Establishing a precise scope of services in your consultancy agreements is one of the most important things you can do to mitigate your risk.
Before embarking on a project, you should:
- check you have the knowledge, expertise and resources to perform each of the tasks listed in your scope of services and delete any listed tasks that do not properly form part of your role;
- delete any onerous, ambiguous or vague contractual obligations; and
- review your scope of services for any insurance risks.
The best way to reduce the risk of infringing any exclusions under your professional indemnity insurance policy is by avoiding language in your scope of services that requires you to perform your services above the common law standard – that of a reasonably prudent consultant who is experienced in providing services of a similar nature to those required on the project.
More specifically, you should avoid:
- “ensure”, “warrant” and “fit for purpose” clauses;
- obligations relating to uninsured hazardous material; and
- references to non-compliant or non-conforming aluminium cladding or façade product materials.
The Lacrosse decision (Owners Corporation No 1 of PS613436T v L. U. Simon Builders Pty Ltd (Building and Property)  VCAT 286) – more famous for its findings on non-compliant aluminium cladding – also provides guidance on the importance of clarifying your role or scope of services on a project as it really “…set(s) the parameters of the contractual responsibility.”
Here’s a brief summary of the facts of the matter:
In 2007, Elenberg Fraser Pty Ltd (architect), Tanah Merah Pty Ltd (fire engineer) and Stasi Galanos (building surveyor) each entered into a consultancy agreement with 675 LaTrobe Street Pty Ltd (developer). That same year, the architect proposed the use of non-compliant aluminium cladding material (ACP’s) in the design.
In 2010, LU Simon (builder) entered into a Design and Construct contract with the developer. Each of the consultancy agreements were then novated to the builder.
Between 2011-2013 the builder constructed the Lacrosse Tower with ACP cladding containing a 100% PE core (Alucobest) on the east and west facades.
In 2014, the Lacrosse tower caught fire and spread quickly because of the ACP cladding after a tenant of an apartment failed to extinguish his cigarette. The building caught fire but fortunately all occupants were safely evacuated. The damage to the building was significant and the applicants in the proceedings claimed damages in the amount of $12 million.
The Tribunal apportioned liability between the parties. The builder was found to be 100 per cent liable but could recover its entire loss from the other respondents. The building surveyor was found to be 33 per cent liable, the architect 25 per cent; the fire engineer 39 per cent; and the tenant 3 per cent. In the appeal judgment handed down in May 2021, the fire engineer’s allocation was increased to 42 per cent and the building surveyor’s liability was reduced to 30 per cent but, apart from that, the primary judgment’s main findings were almost entirely upheld.
Importantly for consultants, the Tribunal found that the contractual agreements were “…pivotal in ascribing liability for the various claims…” and that the scopes of services that formed part of these contracts were very broad in nature. The architect and fire engineer both ran “limited scope” defences to the effect that it was not part of their roles to advise on the compliance of the cladding material but both parties failed to convince the Tribunal because the evidence in the scopes of services was to the contrary.
In its reasons the Tribunal considered numerous extracts from these scopes of services and placed great weight on these, finding that the consultants were ultimately bound by the obligations which were “included” in the scopes of services.
While there is often a focus on what is “in scope” in these agreements, the judgment shows that it is often just as important to what be clear about what is “out of scope”.
Following the Lacrosse decision, it is clearer than ever that defining a precise scope of services needs to be a fundamental part of the design process. In our upcoming webinar, “Scope of Services”, experienced barrister and mediator, Tony Horan, will cover the lessons from Lacrosse as well as some of the other important matters to take into account when setting your scope of services.
A catch-up recording will be available for six weeks after the live presentation, and Planned Cover clients are welcome to email us for a discount code.
This article is only general advice in respect of risk management. It is not tailored to your individual needs or those of your business, nor is it intended to be relied upon as legal or insurance advice. For such assistance you should approach your legal and/or insurance advisors.