Construction management contracts are a well-used alternative to the more straightforward principal/contractor/sub-contractor building arrangement. Rather than a principal employing one contractor as one point of reference for the carrying out of all the works (or the design and construction of the works in the case of a design and construction contract), a construction management contract has the construction manager, for a fee, acting as the principal's agent in employing subcontractors (called trade contractors).
In this way, the contractor's expertise can be utilised as a construction manager in the same way as it would have as a contractor but, when it comes to contract works, the contractor does no more than make recommendations to the principal in respect of the individual trade contracts and act as a post box for progress claims and payments.
While the removal of the subcontract cost risk can be attractive to a contractor in a construction management context might be attractive to a builder, it is very important for a construction manager to conduct itself correctly and with transparency to avoid a misunderstanding on a trade contractor's part as to the role of the construction manager.
It is important for the construction manager to make it clear to the trade contractor that the construction manager is acting as agent only for the principal. Therefore, any payments due to the trade contractor are due from the principal and not from the construction manager. If this position is not spelt out clearly, the construction manager can find itself personally liable for payments certified without intending it.
While this poses no problems if the project proceeds well because a construction manager will always be able to look to the principal for payments to the trade contractors, if the principal were to become insolvent or be otherwise be unable to pay and the construction manager has inadvertently become liable to a sub-contractor, the construction manager's exposure could be significant.
The lesson is to ensure that all operative personnel are aware of the construction management process and conduct themselves consistently with it.
This is a very brief introduction to this aspect of the law and is not intended to be legal advice. This publication cannot be relied on as a substitute for appropriate legal advice suited to your circumstances. Given that this is the case, you should seek and retain the advice of a solicitor if you require a comprehensive and up to date analysis of the law pertaining to your circumstances
Clark's Business & Property Lawyers
March, 2001
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