The Influence Gap

Putting together a recent presentation on “Reclaiming the Consultant’s Design Role” made me reflect a bit more than usual on influence and who holds it in the modern construction industry, and the large gap that the modern construction industry has opened up between influence and liability.

Last Lessons from the Lacrosse Fire

Looking at the litigation arising out of the 2014 Lacrosse Building fire, ending with the appeal judgments handed down earlier this year, the biggest lesson is the importance of a consultant defining its role, especially when that role is more limited than what is traditional for their profession.

In Lacrosse, both the fire engineer and the architect denied liability for approving the use of combustible polyethylene-core aluminium composite panel cladding on the grounds that their role after novation was limited. The fire engineer believed their role was limited to responding to specific alternative solution requests from the building surveyor, and the architect believed that some parts of their role were limited to advising only on aesthetics of materials rather than quality/ compliance.

However, quoting extensively from their respective consultancy agreements and scopes of services, the court found that both had contracted to perform a broader, more traditional consultant role that included assessing the NCC compliance of the cladding materials. Consequently, the appeal judgment handed down in May apportioned liability 42% to the fire engineer and 25% to the architect (along with 30% to the building surveyor and 3% to the tenant whose cigarette ignited the fire). With no further appeals lodged, this appears to be the end of the matter, for this project at least.

And yet that liability finding doesn’t quite sit comfortably with all of the evidence about the consultants’ influence, power and control.

While the fire engineers did know that “composite panel” cladding was planned, which had a likelihood of containing some polyethylene, they did not ever advise on complete drawings, and were not consulted on the specific product selected. The architect, meanwhile, complained of being “sidelined” after novation.

In other words, there was a gap between the broad, influential role described in the consultants’ contracts, and the lesser role they felt they were exercising on the ground.

That gap is one of the core problems the industry needs to address.

Closing the Gap

It might be tempting to close this gap by “going small”, amending the consultancy agreements to define a limited role, with a strongly worded exclusions section. But unless someone else is standing by to shoulder those excluded responsibilities, then the project lacks essential advice, the risks of defects is high, and litigation is a real possibility.

On top of that, legislative reform may make it impossible to take a limited role. For example, the new compliance declaration regime under the Design and Building Practitioners Act (NSW) applies chiefly to class 2 buildings in NSW. On buildings in-scope of the regime, before construction can commence, “construction issued regulated designs” must be lodged with NSW Government, along with “design compliance declarations” in which consultants certify that certain regulated aspects of the design comply with the NCC. For consultants whose advice touches on those regulated aspects (and that includes fire safety systems, waterproofing, essential load-bearing components, performance solutions of any kind, plus other elements) the sort of limited-scope role that the fire engineer and architect envisaged on Lacrosse will be impossible.

Instead, the obvious solution lies in consultants embracing a broad role, and reclaiming the influence and control required to fulfil it.

Contracts and Novation

To support that role, consultancy agreements need to improve. They need to give consultants the power to resist unlawful or high-risk client directions, or excessive cost-cutting, without fear of being unfairly terminated or having their fees withheld. Consultants also need time to investigate, review and produce a design that is substantially complete before construction commences – and to resist excessive, rushed and under-researched substitutions during so-called “value management”.

Instead, what we see all too often is this. Clients use their market power to coerce consultants into working under master/slave consultancy agreements, which give the clients rights like these: terminating the consultant for no reason with minimal notice and no compensation; withholding the consultant’s fees indefinitely on the basis of unsubstantiated allegations of fault; changing the program or accelerating it at any time; and granting extensions of time only for delays directly caused by the client.

Clients (especially government clients) might justify these master/ slave contracts on the grounds that the client can be trusted not to abuse the “master” powers it has given itself. But what happens when these “master” powers are novated to a head contractor? What happens in the worst-case scenario, when that head contractor is inexperienced, or was selected due to a low tender price that could only be achieved with excessive cost-cutting, or a tender price with a tiny profit margin that was quickly erased by unforeseen circumstances? It’s not hard to predict that the head contractor will use its “master” powers to force through cost-cutting substitutions, leading to defects and non-compliances.

The Lacrosse judgment places on the shoulders of the consultant team the responsibility of standing up to these pressures and protecting quality. To do that effectively, consultants need contracts that return to them their power, influence and control.

Since our inception in 2020 as a subsidiary company of Consult Australia PI pathway insurance broker Planned Cover, informed Lawyers Pty Ltd (ACN) has assisted many consultants in amending and negotiating consultancy agreements. The problems mentioned above are some of the key ones we work on. But with clients used to wielding a great advantage in contract negotiations, there is a lot of work to be done.

Beyond contracts

Beyond contracts, the industry also needs better education, and better collaboration between consultants, and a cultural change in favour of completing designs before tender, under more generous programs, rather than under pressure during construction. And it would be nice to see legislative reform that incentivises developers and other clients to set a culture of quality, rather than heaping compliance responsibility on consultants.

Change has to come. As has been widely reported, the insurance market has hardened greatly over the last few years, driven partly by defective building claims. Consultants are facing higher premiums and narrower coverage, and some harder-to-place businesses will need all the experience of an insurance broker like Planned Cover to obtain a suitable policy at all.

Better contracting, with a view to closing the gap between consultants’ liability and their influence over project outcomes, is part of improving outcomes, reducing project risk, and encouraging insurers back into the market.

Wendy Poulton

Principal informed Lawyers Pty Ltd (ACN 635 862 145)

(informed Lawyers is a new law practice owned by IBL Ltd, the team behind PI Pathway insurance broker Planned Cover)