Calming conflict between consultant and client
There are several areas of tension that arise between contaminated land consultants and their clients. A recent guidance paper looks at the common disputes involved and suggests ways to iron them out
A guidance paper to help resolve common areas of conflict between contaminated land consultants and those that employ them has been drawn up by the Environmental Industries Commission (EIC). The terms upon which contaminated land consultants are employed, highlights key areas of tension and suggests ways in which this tension can be diffused through the agreement of comprise arrangements.
The contaminated land consultancy market is estimated to be worth around £400M per annum in the UK, and the work of consultants in this field brings enormous economic benefits to society. Using their expertise, they are able to provide crucial information about the substances in, on or under the ground, their concentrations, fate and behavior, mobility and implications for the wider environment and for human health.
Problems around procurement
However, despite the importance of their contribution, the procurement of consultants’ services remains problematic. Many consultants – and the trade associations that represent them – believe that the rewards consultants earn from their work are out of kilter with the risks they assume. Consultants believe that clients misunderstand the nature of the services they are providing, and feel that the terms upon which they are employed by their clients are often unduly harsh and penal in their operation. One area of concern is the site reports that consultants draw up – these can be broadly placed into two categories – a phase 1 and phase 2 survey.
Phase 1 surveys are intended to derive indirect evidence of substances in soil from the historical usage of the site, and data about particular incidents involving spillage or leakage from tanks.
Phase 2 surveys incorporate the results of intrusive surveys, in-situ measurements and tests of soil samples, surface and ground water, and land gases.
Phase 1 surveys might be obtained for a few thousand pounds, whereas phase 2 surveys can be costly, may involve site investigation contractors, and many will require significant planning from a health and safety perspective.
The conclusions that can be drawn from a phase 2 survey will be more robust than a phase 1 survey, but in all cases the consultant cannot promise to describe with complete accuracy the substances in or on the land, their movement, the costs of monitoring or removing them, or the attitudes that regulatory authorities will have to their presence.
Sometimes the circumstances of a project allow plenty of time for drawing up these reports, but all too often the process is rushed and consultants find themselves working to tight timetables. In such circumstances, the consultant’s terms of appointment are often overlooked, although when commercial decisions need to be made later, difficulties with these terms can cause considerable cost and delay.
Often, relationships between consultants and clients are hindered by attitude. Some clients believe consultants’ concerns about liability are exaggerated, especially when they have professional indemnity insurance to protect against such an eventuality.
While consultants believe clients focus on insurance too much. In reality, neither consultant nor client can rely on insurance to hold themselves harmless against losses. In an environment where limits of indemnity are lower and uninsured excess higher, consultants will have to carry more of the risk.
For most professional indemnity policies to respond, the claimant will have to prove the consultant’s negligence. Because negligence claims raise reputational issues for consultants, this is often a hard-fought area with the result that establishing negligence is expensive and time-consuming. It is not surprising therefore that environmental project insurance is playing an increasingly important role, being more viable as a cost-effective risk transfer measure than ever before.
The paper also highlights some of the main contractual issues that often appear to create friction. For consultants, these are: unlimited liability; collateral warranties; inappropriate clauses; fitness for purpose and strict obligations; professional indemnity insurance clauses. For clients, it is: covert attempts to incorporate standard forms; indemnities; assignment; inappropriate disclaimers and reports; duration of risk.
All of the issues mentioned above are too broad to be covered in this article, so just two will be highlighted on the consultancy side – unlimited liability and collateral warranties. While unlimited liability is a key concern to consultants, they need to accept that they must take responsibility for the quality of their work. Amongst other things, this means that they might receive a claim should their negligence or other breach of contract cause their client to suffer financial loss. While some consultants may regard this reality with distaste, that is commercial naivety.
Many consultants will ask for equitable contribution limitation clauses to be incorporated into their terms of appointment. In some cases, the client’s loss might be caused not only by the negligence of a consultant, but also by negligence on the part of other advisors or contractors. The principle of joint and several liability will mean that all those who have caused the loss are fully responsible for the entirety of it – although those losses can be fairly allocated.
On the issue of collateral warranties, much of the difficulty is caused by cumbersome warranties that contain inappropriate clauses. When presented with these, consultants do not just assume that the redundant clauses have no relevance to them. Often they will assume that the clauses will operate to their prejudice, albeit in ways they cannot anticipate.
An example of this is the requirement that consultants should not specify deleterious materials in their design. Where a consultant is only producing a site report, such a clause is clearly inappropriate.
Safeguarding duty of care
All parties concerned would do well to bear in mind the fundamental purpose of warranties, that they are there to ensure that the consultant owes duties of care to person(s) other than their client. Consequently, they impose additional liabilities on consultants where none would otherwise exist and so consultants who refuse to give them should not be viewed as depriving anyone of their legal rights.
To avoid uncertainty, the form of collateral warranty the client will be able to call upon the consultant to execute should be appended as schedules to the consultant’s agreement. There may be clauses that provide that the client can alter the wording of the warranty in such as way that the client finds acceptable and then require the consultant to execute it in its altered form. It is no surprise that all consultants find such clauses unacceptable. These clauses create a huge source of risk to consultants, and at best they will generate mistrust as well as considerable time and cost to administer.
Consultants prefer to agree warranties as part of the negotiation of their appointment. If they understand the transaction, they can at least assess the risk of the warranties they are being asked to provide and make an attempt to take that risk into account when negotiating the fee for their work. Often warranties are not agreed at the time that the appointment is executed and this can give rise to difficulties. Most consultants will nonetheless agree to provide a warranty – although as they have not been given a chance to incorporate the price of this in their fee, they will expect some form of financial compensation.
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