the shop drawings from the local law perspective-which happens to be very


broad-and he is only able to pass the drawing to the international engineer for his examination only after he has approved the work whether it meets the technical specifications set forth in the Employer’s Requirement. The local engineer happens to be a firm who has no experience in the port project. They have only been involved in relatively simple road construction project in the past. There is no procedure set forth in limiting or managing the timing of the engineers’ approval process in the Consultancy contract between the Engineer and the Employer. The local engineer is routinely delayed in approving the shop drawings or rejects the drawings for multiple times. Such delays add up in that such time lost is about to hit the critical path of the Project and the S-curve.

Of course that will be an extreme case, but when the potential delays surmount extra cost and delay in the Project to the extent such will hit the S-curve, shouldn’t the situation be recognized as “political risk” in the Project owner’s terms? Further, from project financing perspective and the Lender’s perspective, how should such risk be assessed and mitigated at the inception of the Project and even during the performance of the Project?

As cases cited in Mr. Dymond’s paper, suing the Engineer in tort could provide a solution to this inherent problem not contractually solvable by the Contractor but again that will not soothe any Parties in the Project as, if we may expand the scope of our discussion today, resolution in court-especially in local courts-will not necessarily mitigate the risk but could potentially augment the risk when no one can assure the local judgments will be favorable to foreign parties.

So, a cautionary tale for all relevant parties doing project in challenging jurisdictions, especially for an EPC contractor? Do your due diligence in depth especially in local law and “practice” of EPC contract in each jurisdiction. The EPC Contractors are usually invited in the bid process-often blind folded of such initial risks and such risks could hit the S-curve at the end of the day. Also, if you detect such initial delaying factor, please initiate the open communication with the Project Employer at the earliest as possible since at the end of the day, such risk could hit everyone in the Project.


[토론문]

“The Engineer’s Role in Contract Management”에 대한 토론

임병우 변호사

김앤장 법률사무소

Mr. Dymond, thank you very much for sharing your knowledge and experience with us.

As you know, Korean companies are very active in international construction projects, and many of the leading companies are represented here today. Since in many international projects the English law has been agreed as the governing law, having a basic understanding on the English law would be important for the Korean construction companies who did their business mainly in Korea-a civil law jurisdiction. In particular, since the theory on Engineer’s duty towards contractors has not been well developed in Korea, I believe your presentation today will provide some helpful guidance to the Korean companies.

In this regard, I want to ask you to elaborate focus on a few points you raised, specifically from the Contractor’s perspective.

1. As you note, there generally is not a contractual basis for claims by the Contractor against the Engineer. The contractual remedy if any would be against the Employer, assuming there is no exclusion as in Edgeworth v Lea. In your experience, can a Contractor’s rights vis-à-vis the Engineer be effectively vindicated in arbitration or litigation against the Employer?

Assuming again that there is no contractual exclusion of liability, is it fair to say that the Employer will generally be liable for harm attributable to the Engineer (when acting as Employer’s Representative)?

2. As for negligence claims sounding in tort: Given that the Contractor is required to prove (among other things) reliance on particular statements (cf. Jarvis v Castle Wharf), a negligence claim would seem to be very difficult to sustain. Do you agree?


FIDIC Clause 3.5 imposes an obligation to make a “fair determination” to the Engineer or the Employer. Could it be argued (and has it been argued in your experience) that this obligation forms the basis for reliance to support a negligence claim?

3. In what circumstances and to what extent can the Contractor request the Engineer to provide the grounds or reasoning for a decision, instruction, or determination?

In addition, can the Engineer be requested to share with the Contractor the Engineer’s discussions with the Employer in relation to a claim (or an instruction, etc.)?

4. The Contractor is required to give notice of the claim “not later than 28 days after he became aware or should have become aware of the events giving rise to the claim”-and to provide a fully detailed claim within 42 days (i.e. 2 weeks after the deadline to give notice). These requirements seem potentially quite stringent.

For example, the Contractor may be aware of an event which will eventually give rise to a claim, but not yet aware of the effects which will form the basis of the claim. Also, the reality of modern construction works, particularly large EPC projects, is that there are significant practical barriers to preparing a full claim within 6 weeks (including the fact that, in some cases, the Contractor will lack ready access to many material documents).

These factors, coupled with the constructive notice provision-“should have become aware”-could create an unattractive choice (from the Contractor’s perspective) between (i) launching a premature and potentially ill-founded claim and (ii) risking waiver of the claim by waiting until all the facts are in and the Contractor is satisfied that the claim is legitimate and well founded.

Could you give us your thoughts and tips concerning these issues? Perhaps the Contractor could submit partial or interim claims, subject to revision or expansion? Or allow the Engineer to review the data while the claim is still being formulated?