Professional liability: Consumer and competition law

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In the fourth of a series of articles, FIDIC president Tony Barry looks at how consumer law impacts on professional liability, pushing up costs and reducing scope for innovation across infrastructure.  

The influence of consumer law on professional liability
There are a number of big changes that have changed professional liability, but a big one has been consumer protection and competition law. These have had a significant impact on the liability exposure of many professionals as well as removing the ability of bodies such as member associations to work on these issues collaboratively with industry participants or publish standardised fee scales.

Consumer protection legislation in many cases includes provisions relating to false and misleading misrepresentations.

Provisions relating to misrepresentations have created an avenue for parties to make claims outside the contract between the client and consulting engineer. This has had a profound effect in the sense that errors and misstatements can be treated as false and misleading. More importantly, these provisions have been used to step around limits of liability which may be agreed under the contract of service between client and consulting engineer.

Expansion of clauses about false and misleading claims
Provisions relating to false and misleading statements have also been used to enhance the effectiveness of warranties, guarantees and fitness for purpose clauses included in the contract. What we have seen as an industry is that over time, client legal advisers began drafting clauses in service contracts which were specifically designed to facilitate claims under the false and misleading provisions of consumer protection legislation.

In tenders and contracts for major infrastructure projects for governments and subsequently consulting services contracts, it has also become commonplace to require the tenderer to make specific representations designed to curtail the ability and limit the impact of a claim against the client, which may be made by the contractor or consultant.

While many countries have legislation which protects consumers from false and misleading claims, the use of these provisions in construction and consulting services is unusual globally and has placed contractors and consultants working on such contracts in a highly exposed position.

Negotiating the representations minefield
In every proposal to their clients, consulting engineers make representations as to what they are going to do, how they are going to do it, who is going to do what and what time and costs are involved. In providing reports and advice to clients, consulting engineers are making representations.

The consequences of making a false or misleading representation will vary according to circumstances and claimants need to establish the extent of their reliance on the false or misleading statement and causation between a loss event and the statement. The expertise and experience of the person receiving the advice is relevant in establishing the extent to which it may have relied on the advice relative to the extent to which it relied on its own knowledge, expertise and experience.

It is vital to understand who is entitled to rely on the advice of a consulting engineer, so as to understand to whom the consulting engineer is making representations and hence to whom the consulting engineer owes a duty.

The work of consulting engineers is an applied science, a practical application of knowledge and skill. While there is precision in many aspects of planning, analysis and design, it is often underpinned by assumptions, research, technical papers, empirical knowledge and experience. To make a client fully aware to the extent to which they can rely on a consulting engineer’s advice, it is vital to provide the client with:

  • General advice as to the nature of engineering, of the project, of materials and methods used and of the services provided
  • Specific advice on information provided by the client or other parties on which the consulting engineer relied in preparing the advice
  • Specific advice on assumptions, research, technical papers and empirical knowledge on which the advice is based
  • Specific advice on previous relevant experience
  • Any limitations on use of the advice, for what purpose and who is entitled to rely on it
  • Full disclosure of risks which may be involved in using the advice.

It is important to understand that clients who are experienced litigants may engage in tactics during tendering and project implementation to extract representations from their consulting engineers in a form which would maximise their position in a claim event. In that context, it is important project teams understand this risk, are briefed as to appropriate safe behaviours and are equipped with procedures to avoid claims and disputation.

In some circumstances, a business may be well advised to avoid certain areas of practice to reduce the potential exposure to these risks, such as with traffic forecasting for a tolled motorway.

Representations in tenders and service contracts
In addition to the general comments about representations above, the use of specific representations in tender documents and contracts is becoming more problematic.

In tendering situations, some clients are providing tender forms which must be executed by the tenderer to have its tender judged compliant. These tender forms variously include statements specifically designed to prevent and avoid or provide a defence to claims by the successful tenderer against the clients once the contract is signed.

Examples of the statements or warranties in these tender forms required of the tenderer are to the effect that:

  • It has not relied on any information provided by the client in preparing their tender
  • It has conducted its own investigations and any information used by the tenderer in the preparation of the tender is warranted by the tenderer as adequate for the purposes of the tender
  • The client is an inexpert client is relying entirely on the tenderer for the successful delivery of the project or services in accordance with the tender.

Claims against consulting engineers may ordinarily be made under laws of negligence, of contract and breaches of statutory liability. Under consumer law, claims may also be made for false and misleading representations.

One source of these claims occurs when there is a breach of the warranties given in contract documents in favour of the client, executed by the consulting engineer. Of course, mis-statements or errors, made in design documents or through correspondence during project execution also provide grounds for such claims.

How can the consulting engineering firms tackle this?
The solution to this is not easy. We need to deliver new infrastructure at an unprecedented scale and there is a real problem with risk, limiting the ability of an industry to design and deliver effectively – not least because it can restrict the scope for innovative practices and solutions.

Consultants have responded by establishing substantial legal capabilities, liability management capabilities and rigorous project procedures to limit their practical exposures to risk. However, in markets where legal jurisdictions are difficult, where ‘design construct maintain (and operate)’ are prevalent, claims against consultants are commonplace and the cost and terms under which insurance is provided has become more problematic.

As mentioned, avoiding areas of practice where such claims are prevalent may also be a response and may force some clients to re-think their practices.

Playing the representations game also offers some protection but requires very considerable skills and strength in negotiating contracts and service agreements. Always be prepared to walk away from a contract, whose terms you cannot, hand on heart, honour and live with the outcome whatever it be.

In doing so, it may be appropriate to secure representations and warranties from the client. This may involve obtaining clauses to the following effect:

  • A limit of liability in the form of a positive representation from the client
  • A warranty from the design and construct contractor that it has the expertise and experience to build the project in accordance with the consulting engineer’s design and documentation.
  • A warranty from the design and construct contractor that it has adequately provided contingencies in its pricing and programming to reflect design creep between tender and final design.

How can the FIDIC tackle this?
One of the most important things to be done is to find the global examples that work well, the companies that have adapted most effectively and even other industries – within and beyond infrastructure – where similar liability challenges are also being addressed and where good practices and cultures have been established.

FIDIC has the opportunity to work with firms and its member associations to build the knowledge base and guidance to support member associations to engage government on these issues, with a view to ensuring consumer protection does not expand the avenues through which liability claims can be pursued between knowledgeable industry participants.

That is something we must achieve if the wider industry is to deliver on its commitment to innovate and create the sustainable and cost-effective infrastructure the world needs.

Look out for the next article in the series – Professional Indemnity Insurance – on 16 August 2022.

About this series
Infrastructure Global is pleased to have Tony Barry, president of international engineering body FIDIC, write a series of articles looking at the growing problem of professional liability standing in the way of collaborative global infrastructure delivery and what can be done about it.

Tony has over 40 years’ experience in infrastructure design and delivery. He is not a lawyer and does not have any specific contract law training. He has written this series of opinion articles to promote discussion and awareness of the liability issues facing consulting engineers. Please seek specific legal advice if any of the issues described in these articles concern you.

Look out for the next article in the series – Consumer and competition law – on 02 August 2022.

The first article in this series – Professional Liability, why it is important – can be read here. 

The second article in this series – Professional Liability, bespoke head contract obligations – can be read here. 

The third article in this series – Professional Liability, expanding contractual obligations- can be read here.