Legal issues in

project management
Acknowledgements
We would like to acknowledge the help and support of the RICS Steering Group in this research,
which comprised:

• Stephen Neale

• Barrie Tankel

• Gavin Beveridge

• T Trevis

• Martin Russell-Croucher, and

• Brian Berry.

Our thanks are also due to Jenny MacDonnell of RICS for her administrative help.

Finally, our thanks are also owed to the RICS Project Management Faculty respondents to our online
questionnaire, who for reasons of confidentiality must remain anonymous.

The views expressed in the report are the authors’ own.

Please also note that for stylistic reasons, Project Managers have been referred to as ‘he’ throughout.
No discourtesy is intended to the many able practising female Project Managers.

Dr Tim Dixon
Director of Research
College of Estate Management
 executive summary
Legal issues in project management
In a litigious society, legal issues in Project Management are
an increasingly important area of knowledge for the Project
Management profession. Research by the College of Estate
Management at Reading (together with Dechert), and sponsored
by the RICS Project Management Faculty, examined the areas in
which Project Managers require legal knowledge. Their findings
were underpinned by an online survey of practising Project
Managers. The research provides guidance as to which areas of
law are important, where more training is needed and where
relevant information can be found.
• The role of the Project Manager in the project management
process, and how his appointment contract covers the
expectations of the client and the Project Manager, is a key
legal area that Project Managers need to understand
• Other areas include: the foundation of liability in contract and
tort and the standard of performance expected of the Project
Manager; how the liability of the Project Manager to his client
may be limited and how his liability may be extended to other
team members; problems with obtaining and maintaining
Professional Indemnity Insurance and the need to ensure that
the cover obtained is adequate for the role undertaken; and
health and safety issues, especially in the light of current
Health and Safety Executive thinking
• There was a perception amongst Project Managers in the
online survey that more research was needed on PFI/PPP from a
legal perspective. Partnering and insurance were the next most
important areas for further research
• There were informative (and somewhat concerning) results over
respondents’approaches to dealing with legal issues during the course
of their work. For example, only 50% always verified insurance cover
and less than 25% insisted on collateral warranties being entered into.
The key legal issues of which Project Managers should be aware
were identified by the research as follows.
The role of the project manager
The majority of respondents always ensure that they have
evidence of an agreement, such as a letter of intent, in place
before commencing work (84%). Some 45% of respondents always
try to have a formal contract in place. Only 4% of respondents do
not do either. This shows a good level of awareness of the role of
the Project Manager in the Project Management process and the
importance of having a written agreement in place.
The proportion of respondents to the online survey who always
use their own standard form of appointment contract was low
(9%) whilst 50% always amended clauses on standard forms. It is
important to ensure that Project Managers understand that
amending a standard form contract can be risky. These standard
forms have evolved over a long period of time and the clauses are
usually well thought through and designed to cover situations
which have occurred before. Clauses are often inter-dependant or
at least inter-related and Project Managers should be aware of
this when amending contracts.
The findings highlight the question why, whilst there is widespread
use of standard form appointment contracts, there is also a high
level of amendments to such contracts. It may be that the standard
forms are not adequately addressing all of the issues that the
Project Manager and his client see as being important. Research
should be carried out into the nature of the amendments that
are being made and evidence could be collected as to the success
or failure of these amendments to satisfy the perceived needs.
This could be collected in the form of case studies.
The bases of liability and limiting
and extending liability
Project Managers should understand the foundation of liability
in contract and tort and the standard of performance to be
expected of a Project Manager; how the liability of a Project
Manager to his client may be limited and how it may be
extended to others.
Nearly a third of respondents to the survey (31%) always exclude
the effects of the Contracts (Rights of Third Parties) Act 1999
(CRTPA), with 34% answering "never" to this question. This is a
surprising response. The standard forms all exclude the CRTPA
as a matter of routine and the initial advice from the legal
profession was to always exclude it. Lawyers are slowly changing
this view. The responses may reflect this change in attitude
towards the CRTPA. However, in our view, it is more likely that
respondents do not fully understand the implications of the
CRTPA and the fact that it automatically applies unless excluded.
The online survey also shows that less than a quarter of respondents
always ensure that collateral warranties are obtained on behalf
of the client. Collateral warranties have been an important
feature of construction projects since the decision in Murphy v
Brentwood District Council [1990] 3 WLR 414. It was expected
that most Project Managers would ensure collateral warranties
were entered into. As the CRTPA becomes more established, the
requirement for collateral warranties is likely to decrease.
Only 31% of respondents always exclude the CRTPA and never
insist on collateral warranties. When this occurs, Project
Managers should be aware that clients are faced with a potential
problem because if they sell-on the project, the purchaser will
have no recourse to the original team (design and construction)
if there are defects with the work. A higher proportion of
respondents included reference to the CRTPA and asked for
warranties (7.7%), whilst a quarter of respondents answered
"sometimes" to both questions (25%). This suggests that they are
at least considering the issues.
Areas likely to give rise to a dispute
Project Managers should be aware of the areas which are most
likely to give rise to a dispute such as lack of communication /
failure to warn; delay; poor supervision; failure to identify the
clients requirements and costs. They should be familiar with
recent case law and how to best protect their position.
The number of respondents who have never been involved in any
form of dispute resolution process is encouraging (64%). This
suggests that they are successful in managing projects so there
are no disputes or successful in managing potential disputes so
that they are resolved prior to any formal dispute process.
The division of involvement between litigation, arbitration and
adjudication is evenly split. Adjudication has the highest response,
as would be expected in line with the introduction of statutory
adjudication, with 21% having been involved in this type of
dispute resolution.
Professional indemnity insurance
The online survey showed that insurance was an important area
to Project Managers, which is to be expected considering the
current economic climate.
Only 50% of respondents always verify their insurance cover once they
know what it is they are required to undertake for a project. It may
be that the remainder know their policies so well that they never take
on work that is outside their cover. However, the degree to which this
occurs in reality is questionable and, if that is not the case, it is a
worrying statistic. The response to this question may explain why
insurance is ranked highly as an issue requiring further research.
Health and safety
Health and safety was featured on the survey’s list of issues requiring
further research, however it did not feature as highly as it might
have done (32%) given the Government’s focus on improving
safety statistics in the industry and the myriad of legislation in
relation to health and safety requirements and obligations.
Our research shows the minimum extent of the health and safety
legislation a Project Manager should be familiar with. In addition
to the statutes and regulations, there are also Approved Codes of
Practice which a Project Manager should know about and follow.
Additional findings from the online
survey
The online survey identified further areas in which Project Managers
required further research and training. There was a perception
amongst Project Managers that more information was needed
on PFI/PPP from a legal perspective. Partnering and insurance
were the next most important areas for further research. It
would be worthwhile to examine the impact on the Project
Manager of the development of collaborative procurement
methodologies and a move towards good-faith contracting.
The research indicated the myriad of legislation that Project
Managers, as a minimum, need to be aware of if they are to carry
out their job successfully. For example, when asked about the
Housing Grants, Construction and Regeneration Act 1996
(HGCRA), nearly a third of respondents to the online survey said
that they never took this piece of legislation into consideration
(28%). The HGCRA is a key piece of legislation. All Project
Managers should be aware of its requirements in relation to
payment provisions and the adjudication process. Further
training is therefore a high priority in relation to the HGCRA.
In summary, the key legal issues which a Project Manager should
be aware of, as a minimum, are as follows:
• Appointment documents
• How to put their own and other contracts in place
• Basic understanding of contract and tort
• Liability, including the limitation and extension of a Project
Manager’s liability
• Key legislation which a Project Manager should be familiar
with, in particular the HGCRA
• Health and Safety issues including relevant legislation
• Professional Indemnity Insurance
• Areas likely to give rise to a dispute
• Dispute resolution processes.
There is also potential for further training in the following areas:
• PFI / PPP
• Partnering
• Bonds
• Planning and environmental issues.
About the research
This research was carried out between September 2002 and March
2003. The study is based on a review of case law and statute. To inform
the review, an online survey of RICS Project Management faculty
members was carried out and 225 responses were received.
contents
Legal issues in project management

1 Introduction
1.1 Background 1
1.2 Aim and objectives 1
1.3 Format of report 1

2 Online survey
2.1 Method 2
2.2 Background of respondents 2
2.3 Legal issues 2

3 An overview and guide

3.1 Introduction 5
3.2 Role of the project manager 5
3.2.1 The appointment contract 5
3.2.2 Relevant case law 6
3.2.3 Relevant statute 6
3.2.4 No appointment contract 6
3.2.5 Relevant case law 7
3.2.6 Relevant statute 7
3.3 Liability 7
3.3.1 Contract 7
3.3.2 Terms 7
3.3.3 Tort 7
3.3.4 Statutory 8
3.3.5 Relevant case law 9
3.3.6 Relevant statutes 9
3.4 Limiting liability 9
3.4.1 Exclusion clauses 9
3.4.2 Limitation periods 10
3.4.3 Relevant case law 10
3.4.4 Relevant statutes 10
3.5 Extending liability 10
3.5.1 Collateral warranties 10
3.5.2 Contracts (Rights of Third Parties) Act 1999 ("CRTPA") 10
3.5.3 Relevant statute 11
 3.6 Areas likely to give rise to a dispute 11
3.6.1 Lack of communication / Failure to warn 11
3.6.2 Delay 11
3.6.3 Poor supervision 11
3.6.4 Failure to identify the client’s requirements 12
3.6.5 Costs 12
3.6.6 Relevant case law 12
3.6.7 Relevant statute 12
3.7 Professional indemnity insurance 12
3.7.1 Insurance proposal 12
3.7.2 Costs 12
3.7.3 The scope of the policy 12
3.7.4 Notification of potential claims 13
3.7.5 Level of cover 13
3.7.6 Relevant case law 13
3.7.7 Relevant statute 13
3.8 Health and safety 13
3.9 Key project management case law 14

4 Conclusions
4.1 Summary and further research 16

5 References 17

6 Appendices 18

Figures
Figure 1: Legal issues requiring further research 3
Figure 2: Project managers involved in dispute resolution 3
Figure 3: Project managers’ legal practices 4
 chapter one
Introduction

1.1 Background 1.3 Format of report

A previous Research Study1 concluded that, although project
management as a distinct discipline initially developed in the
construction and engineering industries, the discipline now spans
many if not most industrial and commercial sectors. Previous
research also appears to indicate that the discipline is still largely
fluid in terms of its conceptual and theoretical base and that this
issue is particularly marked in construction. Understanding the
legal issues associated with construction-related advice is a vital
aspect of underpinning this knowledge base.
1.2 Aim and objectives
The overall aim of the research is to analyse the legal framework
within which Project Managers in the development process
operate, in order to provide practical guidance for Project
Managers to understand their legal knowledge requirements.
The objectives of this project are:
The report comprises the following sections:
• Section 2 – This comprises an online survey of Project Managers
to gauge depth and breadth of knowledge relating to key legal
issues. Key results are presented in this section first in the
report to highlight key gaps in knowledge, which are
subsequently explored in Section 3
• Section 3 – A scoping study and trawl of case law, statute and
literature in relevant areas, building on the findings of the
survey. Although this is designed to produce a guide of sources
for Project Managers, it is intended as an overview, and not a
detailed study
• Section 4 – Conclusions, highlighting areas of need for research,
development and professional training to ensure Project
Managers provide effective value added services to clients
now and in the future

• To identify and prioritise the range and scope of legal issues

which Project Managers in the development process need to be
aware of

• To produce a taxonomy of the available sources of relevant legal

information which might be of use to Project Managers in the
development process

• To conduct a survey of working Project Managers to gauge the

depth and breadth of knowledge relating to key legal issues in
the development process

• To review and summarise the important legal decisions

affecting project management in the development process, to
explain their significance to practising Project Managers, to
highlight potential areas of legal liability, and to comment upon
how Project Managers might protect not only themselves but
also their clients

• To identify and prioritise relevant areas in which research,

development and professional training are required in order to
ensure that Project Managers can continue to provide effective
value added services to their clients both now and in the future.

1
Chartered Surveyors and Project Management, RICS and the College of Estate Management, December 2001.

Legal issues in project management chapter one Introduction 1

 chapter two
2.1 Method
As part of the project a questionnaire survey of RICS Project
Management Faculty members was undertaken to ascertain
Project Managers’ knowledge and awareness of legal issues.
The questionnaire comprised three sections:
• Section A, containing five questions relating to the respondents’
organisations
• Section B, comprising eight legal questions, and
• Section C, containing nine questions about respondents’backgrounds.
Sections A and C were based on a previous survey of Faculty
members by Pottinger et al. (2001). This was to enable the results
of the surveys to be benchmarked against each other.
An online version of the questionnaire was placed on the
College’s web site and a link (www.cem.ac.uk/rics) to the
questionnaire was then emailed to the Faculty membership
(see Appendix 1). The email also served to explain the rationale
and background to the survey. Recipients were given two weeks
in which to participate in the survey and a total of 225 Project
Managers completed the questionnaire within the specified time
period. However, a response rate could not be calculated because
it was not possible to determine the sample size.
2.2 Background of respondents
The majority of respondents were male (92%) with 8% female. The
largest group was aged between 36 and 44 (44%) and a further 32%
of respondents were aged 36 years or under. This is comparable
to the results of the 2001 survey, in which 47% of respondents were
in the 36–44 age-bracket and 28% were under 36 years of age.
A first degree (BA or BSc) was held by just over half of
respondents (51%), with a further 12% possessing a higher
degree (MA or MSc). The second largest group (30%) held
qualifications other than those specified in the questionnaire.
Overall the majority of respondents had some form of academic
qualification (81%). A relatively small proportion of respondents
belonged to the other professional bodies listed in the
2 chapter two Online survey Legal issues in project management
Online survey
questionnaire. In all, 35% were not members of any other body,
which is less than in the 2001 survey where 53% of respondents
had no other professional designation. The two most popular
professional organisations were the Chartered Institute of
Building (11%) and the Association of Project Managers (9%).
The most common organisational category was multidisciplinary
practice at 25%, followed by quantity surveying practices (12%)
and local government (12%). In the 2001 survey the figures for
these categories were 22%, 20% and 10%, respectively. A high
proportion of respondents had executive and strategic decision-
making responsibilities (31%) and/or management level
responsibility (46%). This is again comparable with the results of
the 2001 survey (39% and 51%, respectively). In terms of total
organisation size, only 14% of respondents worked in small
organisations of 1–10 people and a relatively high proportion
(37%) worked in large organisations of 500 or more people. In the
2001 survey a much higher proportion of respondents worked in
smaller organisations of 1–10 people (44%).
With regard to business markets, the most important sectors
were commercial (60%), industrial (48%), residential (45%), retail
(38%) and leisure (37%). The majority of respondents conducted
their business in England and Wales (69%). The second largest
region was Scotland (21%), with mainland Europe (13%) and Asia
(13%) being the third highest response category.
Only 18% of respondents were involved at the inception stage of
projects. Over half (64%) were involved in the commissioning of
engineering services and 37% were involved with completion and
handover. More than a third of respondents (35%) were involved
in construction and fit-out and a similar proportion (36%)
undertook client commissioning and occupation. A small
proportion of respondents (23%) were involved in post-
completion review, compared to 49% in the 2001 survey.
2.3 Legal issues
Respondents were asked to indicate which project management
issues they felt required further research from a legal perspective
(Figure 1). PFI/PPP came top of the list (65%). The increasing
number of projects being procured under the PFI/PPP route was
reflected in the high rating of this issue, along with public sector
procurement (37%). Partnering was also rated highly (62%) and
has become an increasingly important area with the move
towards collaboration following the Latham (1994) and
Construction Task Force (1998) reports.
Figure 1: Legal issues requiring further research
Insurance
Contamination
Archeology
Bonds
Public sector procurement
Issue
Listed buildings
Easements/wayleaves
Conservation areas
CDM
PFI/PPP
Building control
Health and safety
Partnering
Planning control
0% 20% 40% 60%
Percentage
Insurance was the next highest (50%) and if combined with
bonds (39%) would have been ranked highest. Again, this is not
surprising given the current economic climate where policies are
hard to obtain or premiums are high. Health and Safety might
have featured higher in the list (32%) given the government’s
focus on improving safety, and legislation covering corporate
manslaughter having been tightened in recent years. While
prosecutions of individuals and companies for manslaughter are
rare, they are on the increase and the Health and Safety
Executive are referring more and more cases to the courts.
The survey suggested that contamination was perceived as
requiring further research (33%). This was to be expected given
that regeneration and brownfield development are current issues
and fewer greenfield sites are available. However, legislation
has been in place for a long time and it was expected that
Project Managers would be fully aware of it. Archaeology and
conservation areas are the areas of least interest (11%). This is
not surprising, as these issues only impact on a small number
of Project Managers.
Respondents were also asked to indicate whether or not they had
been involved in dispute resolution in their role as Project Managers
(Figure 2). The number of people who have never been involved
in any form of formal dispute resolution process is encouraging
(64%). This suggests that they are successfully managing projects
so that there are no disputes or successfully managing potential
disputes to avoid reference to formal dispute resolution procedures.
The division of involvement between the three main dispute
resolution methods is evenly split. Adjudication has the highest
response, with 21% having being involved in this type of dispute
resolution. As statutory adjudication has only been with us since
the introduction of the HGCRA, the findings highlight the impact
it has had on the industry. The numbers involved in court cases
(16%) reflect the fact that the number of claim forms issued in
the Technology and Construction Court has fallen from 1387 in
1996 to 386 in 2002.
Figure 2: Project managers involved in dispute resolution
Response
Yes
Arbitration
No
Method
Adjudication
Court proceedings
0% 25% 50% 75% 100%
Percentage
To gain an understanding of current practice, respondents were
asked a series of questions about their approach when dealing
with legal issues during the course of their work (Figure 3). Only
50% of respondents always verify their insurance cover once they
know what it is they are required to undertake for a project. This
is alarming, but not altogether surprising. It suggests that the
remainder know their policies so well that they never take on
work that is outside their cover. However, the degree to which
this occurs in reality is questionable. The response to this
Legal issues in project management chapter two Online survey 3
 question may explain why insurance is ranked highly as an issue with a potential problem because if they sell-on the project the
requiring further research (Figure 1). purchaser will have no recourse to the original team (design and
construction) if there are defects with the work. A higher
Nearly a third of respondents always exclude the effect of the
proportion of respondents included the CRTPA and asked for
CRTPA (31%), with 34% answering ‘never’ to this question. The
warranties (7.7%), whilst a quarter of respondents answered
standard forms all exclude the CRTPA as a matter of routine and
‘sometimes’ to both questions (25%). This suggests that they are
the initial advice from the legal profession was to always exclude
at least considering the issues.
it. Lawyers are slowly changing this view. The responses may
reflect this, or the fact that respondents do not fully understand The proportion of respondents who always use their own standard
that the CRTPA automatically applies unless excluded. form of appointment contract was low (9%), whilst 50% always amend
clauses on standard forms. Amending a standard form of contract
The HGCRA is a key piece of legislation. It was expected that all
is risky. Standard forms have evolved over a long period of time
Project Managers would take this into consideration because it
and the clauses are usually well thought through and designed
governs the payment or withholding of payment provisions of
to cover eventualities which have happened before. The clauses
construction contracts and the adjudication process. Nearly a
are often inter-dependent, or at least inter-related. It is often the
third of respondents answered ‘never’ to this question, which is
case that a clause is amended in one place but its related clauses
too high (28%) – especially since one of the key duties of a
are not. This could lead to difficulties for Project Managers.
Project Manager under the RICS form of appointment is to advise
his client on the HGCRA. The majority of respondents always ensure that they have
evidence of an agreement, such as a letter of intent, in place
Less than a quarter of respondents always insist on collateral
before commencing work (84%). However, in the light of the
warranties being entered into. Again this is surprising because
previous answer it was expected that a higher proportion of
collateral warranties have been an important feature of
respondents would always try to have a formal contract in place
construction projects since the decision in Murphy v Brentwood
(45%). Only 4% of respondents never do both. The majority
District Council [1990] 3 WLR 414. It was expected that most
always ensure they have some sort of agreement and always try
Project Managers would always insist on collateral warranties
to have a formal signed contract (69%), and 43% always ensure
being entered into. As the CRTPA becomes more established, the
they have some sort of agreement and sometimes ensure that
requirement for warranties is likely to decrease.
they have a formal signed contract. This shows a good level of
Only 3.1% of respondents always exclude the CRTPA and never awareness of the problems that can ensue if there is no contract
insist on collateral warranties. When this occurs, clients are faced in place.

Figure 3: Project Managers’ legal practices

Response
Verify the terms of PI insurance policy before entering into a contract Always
Sometimes
Exclude the effect of the Contracts Act 1999
Never

Consider athe HGCR 1996 Act when administering contracts

Insist on collateral warranties being entered into

Use own standard form of appointment contract

Amend clauses on standard form of appointment contract

Ensure evidence of agreement before commencing work

Ensure formal contract before commencing work

0% 25% 50% 75% 100%

Percentage

4 chapter two Online survey Legal issues in project management

 chapter three
An overview and guide
3.1 Introduction
The following section in this report is designed to summarise the
important legal decisions, explain their significance, highlight
potential areas of legal liability and comment on how a Project
Manager can protect himself and his client. The guide is not
intended to be exhaustive but is intended to highlight those
areas which the online survey has identified as being critical
knowledge areas.
3.2 Role of the project manager
3.2.1 The appointment contract
• The best way for the Project Manager to protect himself is to
have a written contract between him and the client. The more
specific and comprehensive the list of services within the
contract, the less scope there is for confusion and dispute
• There are a number of standard form project management
contracts, such as the RICS Project Management Memorandum
of Agreement and Conditions of Engagement, the Association
of Project Management Standard Terms of Appointment of
Project Managers, the NEC Professional Services Contract and
the RIBA Form of Appointment as Project Manager
• A client may have its own bespoke contract which the Project
Manager is required to sign. He should read any bespoke
contract carefully and consider taking legal advice on it as
it is likely to be drafted in the client’s favour
• The extent of the Project Manager’s duties will vary depending
upon the client’s own skill and requirements, the nature of the
project, the timing of the appointment and other factors
• Whatever specific duties are allocated in relation to the various
stages of a project, the Project Manager has an ongoing duty
to act with reasonable skill and care in relation to the overall
control of project time, cost and quality
• There are a number of standard key terms for any project
management contract which the Project Manager should be
aware of, including a commencement date, the key duties and
Legal issues in project management chapter three An overview and guide
payment with reference to a fee schedule or a fixed price with
a mechanism for additional work. He should also understand
how the wording of clauses can limit or extend liability
• When defining the duties of the Project Manager, the RICS
Project Management Agreement refers to Appendix A, the
Schedule of Services. This is blank, to be completed by the
parties, although the guidance note suggests 16 services
which may be appropriate:
• Site selection
• Analysis
• Agency, valuation, funding and relocation
• Legal services
• Consultant appointments
• Brief, design and quality control
• Reporting and meetings
• Programming
• Capital budgeting
• Construction economics and financial management
• Cash flow
• Local authority and planning approvals
• Contract procedures
• Contract management
• Building management, commissioning and maintenance, and
• Tenancies and fitting out.
• Any list of services in a standard form of contract should be
considered as a starting point only, to be altered and adapted
to meet the requirements of the particular project
• Whilst the standard form contracts are similar in many ways
there are also key differences, particularly in relation to the
limitation of the Project Manager’s liability
5
 • The Project Manager should be sure to complete all blank
sections and appendices of the relevant contract, which will
normally include details as to the level of his PI insurance cover,
significant dates and details of additional fees
• The Project Manager should be aware of the levels of
responsibility under the relevant contract. Various standard
words are used under each contract such as the duty to
"monitor", "supervise" and "advise". The Project Manager
should be sure that he understands the extent of his duties
under each
3.2.2 Relevant case law
Copthorne Hotel (Newcastle) Ltd v Arup Associates (1996)
12 Const. L.J. 402
Pozzolanic Lytag Limited v Bryan Robson Associates [1999] BLR 267
St Albans City and District Council v International Computers
Limited [1996] 4 ALL ER 481
Pratt v George Hill Associates (CA) [1987] 38 BLR 25
Chesham Properties Limited v Bucknall Austin Project
Management Services Limited and Others [1996] CILL 1989
3.2.3 Relevant statute
Housing Grants Construction and Regeneration Act 1996 (HGCRA)
The HGCRA applies to all ‘construction contracts’. Expressly
included within this definition are agreements between clients
and professional consultants such as Project Managers.
However, it should be noted that building contracts with
residential occupiers are excluded. Project Managers should
be familiar with sections 104–117 of the HGCRA.
The HGCRA led to the introduction of adjudication. Adjudication
provides for the referral of a dispute arising under a construction
contract to an adjudicator who forms a decision within a limited
timetable (usually 28 days) as to the parties’ rights and
obligations under their contract. The adjudicator’s award is
contractually binding on the parties until the original dispute
is finally determined by arbitration or through the courts.
Adjudication is a statutory right under the HGCRA and can
therefore be invoked by either party at any time regardless of
the terms of the contract in relation to dispute resolution. Many
construction contracts are not let on standard forms and unless
they are drafted to include provisions relating to adjudication
which comply with the HGCRA, then the provisions of the
Statutory Scheme will be deemed to be substituted.
Project Managers should also be familiar with the provisions
of the HGCRA which relate to payment. Most importantly,
they should be aware that if a payment is to be withheld,
it is necessary to give notice in writing within a specified
number of days of the payment falling due.
This duty is explicit at clause 3(g) of the RICS Project
Management Agreement.
6 chapter three An overview and guide Legal issues in project management
3.2.4 No appointment contract
• Not all contracts are written. Especially on smaller projects,
contracts may be oral or a combination of both written and
oral. Although an oral contract is binding in law, it is not
recommended because, in the event of a dispute, the terms
of an oral contract can only be proved by the Project Manager
and his client giving oral evidence in court
• If the contract is not evidenced in writing, he may also find it
falls outside of the HGCRA
• If the client gives verbal instructions, the Project Manager
should confirm them in writing to protect his position and
suggest that they enter into a formal agreement. See the
case of Pozzolanic Lytag Ltd v Bryan Hobson Associates
[1999] BLR 267 below
• In addition to, or in the absence of, express terms, terms can
be implied into the contract by law even though he may not
have expressly agreed or even discussed them with the client.
Usually these terms are necessary in order to make the
agreement work and will not be implied by the courts
unless it is reasonable in all the circumstances to do so
• There are a number of ways in which terms can be implied into
a contract:
• By operation of law by statute. Implied terms are to be found
in the Supply of Goods and Services Act 1982 (SoGSA) and the
Sale of Goods Act 1979 (SoGA). In the absence of an express
term, SoGSA can imply a term into a contract that the services
supplied will be carried out using ‘reasonable skill and care’. For
instance, if a timescale has not been agreed for the work with
the client, SoGSA can imply a term that the services will be
carried out within a reasonable time. There is also an implied
term that the client should pay a reasonable fee. Any one of
these implied terms can be negated or varied by an express
term agreed with the client
• Because they are usual in the industry or necessary to make the
contract work. Many implied terms have become standardised
in different industries. For example, in construction contracts
it is an implied term that the contractor will carry out the
works in a ‘good and workmanlike manner’. This type of term
may be implied into the contract unless there is an express
contrary intention
• By implication from a previous course of dealings between the
parties. If the Project Manager has previously dealt with the
same client on a number of occasions and has consistently
undertaken a particular role, then the terms that are usually
and have previously been agreed may be implied into future
contracts of a similar nature
• Even if there is no contract between the Project Manager and
the client, he is under a duty in common law to act with
reasonable skill and care. If he fails to do so, any claim against
him would be for negligence (see the section on tort at 2.3.3. below).
3.2.5 Relevant case law
Pozzolanic Lytag Ltd v Bryan Hobson Associates [1999] BLR 267
3.2.6 Relevant statute
• Housing Grants, Construction and Regeneration Act 1996
• Supply of Goods and Services Act 1982
• Sale of Goods Act 1979
3.3 Liability
3.3.1 Contract
A contract is a legally binding agreement between two or more
parties. Under a contract the parties undertake obligations and
in return receive rights. Contracts are freely negotiable and it is
assumed that the parties have fully understood and agreed the
obligations and rights contained in it.
The Project Manager will therefore have agreed to a number of
obligations under his appointment contract. The law of contract
will seek to enforce those obligations or compensate the employer
if these obligations are broken. It is therefore vitally important for
the Project Manager to ensure that he has a valid contract and
that he fully understands the terms of that contract.
3.3.2 Terms
Express terms
If the Project Manager has expressly agreed to undertake
something then he will be bound by that undertaking.
Implied terms
Whatever the express terms of the appointment contract, there
will be an implied undertaking that the Project Manager will carry
out his obligations with reasonable skill and care (s.13 Supply of
Goods and Services Act 1982). In general, professional consultants
are not legally required to warrant the success of what they do.
They merely warrant that they will employ a generally acceptable
level of professional skill and care. Consequently a Project Manager
charged with procuring construction work does not, under
normal circumstances, guarantee that the completed building
will be fit for its purpose. In the absence of any specific
requirements from the employer, it will be sufficient if he can
show that in procuring the work he employed a legally
acceptable degree of professional expertise.
• The level of professional skill and care which users of
professional services are entitled to expect was established in
Bolam v Friern Hospital Management Committee [1957] 1 WLR
582. This basically means that they will reach the standard of a
reasonably competent person carrying out that profession
• So in William Tompkinson and Sons Ltd v Parochial Church
Council of St Michael in the Hamlet (1990) 6 Const LJ 319 the
architect was found to have been negligent where he failed
to advise his employer of the need to take out appropriate
insurance under the construction contract. In Pozzolonic Lytag
Legal issues in project management chapter three An overview and guide
v Bryan Hobson Associates [1999] BLR 267 the court decided that
if the Project Manager did not himself possess the necessary
skill he had an obligation to seek advice from those who did.
Misrepresentation
The Project Manager must also be aware that anything he says
before the contract is made could be important. While such
statements may not form part of the contract there could still
be liability. An untrue statement of fact which induces a party
to enter a contract is known as a misrepresentation.
If the Project Manager has stated that he has particular skills
which he does not in fact have, and this assurance influenced
the other party to enter that contract, he could lay himself open
to an action even though that skill was not included under the
terms of the contract actually entered into.
Formalities
If the Project Manager is required to ensure that other contracts
are entered into correctly he must:
• Ensure that the contract is in the correct form, i.e. in writing (a
simple contact) or as a deed (a speciality contract)
• Ensure that the person signing has the authority to do so.
Letters of intent/letters of interim agreement. If the Project
Manager has the responsibility of placing a contract, he should
ensure that there is a contract in place; or if work is undertaken
before the final contract is place he must be sure that a contract
can be finalised – British Steel Corporation v Cleveland Bridge
and Engineering Co Ltd [1984] 1 All ER 504; Hall & Tawse South
Ltd v Ivory Gate Ltd (1999) 62 Con LR 117.
3.3.3 Tort
A tort involves a breach of a duty which is imposed by law. The
duty is owed to people in general. It is therefore distinguishable
from contract in that tort imposes obligations on parties
whether they agree to them or not.
The law of tort will seek to compensate the victim of a breach of duty.
There are a number of torts of which the Project Manager should
be aware: trespass to land, nuisance and negligence being the
important ones.
Trespass to land
Trespass to land is the ‘unjustifiable interference with the
possession of land’ (Rogers, 2002, Winfield and Jolowicz on Tort
(Sweet and Maxwell)). As land includes not just the surface but
the airspace above and the soil below, trespass can take place at
any level. In the world of development and construction the most
obvious application of this rule is the operation of tower cranes.
In many instances it will be unavoidable for booms to swing over
other property. This will nevertheless be regarded as trespass
(Anchor Brewhouse Developments Ltd v Berkley House (Docklands
Developments) Ltd [1987] 2 EGLR 173). It may thus be necessary
for the Project Manager to negotiate with surrounding landowners
for, or advise on, obtaining a licence to carry out such activities.
7
 Private nuisance
Private nuisance is the ‘unlawful interference with a person’s use
and enjoyment of land or some right over, or in connection with
it’ (Winfield and Jolowicz on Tort). The things that can amount to
a nuisance are numerous. The Project Manager needs to be aware
of the common ones connected to the construction operation:
noise, dust and vibrations (Hunter v Canary Wharf Ltd and
London Docklands Development Corporation [1997] 2 All ER 426).
Public nuisance
Public nuisance is any nuisance which ‘materially affects the
reasonable comfort and convenience of a class of Her Majesty’s
subjects’ (Attorney-General v PYA Quarries [1957] 2 QB 169).
Whilst public nuisance is not, strictly speaking, a tort but a crime,
it is probably best considered here as it amounts to a tort if one
person suffers over and above the general group.
An important aspect of the offence relates to the highway. It is a
public nuisance to obstruct, or create a nuisance on or close to,
the highway. The highway does not have to be completely
blocked: it is sufficient for there to be an unreasonable
obstruction to the passage of people and/or vehicles. It is
possible to imagine a number of occurrences arising in
connection with development which could lead to a public
nuisance, deliveries being prime amongst them.
Negligence
Negligence is the most important tort in modern law. It has been
defined as ‘conduct falling below the standard demanded for the
protection of others against unreasonable risk of harm’
(Flemming, 1971).
An action in negligence will lie where:
• the defendant owes the claimant a duty of care, and
• the defendant is in breach of that duty, and as a result
• the claimant suffers damage/loss.
• Duty of care. In basic terms a duty is owed to anyone who the
Project Manager should have been aware would be affected
by his activities. The classic test is set out in Donoghue v
Stevenson [1932] AC 562
• Breach of duty. As has already been discussed, the standard of
care is set as that of a reasonable man. In the case of a
‘professional’ person this will be the standard of the ordinary
skilled man exercising and professing to have that special skill
• Damage. The tort of negligence is primarily concerned with the
recovery of compensation for actual physical damage, either in
the form of personal injury or damage to other property. This
was the proposition first put forward in Donoghue v Stevenson
and reaffirmed in Murphy v Brentwood District Council [1991]
1 AC 398.
Negligent misstatement
Should the Project Manager give any advice to a party with
which he has no contractual relationship, he may find himself
liable for any pure economic loss that they suffer which is
8 chapter three An overview and guide Legal issues in project management
unconnected to any physical damage – Hedley Byrne &Co Ltd v
Heller & Partners Ltd [1964] AC 465. Liability will arise where
advice is given knowing that it will be acted upon, where it is
acted upon, and it was reasonable for the advisee to act upon it.
3.3.4 Statutory
Control of Pollution Act 1974
The Act allows the local authority to impose restrictions on how
work is carried out, what plant and machinery can be used, at
what time work can be done and the level of noise that can be
reached. This will be done by Notice. The local authority does
not have to prove that a nuisance has occurred.
Prior approval can be sought and the Project Manager should
consider finding out the limits prior to being served with
a Notice.
Environmental Protection Act 1990
• Statutory nuisance. The Act allows the local authority to
monitor in its area or deal with complaints from individuals if
premises or work carried out on premises is ‘prejudicial to
health or a nuisance’. It covers such things as emissions (dust,
smoke, smells) and noise
• Waste. The Act will require a licence in order to deposit
controlled waste, e.g. arising from construction demolition or
excavation. Special waste – that is, waste that is designated as
dangerous or difficult to treat – is more rigorously supervised.
Building Act 1984
This Act allows the Secretary of State to make regulations about
the design and construction of buildings and the provision of
services, equipment and fittings in connection with buildings.
These regulations are introduced by Statutory Instrument and
are known as the Building Regulations. The Project Manager
must be fully aware of the implications of the Regulations and
monitor compliance with them.
The local authority has the power to enforce the Regulations.
They can enter premises with 24 hours notice in order to inspect
whether there has been compliance.
Defective Premises Act 1972
The Act imposes a duty on anyone who takes on works
in connection with the provision of a dwelling house. This
covers arranging for others to do work and so will catch the
Project Manager.
The duty is to see that work is done in a
workmanlike/professional manner, with proper materials so that
the dwelling will be fit for human habitation.
The Act extends the duty to subsequent purchasers of the
dwelling who do not have an action in tort as their loss is a
purely economic one.
The Act allows for the provision of an ‘approved scheme’ which
takes the place of the individual’s liability. The NHBC provides
such a scheme.
3.3.5 Relevant case law
Contract
Bolam v Friern Hospital Management Committee [1957] 1 WLR 582
British Steel Corporation v Cleveland Bridge and Engineering Co Ltd
[1984] 1 All ER 504
Hall & Tawse South Ltd v Ivory Gate Ltd (1999) 62 Con LR 117
Pozzolonic Lytag v Bryan Hobson Associates [1999] BLR 267
William Tompkinson and Sons Ltd v Parochial Church Council
of St Michael in the Hamlet (1990) 6 Const LJ 319
Tort
Anchor Brewhouse Developments Ltd v Berkley House
(Docklands Developments) Ltd [1987] 2 EGLR 173
Attorney-General v PYA Quarries [1957] 2 QB 169
Donoghue v Stevenson [1932] AC 562
Hedley Byrne &Co Ltd v Heller & Partners Ltd [1964] AC 465
Hunter v Canary Wharf Ltd and London Docklands Development
Corporation [1997] 2 All ER 426
Murphy v Brentwood District Council [1991] 1 AC 398
3.3.6 Relevant statutes
• Building Act 1984 and the Building Regulations
• Control of Pollution Act 1974
• Defective Premises Act 1972
• The Environmental Protection Act 1990
• Limitation Act 1980 as amended by the Latent Damage Act 1986
• The Supply of Goods and Services Act 1982
3.4 Limiting liability
It may be necessary for the Project Manager in some way to
restrict his liability in certain circumstances. Often this need
is tied up with the requirements of his Professional Indemnity
Insurance policy. Insurers are notoriously conservative in their
outlook and will refuse to provide cover or will demand a high
premium where they are unhappy with their exposure to risk.
The Project Manager needs to be fully aware of his potential
exposure and the restrictions contained in his policy when
negotiating his terms of engagement.
3.4.1 Exclusion clauses
It is possible to avoid or limit liability by including an exclusion
clause within a contract. The operation of such clauses is subject
to the provisions of the Unfair Contract Terms Act 1977 and the
Unfair Terms in Consumer Regulations 1999.
The Unfair Contract Terms Act 1977
The provisions of UCTA apply to the treatment of clauses where
one contracting party is seeking to exclude or restrict his liability
Legal issues in project management chapter three An overview and guide
to the other. It has slightly differing rules for when ‘consumers’
contract with a business rather than the relationship being
business to business. A person ‘deals as a consumer’ if he does
not make the contract in the course of his business and the other
party does make the contract in the course of his business. In
certain circumstances, a company can deal as a consumer. This
will occur where it can be shown that a company has entered
into a transaction that is not in the regular course of its business
(R and B Customs Brokers Co Limited v United Dominions Trust
[1988] 1 All ER 847).
Some exclusion clauses are unenforceable:
• Section 2(1) – a party cannot exclude liability for personal injury
or death resulting from negligence.
• Section 6(1) – a party cannot exclude or restrict liability for
breach of the implied condition of title, i.e. that a seller has title
to the goods it is intending to sell (s.12 of the Sale of Goods Act
1979, or s.8 of the Supply of Goods (Implied Terms) Act 1973).
• Section 6(2) – against any person who is dealing as a consumer,
a party cannot exclude or restrict liability for breach of the
implied conditions set out in ss.13–15 of the Sale of Goods
Act 1979 or ss.9–11 of the Supply of Goods (Implied Terms)
Act 1973.
Some exclusion clauses are subject to a test of reasonableness:
• Where one party deals as a consumer; and
• Where one party deals on the other party’s standard written
terms of business, or
• Where the transaction is business to business.
The reasonableness test is not an attempt to assess whether it is
reasonable for a party to rely on a particular exclusion clause in
light of events that actually transpired. When assessing the
reasonableness of a particular exclusion clause, the Court should
consider whether, given the parties’ knowledge (both actual and
constructive) at the time the contract was entered into, it was
reasonable for that exclusion clause to be included.
Schedule 2 of UCTA sets out various guidelines for applying the
reasonableness test. The list is not exhaustive and a Court is free
to take into account any relevant factor it deems fit to decide
reasonableness. However, it provides useful guidance. The most
pertinent factors are:
• The relative bargaining strengths of the parties
• Whether one party received an inducement for agreeing the
term, and
• Whether the party against whom the clause operates knew or
ought to have known that the clause existed and what it covered.
The Unfair Terms in Consumer Contracts Regulations 1999
The Unfair Terms in Consumer Contracts Regulations 1999
may also apply. They do not apply to contracts between two
commercial parties and consideration of the Regulations is only
9
 necessary where a Project Manager (as a commercial party)
enters into a contract with a ‘consumer’. For the purpose of the
regulations, a ‘consumer’ is a natural person (i.e. not a company)
acting for purposes outside his business.
Under Regulation 5(1) any ‘unfair term’ in a contract between a
commercial party and a consumer shall not be binding upon the
consumer. Regulation 4(1) defines an unfair term as one which
‘… contrary to the requirement of good faith causes a significant
imbalance in the parties’ rights and obligations under the contract
to the detriment of the consumer’. The Regulations also contain
a list of examples of terms that may be regarded as ‘unfair’.
Regulation 7 requires a consumer contract to be expressed in
plain, intelligible language. Presumably any clause that is not in
plain, intelligible language will be deemed unfair. It goes on to
state that where there is some doubt as to the meaning of a
written term, the interpretation most favourable to the
consumer will prevail.
3.4.2 Limitation periods
A Project Manager’s liability does not last forever. The limitation
periods for contract and tort are set out in the Limitation Act 1980.
Contract
Under s.5, liability under a simple contract lasts for six years from
the date on which the cause of action accrued. Under s.8, liability
under a speciality contract liability lasts for twelve years. The
cause of action accrues on the date of the breach. This may not
be as straightforward as it seems when considering a construction
contract. Defective work will create a cause of action when it is
done; a further breach will occur if the work is not rectified once
an instruction to do so has been issued; a further breach may
occur at the end of the maintenance period.
Tort
Under s.2, liability in tort lasts for six years from the date on
which the cause of action accrued. There is a marked difference
between contract and tort in that in the latter the action accrues
only when damage is suffered. This means that time may not
begin to run until long after a breach occurred.
The Limitation Act 1980 was amended by the Latent Damage Act
1986 to take into account situations where damage occurs but
its nature is such that it cannot be discovered. An action may
now therefore be brought within three years of the date on
which a reasonable person could have realised that a right of
action existed (s.14A). The amendment also introduced a 15-year
long stop so that any action would have to be instigated within
15 years of the actual breach of duty (s.14B).
Under s.3 of the Latent Damage Act 1986, where property
suffering from a latent defect changes hands before the defect is
discoverable, the purchaser acquires a right of action. That cause
of action will run from the original dates, as the defendant
cannot be put in a worse position than the original owner would
have been in. This section has had little impact because of the
development of the law through Murphy v Brentwood District
Council [1991] 1 AC 398 and the restrictions on the recovery of
damages for pure economic loss.
10 chapter three An overview and guide Legal issues in project management
It is possible for the court to postpone the limitation period
where there has been fraud, deliberate concealment or mistake
(s.32). Where this has occurred, the period will not begin to run
until the claimant has or ought to have been able to discover
the concealment.
The matter was considered in Cave v Robinson Jarvis & Roff
[2002] 2 All ER 641, where the House of Lords emphasised that
a breach of duty cannot be regarded as deliberate unless the
person concerned is aware that what he is doing is a breach of
duty. So where a breach is negligent but inadvertent s.32 does
not operate to postpone the limitation period.
3.4.3 Relevant case law
Cave v Robinson Jarvis & Roff [2002] 2 All ER 641
Murphy v Brentwood District Council [1991] 1 AC 398
R and B Customs Brokers Co Limited v United Dominions Trust
[1988] 1 All ER 847
3.4.4 Relevant statutes
• Unfair Contract Terms Act 1977
• Unfair Terms in Consumer Regulations 1999
• Limitation Act 1980
• Latent Damage Act 1986
3.5 Extending liability
3.5.1 Collateral warranties
A collateral warranty, or more specifically a collateral contract, is
one which runs alongside another contract. The term ‘collateral
warranty’ is used in the construction industry to denote the
mechanism employed to create a contractual relationship
between parties who would not otherwise have such a
relationship. It is common for the design team, the construction
team and any advisors, such as the Project Manager employed by
the developer, to agree to such warranties being made available
to subsequent purchasers/tenants of the building.
Such a warranty should not extend the nature of the obligations
owed by the Project Manager, it should merely increase the
number of people to whom such obligations are owed.
The Project Manager should also be aware of collateral
warranties, as it may well be part of his duties to ensure that the
appropriate warranties are in place.
3.5.2 Contracts (Rights of Third Parties) Act 1999
("CRTPA")
Since the passing of the CRTPA the need for collateral warranties
should have diminished, as the purpose of the CRTPA is to allow
contractual relationships to exist where it was not previously
possible for them to.
The CRTPA applies to contracts made after it came into force.
However, under s.6 certain contracts are excluded (e.g. bills of
exchange or other negotiable instruments, contracts of
employment). The CRTPA does not allow contracting parties to
impose obligations upon a third party. They may only confer rights.
Parties to a contract may exclude the effect of the CRTPA either
in part or entirely (s.1(2)). Where the CRTPA applies, third parties
will be able to enforce contracts in their own right (i.e. without
involving the contracting party) if:
• the contract expressly provides they may do so; or
• the contract term confers a benefit on them, unless it is clear
from the contract as a whole that the term was not intended
to be directly enforceable by the third party (s.1(1)).
The third party must be expressly identified in the contract,
but it can be by name or by answering a particular description
(e.g. funder, tenant, neighbouring landowner). The third party
need not be in existence at the time the contract is created,
e.g. a company not yet incorporated (s.1(3)).
Varying the contract
The party owing an obligation under the contract is referred to as
‘the promisor’. The party entitled to performance of that
obligation is ‘the promisee’. Where a third party has a right to
enforce a contract, there are limits on the power of the
contracting parties to vary or cancel the contract without his
consent (s.2). They cannot do so if:
• the third party has communicated his assent to the relevant term
(whether by words or conduct or in writing) to the promisor
• the promisor is aware that the third party has relied on the
term, or
• it was reasonably foreseeable that the third party would rely
on the term and he has in fact done so.
However, in the contract itself the parties can expressly remove,
limit or alter this right and there is power for the court to
dispense with the third party’s consent.
Enforcement
The remedies available to the third party are the same as if he
had been a party to the contract (s.1(5)). Enforcement by the
third party does not prevent the contracting party also enforcing
the contract (s.4), although the promisor is protected from
double liability (s.5).
The promisor has the same defences and rights to set-off
available to him in an action brought by a third party as if the
promisee had brought those proceedings. The promisee also has
any defences, set-offs and counterclaims he may have against
the third party himself. These provisions can be altered or
excluded by contract (s.3).
Where the contract provides for disputes to be referred to
arbitration, the third party will not be able to go to court instead
to resolve disputes as between him and the contracting party
and is bound by that arbitration agreement (s.8).
Conclusion
The Project Manager must therefore determine, following
consultation with his employer, whether it is necessary to extend
Legal issues in project management chapter three An overview and guide
the liability of the various players within the project. If it is
necessary, then he should decide which of the two routes is
most suitable and ensure that everything is in place. He must
not forget that most of the standard form contracts exclude
the operation of the CRTPA.
3.5.3 Relevant statute
Contracts (Rights of Third Parties) Act 1999
3.6 Areas likely to give rise
to a dispute
The most common areas which give rise to a dispute between
a client and a Project Manager are:
• Lack of communication / failure to warn
• Delay
• Poor supervision
• Failure to identify the client’s requirements
• Costs.
3.6.1 Lack of communication / Failure to warn
A Project Manager usually has duties to co-ordinate with other
professionals in the preparation of the contract documents and
to establish appropriate channels of communication with the
project team and the client and to manage the project as a whole.
To protect his position he should set up formal channels of
communication and devise a co-ordinated system for the
presentation of information. All relevant parties should be
updated on key events on the project.
He should be aware that if he fails to warn his client he may
become liable even if he was not responsible for the original
default – see the cases of Chesham Properties Ltd v Bucknall
Austin Project Management Services Ltd [1996] CILL 1189 and
Pride Valley Foods Limited v (1) Hall & Partners (2) Hall &
Partners (Contract Management) Limited (2001) 76 Con LR 1
(see section 3.9).
3.6.2 Delay
A Project Manager will usually prepare and monitor an overall
programme for the project and check that all necessary
information is being used and circulated timeously. In the case
of Copthorne Hotel (Newcastle) Limited v Arup Associates (1996)
12 Const. L.J. 402 (see section 3.9) the court considered whether,
if it is a Project Manager’s job to get a project finished on time,
he is negligent if the project is then delayed.
3.6.3 Poor supervision
Supervision is a key responsibility of a Project Manager.
The Project Manager should monitor progress, take appropriate
action to ensure that the project proceeds according to
programme, and be prepared to advise the client if its
requirements cannot be met or if an alternative scheme
is required.
11
 This obligation can be an onerous one. In the case of Chesham
Properties Limited v Bucknall Austin Project Management
Services Limited and Others [1996] CILL 1189, the court found
that the Project Manager was under a duty to report to the
client on the failings of the other professionals and that he
was negligent in failing to do so.
3.6.4 Failure to identify the client’s requirements
Failure to clearly identify the client’s requirements combined
with late variations to the works is a classic cause of time and
cost overruns on projects and consequently of disputes.
The Project Manager needs to have a clear understanding of the
client’s requirements of him and the scope of his responsibilities.
If he has a written contract, the extent of his duties should be
spelt out. Disputes are bound to arise if there is a lack of clarity
between him and the client as to who is carrying out certain key
roles within the project – see the case of Pozzolanic Lytag Ltd v
Bryan Hobson Associates [1999] BLR 267 below.
3.6.5 Costs
A Project Manager should monitor the cost plan and advise the
client of any changes and obtain authorisation for them. See the
case of Copthorne Hotel (Newcastle) Limited v Arup Associates
(1996) 12 Const. L.J. 402 below.
For example, section 4.2 of the RICS Project Management
Agreement obliges the Project Manager to inform the client
promptly in writing of anything likely to:
• vary the project
• increase the cost, or
• increase the time taken to complete the project.
3.6.6 Relevant case law
Chesham Properties Ltd v Bucknall Austin Project Management
Services Ltd (1996) CILL 1189
Pride Valley Foods Limited v (1) Hall & Partners (2) Hall & Partners
(Contract Management) Ltd (2001) 76 Con LR 1
Copthorne Hotel (Newcastle) Limited v Arup Associates (1996)
12 Const. L.J. 402
Pratt v George Hill and Associates [1987] 38 BLR 25
Pozzolanic Lytag Ltd v Bryan Hobson Associates [1999] BLR 267
St Albans City and District Council v International Computers
Limited [1996] 4 All ER 481
Royal Brompton Hospital NHS Trust v Hammond [no.6] [2000]
76 CONLR 131
George Fischer Holdings Limited v Multi-Design Consultants Limited,
Davis Langdon and Everest and Others [1999] 61 Con LR 85
J Jarvis and Sons Limited v (1) Castle Wharf Development Limited
(2) Gleeds Management Services Limited (3) Franklin Ellis
Architects Limited (CA) 19 January 2001
12 chapter three An overview and guide Legal issues in project management
3.6.7 Relevant statute
Housing Grants, Construction and Regeneration Act 1996
3.7 Professional indemnity insurance
The Project Manager’s liability is to exercise reasonable skill and care.
Any failure to do so may result in a claim against him or his firm.
The procurement and maintenance of a suitable professional indemnity
insurance policy is therefore vital. Proof of the existence and
extent of such a policy is a usual pre-requisite to any contract.
Condition 17 of the RICS Project Management Agreement states:
‘The Project Manager shall effect a professional indemnity insurance
for the figure stated in clause 6.1(d) of the Memorandum of
Agreement for each and every claim and if necessary provide
evidence of such insurance having been effected, and further
shall maintain professional indemnity insurance so long as it
remains available at reasonable rates in the market.’
3.7.1 Insurance proposal
The form must be filled in accurately and truthfully. The proposer
is generally required to make a declaration confirming that the
statements are true. Failure to fill in the form accurately or
truthfully may mean the insurer can avoid paying out a claim.
Insurance contracts are contracts of ‘the utmost good faith’.
This includes, during the period leading up to entering into the
insurance contract, an obligation to disclose material facts and
refrain from making untrue statements.
There are two types of insurance policy:
• An occurrence based policy
• A claims made policy.
An occurrence based policy means that the relevant policy is the
one which was in force at the time of the negligent act. A claims
made policy means the relevant policy is the one in force at the time
the claim is made (which may be some time after the negligent
act). P.I. policies are almost invariably on a claims made basis.
3.7.2 Costs
An important issue to consider is whether the policy covers
legal costs. There are two possible types of legal costs: (1) those
incurred by the claimant in successfully prosecuting a claim
against the insured, (2) the costs of defending the claim.
The Project Manager needs to be clear what costs, if any, are
recoverable under the policy.
3.7.3 The scope of the policy
The insured is required to disclose to the insurer, before the
contract of insurance is formed, every material circumstance
which is known or deemed to be known to the insured.
• Actual knowledge – the insured must, subject to the test of
materiality, disclose facts known to him. He need not disclose
inferences which he has drawn from those facts
• Deemed knowledge – the insured is deemed to know every
circumstance which ought, in the ordinary course of business,
to be known by him
• Materiality – the principle is that every circumstance is
material which would influence the judgement of a prudent
insurer in fixing the premium or determining whether he will
take the risk
• Facts which need not be disclosed – the insured’s duty to
disclose does not cover facts known or presumed to be known
to the insurer, facts which diminish the risk or facts of which
the insurer waives knowledge
• Penalty for breach of the duty to disclose – the insurer is
entitled to ‘avoid the policy’.
Project Managers should ensure that the policy obtained is
sufficient to cover them under the terms of their contract. A
basic PI policy excludes liability which arises as a result of giving
any express warranty or guarantee which increases their liability.
Therefore it is important that a Project Manager notifies his
insurer of any collateral warranties he may be required to enter
into. Most insurers now incorporate a clause to cover any
increased liability under a collateral warranty.
3.7.4 Notification of potential claims
Project Managers have a duty to notify their insurers of any
claim, including previous claims, and a further duty to notify
their insurers of any incidents which may give rise to a claim
in the future. Insurers highlight the duty and importance of
disclosure at all available opportunities.
Professional indemnity insurers can be strict on the duty to
notify. The reason behind this is to cut out the insurer’s
traditional long term liability. Any potential claim of which
Project Managers are aware, must therefore be notified by
them during their current period of insurance.
3.7.5 Level of cover
Having inadequate insurance can be almost as disastrous
as no insurance, particularly if a Project Manager is part of a
partnership. The size of the project does not necessarily have
a direct bearing on the size of any potential claim.
A client will require a minimum indemnity limit from all
consultants and contractors and sub-contractors. Its own
insurers are unlikely to take on the client’s risk without
these assurances.
Insurance cover is available on an ‘each and every claim’ basis or
an ‘aggregate basis’. ‘Each and every claim’ means that any one
claim is covered up to the limit stated in the policy schedule.
This is advisable, because it is possible for more than one
claim to arise in the same insurance period.
Cover on an ‘aggregate basis’ means that all claims in the
insurance period are limited to the aggregate limit. The level
of the aggregate limit is therefore critical. A low aggregate limit
is risky and not recommended.
Legal issues in project management chapter three An overview and guide
3.7.6 Relevant case law
Co-operative Retail Services Ltd v Taylor Young Partnership Ltd & Os
[2002] BLR 27
Royal Brompton Hospital NHS Trust v Frederick Hammond & Os
(2000) 76 Con LR 131
The Star Sea [2001] 1AllER (Comm) 193
Insurance Corporation of the Channel Islands v Royal Hotel Ltd
[1998] Lloyd’s Re. I.R.151
Robert Irving and Burns v Stoke [1998] Lloyd Rep I.R.258
Layher v Lowe (1997) 58ConLR 42
3.7.7 Relevant statute
Civil Liability (Contribution) Act 1978
3.8 Health and safety
• Project Managers can be considered as employers on many
construction sites or within the field of managing a given task
or project
• Project Managers should be familiar with all the legislation
mentioned below
• In addition to the statutes and regulations mentioned below,
there are a number of Approved Codes of Practice (ACOP) which
have special status in law. They are not statutory requirements
in themselves but may be used in criminal proceedings as
evidence that statutory requirements have been contravened.
In most circumstances, Project Managers are best advised to
follow an ACOP rather than deviate from it
• Project Managers should know that only authorised inspectors
are able to carry out functions set out under the Health &
Safety at Work etc Act 1974.
• Project Managers should be aware that inspectors have a wide
range of powers enabling them to undertake investigation.
Inspectors can enter premises where they believe it is necessary
to do so to carry out their duties. These visits can be at any
time. Project Managers should be aware that if an interview is
conducted under s.20 of the Health & Safety at Work Act there
is no ‘right to silence’ for a company or individual under investigation
• Inspectors are able to use their discretion over how they deal
with non-compliance issues. On many occasions they will take
informal action via letter requesting that action be taken
within a certain time
• Where an inspector is of the opinion that one or more
such provisions have been contravened, he may issue an
Improvement Notice requiring the responsible person to take
the necessary action to remove the contravention within a
specified time
• Where an inspector forms an opinion that an activity is being
carried out or is likely to be carried out that will involve a
serious risk of personal injury, he may issue a Prohibition
Notice. Project Managers should be aware that employers,
13
 employees and the self-employed can be prosecuted under s.33
of the Health & Safety at Work etc Act 1974 if they commit an
offence of failing to discharge their duties under the Act
• Project Managers should note that the Construction (Design &
Management) Regulations 1994 (CDM Regulations) are to be read
in conjunction with the Management of Health & Safety at Work
Regulations 1999 (MHSWR). The MHSWR are accompanied by
an ACOP which gives guidance and compliance with the
regulations and specific guidance on young persons at work
• Every employer must appoint a competent person to advise in
relation to compliance with Health and Safety requirements.
The Project Manager should ensure he knows who the
employer has appointed
• Project Managers should be familiar with what a risk assessment
entails and also when specific assessments are required, in
particular for:
• asbestos
• chemicals
• design (work for construction engineering)
• lead
• manual handling and lifting
• noise
• personal protective equipment
• pregnant and new mothers
• VDUs/workstations
• young persons.
• Project Managers should be aware that employers are required
to report accidents, injuries or dangerous occurrences under
the Reporting of Injuries Diseases and Injuries Recurrences
Regulations 1995. Project Managers should be familiar with
the reporting procedure and what needs to be reported
• Project Managers should know when permits to work are
required pursuant to the MHSWR. The Regulations require
permits to be used to control high risk activities where specific
hazards could be present. Such work activities that should be
covered by a permit may include hot works, roof works, works in
confined spaces, lift works, work on scaffold, towers or mobile
working platforms, demolition works etc
• Project Managers should be familiar with the Manual Handling
Operations Regulations 1992 which apply to all construction work
and other work which involves an element of manual handling.
Relevant statutes and regulations
Health and Safety at Work etc Act 1974
Fire Precautions Act 1971
Management of Health & Safety at Work Act 1999
Management of Health & Safe at Work Regulations 1999
14 chapter three An overview and guide Legal issues in project management
Health & Safety (Consultation with Employees) Regulations 1996
Reporting of Injuries Diseases and Dangerous Recurrences
Regulations 1995
Manual Handling Operation Regulations 1992
Construction (Design and Management) Regulations 1994
Control of Asbestos at Work Regulations 2002
Provision & Use of Work Equipment Regulations 1998 Lifting
Operations & Lifting Equipment Regulations 1999 Construction
(Health Safety & Welfare) Regulations 1996
Workplace (Health Safety & Welfare) Regulations 1992
3.9 Key project management case law
Chesham Properties Ltd v Bucknall Austin Project Management
Services Ltd (1996) CILL 1189
Chesham were property developers and Bucknall, together with
others, were members of Chesham’s professional team. The
project had overrun in time and cost, and Chesham alleged that
the contractor had been awarded extensions of time that he
should not have received and that these were granted to cover
up failings of the professional team. There were a number of
allegations of professional negligence against each of the
professional advisers. A particular point of interest for Project
Managers was the finding on a preliminary issue that the Project
Manager was under a duty to report to the employer on the failings
of other professionals and was negligent in failing to do so.
St Albans City and District Council v International Computers
Limited [1996] 4 All ER 481
This was an information technology case involving the supply of
software from International Computers Limited (ICL) to St Albans
City and District Council for the assessment and administration
of the community charge. The software contained an error which
overstated the relevant population of the area, causing a loss in
revenue. The Judge found that ICL’s Project Manager gave an
assurance that the figures were correct and that he did not have
the technical knowledge to give such an assurance. At trial ICL
ran a number of ‘technical’ legal defences. Once of their defences
was that the assurances given by ICL’s Project Manager were
negligent misrepresentations and that ICL was not responsible
for these representations because he had breached the terms of
his service agreement with St Albans by so doing. The defence
was ultimately rejected; however, it is interesting that it was raised.
Copthorne Hotel (Newcastle) Limited v Arup Associates (1996)
12 Const. L.J. 402
This case was concerned with the out-turn cost of the
construction of a hotel which was many millions more than had
apparently been estimated by the Project Managers. One of the
questions for the court was: if it is a Project Manager’s task to
get a project completed on time, to budget and to a specified
standard, is the Project Manager therefore negligent if the
project is late, over budget or lacking in quality?
The claim for negligence against the Project Manager failed for
lack of evidence that it ever agreed that the hotel could be
constructed for the amount specified in the developer’s
budget. The Judge commented that simply identifying a
large discrepancy between an estimate and the actual cost
was insufficient to prove negligence.
Pozzolanic Lytag Ltd v Bryan Hobson Associates [1999] BLR 267
Pozzolanic engaged BHA, a firm of civil and structural engineers,
as Project Manager in the construction of a dome for the storage
of ash. Subsequently, the dome built by the contractor HH
collapsed. It transpired that there was no insurance in place to
cover the liability of HH. Pozzolanic alleged that BHA was
negligent in failing to make sure the relevant insurance was in
place. BHA said that it had no duty to advise upon insurance.
The Judge decided that, as Project Manager, BHA’s duties
included ensuring that the insurance required of the contractor
was in place and that BHA owed a duty of care to Pozzolanic to
take reasonable care to ensure that there was insurance in place
as required under the construction contract. The lack of expertise
on the part of the Project Manager as to the adequacy of the
insurance arrangements proposed did not protect him from a
claim in negligence regarding the lack of insurance cover. The
Judge said that a professional whose obligations go beyond his
expertise should either obtain the appropriate advice or inform
the client that such advice is required and seek to persuade the
client to obtain it. Crucially, the Judge said that a Project
Manager couldn’t simply act as a postbox.
Pride Valley Foods Limited v (1) Hall & Partners (2) Hall &
Partners (Contract Management) Limited (2001) 76 Con LR 1
This case involved works to the bakery factory of Pride Valley
which made special breads, including naan and pitta bread. Halls
were engaged as Project Managers. Expanded polystyrene (EPS)
panels were used in partitioning around flues in order to keep
costs down. The panels passed fire inspection at a time when the
factory was producing pitta bread, a process that required little
oil. When the factory changed over to producing naan bread, a
lot more oil was required and a build-up of cooking fat caught
fire, setting light to the panels and destroying the factory. Pride
Valley issued proceedings against Hall alleging the fire was
caused by their breach of contract and/or negligence. Although,
at the time of writing, part of the case has been remitted back to
the trial Judge, the Court of Appeal upheld the trial Judge’s
decision that Hall was negligent in failing to warn about the
unsuitability of materials.
J Jarvis & Sons Limited v (1) Castle Wharf Development Limited
(2) Gleeds Management Services Limited (3) Franklin Ellis
Architects Limited (CA) 19 January 2001
The Court of Appeal, in this case, found that Employers and their
Project Managers could have certain duties to contractors.
Castle Wharf were the developer and Gleeds were retained to
co-ordinate the development and manage the tender process.
Jarvis was the Contractor on the project, an office development
in Nottingham. The development was a prominent and sensitive
one over which the local authority was exercising close control by
the strict imposition of planning permissions. These permissions
were a source of continuing negotiation between the authority
and the defendants as a number of variations to the project were
proposed from time to time but only some of the variations were
actually approved by the authority.
The dispute related to Jarvis’ losses due to costs wasted and
delays caused by an enforcement notice issued by the local
authority due to unapproved variations. Jarvis claimed that
during the tender period, Gleeds negligently mis-stated the
situation regarding the planning permissions. Jarvis said that
they relied on those mis-statements and hence Gleeds was liable
for damages.
The trial Judge found in favour of Jarvis but the Court of Appeal
did not, because in the circumstances, they decided that
‘inferences’ were made rather than actual mis-statements and
also they decided there was no reliance.
However, the Court of Appeal did say that there was no reason
in principle why an Employer, or his Project Manager, could not
be liable for negligent misstatement made to a contractor to
induce him to tender.

Pratt v George Hill Associates (1987) 38 BLR 25

George Hill Associates (GHA) were the architects and their duties
involved advising upon tenders from builders. Two builders were
recommended by GHA as being "very reliable". Pratt took this
advice and contracted with one of the builders who turned out
to be very unreliable. Pratt commenced proceedings against GHA
for damages for negligence in recommending the builder and in
the performance of their duties as architect. The Judge at first
instance held that GHA were in breach of their duty to
recommend a suitable reliable builder and this was upheld by
the Court of Appeal on the basis that Pratt’s damage arose
directly from the misrepresentation negligently given by GHA
which caused Pratt to contract with unreliable builders.

Legal issues in project management chapter three An overview and guide 15

 chapter four
Conclusions

4.1 Summary and further research

The online survey identified further areas in which Project There is also potential for further training in the following areas:
Managers required more research and training. There was a
• PFI / PPP
perception amongst Project Managers that more information
was needed on PFI/PPP from a legal perspective. Partnering • Partnering
and insurance were the next most important areas for further
research. It would be worthwhile to examine the impact on • Bonds
the Project Manager of the development of collaborative • Planning and environmental issues.
procurement methodologies and a move towards
good-faith contracting.

The research indicated the myriad of legislation that Project

Managers, as a minimum, need to be aware of if they are to carry
out their job successfully. For example, when asked about the
Housing Grants, Construction and Regeneration Act 1996
(HGCRA) nearly a third of respondents to the online survey said
that they never took this piece of legislation into consideration
(28%). The HGCRA is a key piece of legislation. All Project
Managers should be aware of its requirements in relation to
payment provisions and the adjudication process. Further
training is therefore a high priority in relation to the HGCRA.

In summary, the key legal issues which a Project Manager should

be aware of, as a minimum, are as follows:

• Appointment documents

• How to put their own and other contracts in place

• Basic understanding of contract and tort

• Liability, including the limitation and extension of a Project

Manager’s liability

• Key legislation which a Project Manager should be familiar

with, in particular the HGCRA

• Health and Safety issues including relevant legislation

• Professional Indemnity Insurance

• Areas likely to give rise to a dispute

• Dispute resolution processes.

16 chapter four Conclusions Legal issues in project management

 chapter five
References

Books Web sites

Baster, J. (Ed.) (2000) Construction Law Handbook, Thomas Telford Association for Project Managers www.apm.org.uk

Beachcroft Wansboroughs,(2000) Knight’s Building Regulations 2000 *Building Law Information Subscriber Service www.blissuk.com

Blount (ed.) (2000) Knight’s Guide to Building Control Law and British and Irish Legal Information Institute www.bailii.org
Practice, Tolley
*Butterwoths LexisNexis www.butterworths.com
Clarke, A. (1999) Managing Health and safety in Building and
Court Service www.courtservice.gov.uk
Construction, Butterworths-Heinemann
Dechert www.dechert.com
Duncan Wallace, I. (1995) Hudson’ Building and Engineering
Contracts, Sweet & Maxwell Health and Safety Executive www.hse.gov.uk
Freshfields Construction and Engineering Group, (1994) International Federation of Consulting Engineers www.fidic.org
Construction & Engineering Group, Management Contracting,
Law and Practice, Cavendish Publishing. Joint Contracts Tribunal www.jctltd.co.uk

Hughes (2002) Environmental Law, Butterworths *Lawtel www.lawtel2002.com

Murdoch, J., and Hughes, W. (2000) Construction Contracts Law RICS PM Faculty www.rics.org.uk
and Management, Spon Press *Society of Construction Law www.scl.org.uk
Polley, S. (2001) Understanding The Building Regulations, E & FN Spon *Westlaw www.westlaw.co.uk
Powell-Smith, V., and Billington, M. (1999) The Building Winward Fearon www.winwardfearon.co.uk
Regulations Explained and Illustrated, Blackstone Press

Ramsey, V., and Furst, S. (2000) Keating on Building Contracts,

Sweet & Maxwell Documents), Tolley

Speaight, A., and Stone, G. (2000) Architect’s legal Handbook, * Subscription required
Architectural Press

Uff, J. (2002) Construction Law, Sweet & Maxwell

Journals
Construction Law – Butterworths

Construction Law Journal – Sweet & Maxwell

International Construction Law Review – LLP

Building Law Reports - LLP

Construction Industry Law Letter - Informa Law

Legal issues in project management chapter five References 17

 chapter six
Appendices

Apendix 1 Legal issues in project management questionnaire

Weblink: http://www.cem.ac.uk/rics/

Section A: Background information

1 Profile

a Male ■ Female ■
b Age 21-25 ■ 26-35 ■ 36-49 ■ 50-64 ■ 65+ ■

2 What level of responsibility do you currently hold?

(please mark all that apply)

Executive (strategic decision making) ■

Management (managing others) ■
Technical – Surveyor with 3+ years PQE ■
Technical – Surveyor with 0-3 years PQE ■

3 Which statement best fits your current role?

(please tick one box only)

I’m an in-house Project Manager for a corporate organisation ■

I’m an in-house corporate real estate manager and I commission Project Managers ■
I work as an external consultant Project Manager ■
I work for a contractor and I manage building contracts ■
I work in project teams with Project Managers ■
I work for a contractor and I manage building contracts ■
My professional work includes project management activities ■
I work in education and research associated with project management ■
I am not an active Project Manager ■
Other ■

18 chapter six Appendices Legal issues in project management

4 What other academic qualifications have you obtained?
(please tick all that apply)

BA/BSc ■ MA/MSc ■ PhD ■ Mdip ■ MBa ■

LL.B ■ DipProjMan ■ None ■ Other ■

5 What other academic qualifications have you obtained?

(please tick all that apply)

CIOB ■ RIBA ■ ICE ■ APM ■

CoreNetGlobal ■ CIArb ■ None ■ Other ■

6 What type of organisation do you work in?

(please tick one box only)

Project management practice ■ Corporate / plc (client) ■

Quantity surveying practice ■ Local government ■
Multi-discipline practice ■ Central government ■
Other surveying practice ■ Not for profit organisation ■
Construction company ■ Education and research ■
Developer ■ Other ■

7 What type of organisation do you work in?

(please tick one box only)

Project management practice ■ Corporate / plc (client) ■

Quantity surveying practice ■ Local government ■
Multi-discipline practice ■ Central government ■
Other surveying practice ■ Not for profit organisation ■
Construction company ■ Education and research ■
Developer ■ Other ■

Legal issues in project management chapter six Appendices 19

 Section B: Legal issues
Always Sometimes Hardly ever

1 Do you ensure you have a signed formal contract with the client before you commence work? ■ ■ ■

2 If you are given a client’s standard form of appointment contract, would you:

(i) Amend any clauses you do not like before signing? ■ ■ ■

(ii) Insist on using your own standard form appointment contract? ■ ■ ■

3 Do you insist on collateral warranties being entered into on a project? ■ ■ ■

4 To what extent does the Housing Grants, Construction and Regeneration Act 1996
affect the way you administer contracts? ■ ■ ■

5 Do you exclude the effect of the Contracts (Rights of Third Parties) Act 1999? ■ ■ ■

6 Do you verify the terms of your professional indemnity insurance policy

before entering into a contract? ■ ■ ■

7 Have you ever been involved in any of the following: Yes No

(i) Court proceedings? ■ ■

(ii) Adjudication? ■ ■
(iii) Arbitration? ■ ■

Thank you for taking the time to complete this questionnaire

Please return to the College of Estate Management in enclosed envelope

20 chapter six Appendices Legal issues in project management

www.rics.org

RICS is one of the leading organisations for professionals in property,

land, construction and related environmental issues worldwide.
We promote best practice, regulation and consumer protection to
business and the public. With over 110 000 members, RICS is the
source of property related knowledge, providing independent,
impartial advice to governments and global organisations.

Prepared for
RICS Project Management Faculty
May 2003

Disclaimer
No responsibility for any loss occasioned to any person acting or
refraining from action as a result of any material included in this
publication can be accepted by the authors or the publishers.

Copyright
The copyright in this report is vested in the RICS
with all rights reserved.

The Royal Institution

May 2004/job No/RICS Project Management Faculty/Qty//Turners

of Chartered Surveyors
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United Kingdom

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