Are you sure your bespoke contract is tight enough?
Perhaps the most important term of your appointment, from a commercial point of view, is the payment provision: how much and when will you be paid. So you must take care when drafting bespoke fee schedules.
Pickard Finlason Partnership Ltd v Mr and Mrs Lock, the first judgment of 2014 in the Technology & Construction Court, principally concerns professional fees and highlights just how wrong things can go if your payment terms are not clear.
The architect was employed to provide a full professional service for the design and construction of a development in Cheshire. In return, it would receive 10% of the final cost of the project. Instead of the RIBA standard form of contract, bespoke terms were created. The fee was payable in four stages and entitled the architect to 40% of the total fee on planning permission being obtained and the development cost accurately established.
The architect was aware that the client required funding for the project and agreed to keep its fees low until planning was achieved and further funds raised. Accordingly, the following agreed terms concerned the planning period: ‘In accordance with RIBA guidelines we are entitled to 40% of our overall fee for the work up to planning determination, however for your project we recognise the need to be flexible and therefore offer to reduce our invoicing to 20%.’
‘Our fee entitlement remains at 40% but this proposal keeps our fee payments low during the early stages of a project. Once planning is obtained a more accurate cost of the building and contract works can be established and the professional fee entitlement and overall fee is recalculated and the balance of our fees due becomes payable. At that stage we would agree a lump sum for the remainder of our fees.’
We will recalculate and re-advise you of our fee entitlement when the development area and cost become firm
‘We will recalculate and re-advise you of our fee entitlement when the development area and cost become firm.’
By the time planning permission was granted, the relationship between the parties had broken down. The architect raised its invoice but the Locks did not pay.
The Locks could not raise funds for the revised scheme which was granted permission. They felt the architect had failed to give them proper advice at the relevant times about the risks and costs of this revised scheme, and claimed the architect had failed to obtain firm costs from contractors to enable them to move the development forward.
Ultimately the architect began proceedings claiming the balance of its 40% fee.
The judge held that, on proper construction of its bespoke terms, the architect was not entitled to its invoiced sum of approximately £182,000. It had not established, post-planning permission, a firm and accurate cost for the building works – a condition precedent to rendering its invoice. The express wording of the appointment made it clear that the cost only became ‘firm’ once ‘estimates are refined and the contract sum is known’ and ‘a more accurate cost of the building and contract works is established’. It was not enough to simply revisit the cost plan and undertake any recalculation required. As the architect had not procured a tender from a contractor which was acceptable to the Locks, it was not entitled to send its invoice.
The judge also held that the architect failed to comply with its obligation to provide an indication of the size of the cost of the revised scheme during the feasibility stage.
The findings in this judgment are of course very fact specific, but it is a timely reminder that when you draft bespoke, complex provisions, you do so at your own peril.
Stacy Sinclair is with Fenwick Elliott
The full phrase of this Latin term is: ‘Verba chartarum fortius accipiuntur contra proferentem’, or ‘The words of an instrument shall be taken most strongly against the party employing them’.
Legally, it is a rule of construction that doubt about the meaning of words will be resolved against the party who put them forward.
In the case of Pickard Finlason Partnership Ltd v Mr and Mrs Lock (discussed above), the judge noted that if there was any ambiguity as to what was meant by the phrase ‘when the cost becomes firm’ in the bespoke appointment terms, then it should be resolved against the architect on the basis that it had drafted the appointment and was then seeking to rely on a particular construction of it when enforcing its right to payment.