By Brendan Cash, partner, and Tamzin Dempste, solicitor, Kensington Swan’s Construction & Major Projects Team
IT IS IMPORTANT to understand the role of the engineer under NZS 3910, and to understand where the individual performing that role sits with the principal and the project. This will help you assess the decisions being made by the engineer against their obligation to act in good faith.
Dual role of the engineer
The engineer is a person appointed under clause 6 of NZS 3910:2013. The engineer must be suitably qualified and a natural person (rather than a company or firm). He or she is appointed by the principal and has two key functions: agent for the principal; and an impartial quasi-judicial decision maker.
The engineer as the principal’s agent
‘Principal’s agent’ means that the engineer must act in the best interest of the principal, and is authorised to legally bind the principal. The engineer acts as an expert advisor and representative of the principal. For example, when the engineer receives payment claims, and issues progress schedules, this is explicitly done in their capacity as the principal’s agent.
The engineer as an impartial decision maker
Payment claims and schedules may be received and issued by the engineer as the principal’s agent, but this is a distinct function from those claims and schedules being assessed by the engineer. When the engineer assesses the value of the contractor’s payment claims, he or she must do so as an impartial administrator.
The same standard also applies when making decisions, such as approving and valuing variations, confirming unforeseen physical conditions, and granting extensions of time.
Further to this, under clause 13.2 of NZS 3910:2013, disputes between the contractor and the principal are referred to the engineer for an engineer’s determination.
Across this dual role is the overriding duty of the engineer to act in good faith. However, it is not hard to imagine scenarios where this could be difficult for the engineer.
Does an impartial engineer exist?
It may be difficult to expect an engineer to wear these two hats in good faith when the opportunity for a conflict of interest is inherent in the role.
Increasingly the practice is that the engineer is an employee of the firm that has performed the design work. This is generally a sensible idea, as no one will be as intimately familiar with the works or understand where the project is meant to go quite like the designer. However, a conflict for the designer-engineer arises where the contractor seeks a variation or extension of time on the basis of a flaw in the design.
To allow that variation is to admit fault in the design. This has implications for the designer-engineer that goes further than just pride – an admission of fault may void his or her professional indemnity insurance.
In any case, the engineer is someone that is unilaterally appointed by the principal, has a contract with the principal, and is being paid by the principal. It was common practice a decade or so ago for the engineer to be an employee of the principal.
Can such a person be expected to always act impartially, when that may require them to make a decision for the benefit of the contractor, which will necessarily be to the detriment of their employer, the principal?
Most professions acting as the engineer will generally strive to properly perform their quasi-judicial role in good faith. However, this can be very difficult, depending on the principal they act for, the issues raised, and the relationship between the parties. Some engineers may find it more difficult than others to juggle their dual roles.
What can the contractor do if it has concerns?
The contractor is essentially powerless to change the engineer once the contract is underway. There is no obligation for the principal to change the engineer if it does not want to. If the principal wishes to appoint a new engineer, the principal only needs to ‘consider’ any representations made on behalf of the contractor before it notifies the contractor of the appointment of the new engineer. There is no obligation for the principal to follow the contractor’s representations.
If you are a contractor under a NZS 3910 contract, it is worth taking some time to consider who the nominated engineer is. Any serious concerns should be negotiated with the principal before signing the contract, as this is when you have the opportunity to influence who the engineer will be.
Once the contract is underway, a contractor will be limited to claims for damages against the principal where the engineer has failed to properly fulfil their role.
Kensington Swan provides comment on the construction industry on its blog Site. www.nzconstructionblog.com