Employers beware – appointing an in-house Project Manager

Callum Miller on the perils of appointing an in-house Project Manager.

ICI appointed Merit Merrell under an amended NEC3 option A contract to construct a new paint manufacturing facility. By the time this claim was issued Merit Merrell had been paid £20.9 million on a contract value of £1.9 million.

In a lengthy but important judgment Mr Justice Fraser looked at a variety of issues including the meaning of “defect” under the NEC; repudiatory breach of contract; the status of the “smash and grab” adjudication; and the role of experts before the court. In amongst all of this, however, the most significant and far-reaching part of the decision might be Justice Fraser’s comments on the role of the Project Manager (PM) under the NEC.

The role of the PM is generally uncontroversial, similar to the Architect, Construction Manager or Contract Administrator under other forms of contract, the PM has two functions:

  • To act as the agent of the employer (eg, instructing variations) 
  • To act as decision-maker between the employer and contractor (eg, determining a compensation event notification).

When acting as decision-maker the PM must “act in a manner which has variously been described as independent, impartial, fair and honest…” and “must use his professional skills to reach the right decision, as opposed to a decision which favours the employer”.

After ICI’s third party PM resigned, ICI argued that it was entitled to appoint its own employee to act as PM, provided that he acted impartially. After all, the contractor would always have the right to challenge the decisions of the PM by way of adjudication. This was rejected by Justice Fraser:

“It is contrary to the whole way in which the contractual mechanism is structured, and intended to work, to have the employer seek to appoint itself (or one of its employees, or an employee of its parent) as the decision-maker.”

What does this mean for employers?

Employers should exercise caution before appointing an employee to act as PM. If an employer wishes to use an in-house PM the duties and responsibilities should be made abundantly clear. The employer must also get the contractor’s agreement and make it an express term of the contract.

Without an express term in the contract, if an employer finds itself in the situation (as ICI did here) where the third party PM stops acting, bringing the PM role in-house will be in breach of contract.

ICI v Merit Merrell

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