Appointment Of Engineer - A Breach Of Contract?

High staff turnover on construction projects? Replacing Project Managers? Not a problem…correction, it has more risks and financial consequences than you think.

Given the duration of large projects, it is to be expected that project personnel such as Project Managers and Engineers, may change overtime.

However, can you replace them with anyone you choose? If you get this appointment wrong what will the consequences be?

Accordingly, there needs to be a clear line between the co-existence of project managers and correctly replacing existing Project Managers/Engineers, so parties are aware of who to report to and who to accept instructions from, as illustrated in Imperial Chemical Industries Limited v Merit Merrell Technology Limited [2017] EWHC 1763 (TCC).

Background

The Claimant, Imperial Chemical Industries Limited, a specialist in paint and chemical businesses, entered into an NEC3 Engineering and Construction Contract June 2005 with 2006 and 2011 amendments (“the Contract”) with the Defendant, Merit Merrell Technology Limited, a specialist engineering piping manufacturer, to carry out works relating to the construction of a new paint manufacturing facility in Northumberland (“the Plant”).

The contract value was approximately Ł1.9 million and the Plant was anticipated to produce 2 million litres of paint products per week.

During the project, the Defendant's work under the Contract had expanded due to instructions from the Project Manager, Projen, and there were concerns regarding the quality of the welds and value of the works carried out by the Defendant, as they were paid more than the initial contract value.

There were also delays and the project had exceeded its budget by around August 2014. At this time, the original personnel for the Claimant were replaced by personnel from AzkoNobel, which acquired the Claimant's business, whilst remaining a separate legal entity.

AzkoNobel's aim was to improve progress of the project, and after having discovered defects with the works, were liaising with the Defendant to agree a resolution, although the Defendant challenged the defective works.

At this point, Projen had resigned and another project manager was appointed from the Claimant's parent company.

Mr Boerboom stated he was appointed as Project Manager in October 2014 (subsequent to Projen resigning), although this contradicted his first witness statement which stated he was appointed Project Manager just after July 2014, albeit the Defendant was not notified of this.

Issues

There were numerous issues to be determined by the Court, and the main one concerning the project manager was:

1. Who was considered the Project Manager under the Contract; and
2. Was the appointment of a replacement Project Manager, Mr Boerboom (a Director of Engineering for the Claimant's parent company, AzkoNobel), after the original Project Manager resigned, valid?

Judgment

Under the Contract, the named Project Manager and Supervisor was Projen, and the Court differentiated between the two roles of a Project Manager; one as an agent to issue instructions on behalf of the Employer, and the other to make decisions (as per Scheldebouw BV v St James Homes (Grosvenor Dock) Ltd [2006] EWHC 89 (TCC)).

In Scheldebouw BV v St James Homes, there was a trade contract between the Contractor and Employer for design and installation works, and a separate construction management agreement between the Employer and a construction manager, MACE for decision making. The trade contract set out MACE was the construction manager under the project.

During the works, MACE was removed as the construction manager and the Employer appointed itself to fulfil that role. Subsequently, the Contractor issued proceedings disputing the Employer's self-appointment and repudiatory breach of the trade contract. The Judge held the Employer was not permitted to appoint itself as the construction manager, primarily on the basis that the Employer and decision maker are required to be two separate entities and the decision-maker is “required to act in a manner which has variously been described as independent, impartial, fair and honest.”

In giving the judgment, the Court relied on the principles applied in the above case and held that Projen were the Project Manager, and after resignation, Mr Boerboom was never validly appointed as Project Manager, and therefore the role remained unoccupied.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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