Formal disputes between clients and consultants in the construction sector have traditionally been rare. However, there is a noticeable increase in fee disputes in the last number of months. We look at some reasons why such disputes arise, and what can be done to avoid them arising in the first place.
Factors driving consultant fee disputes
Almost all consultant fee disputes arise from change. A consultant may argue that it was required to perform additional services, or that the provision of contracted services was over a period which is longer was anticipated at appointment.
Most consultancy contracts are awarded on the basis of lump sums for particular stages. The conditions of appointment will usually allow for two approaches to change management - adjustment of the lump sum for a defined additional scope, or reversion to hourly rates. In practice, those provisions are rarely operated in advance, as the conditions envisage – at least not on those appointments that fall into dispute.
Most works contracts which were on site during COVID-19 lockdowns have now passed final account stage. However, consultancy appointments are of their nature longer, preceding planning, and so appointments which were made back before COVID-19 may still be in effect. In many of the consultant disputes we encounter, COVID-19 caused prolonged delays at different stages of the project. The commercial effect of those delays arise in two ways:
- The period for particular stages has been significantly extended, requiring hours beyond those in the consultant’s budget;
- Staff costs have increased; and
- Staff turnover over such a prolonged period has increased costs to the consultant.
What can be done?
- Clients and consultants should pay attention – in real time – to change management. Change should be the subject of recorded agreement. Deferring engagement about fee increases to the end of a project tends to make the conversation more difficult, not less.
- Ensure appointments are in place at an early stage. There can be a tendency on projects to defer formal consultant appointments until funding is in place, and that may be as late as the date on which the works contract is formally entered into, which can be even after the commencement of works on site. At that point, the consultant will have already completed the concept, planning and construction design. It makes little sense to wait until that point before a formal appointment is put in place. Better to put an appointment, or even letter of intent, in place at the earliest opportunity, even if it only covers the first number of stages.
- Pay attention to scope definitions – consider whether it makes sense to include periods for completion of particular stages, to give certainty to all parties.
For more information and expert advice, please contact a member of our Construction, Infrastructure & Utilities team.
The content of this article is provided for information purposes only and does not constitute legal or other advice