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GanzRecht > Studium & Lehre > Ausland > Const. Contracts & Arbitration

The Role of the Engineer

von Holger Langer, LL.M.

  • Engineer will usually be asked to take over a variety of functions in the realization of a construction project
    1. to design the project (if contract is not intended to be design-build or turnkey), which includes
      • preparation of drawings
      • specifications of materials etc.
      • preparation of the bill of quantities
    2. to prepare the tender documents and advise the Employer on the tenders received
    3. to supervise and inspect the work carried out to ensure conformity with the design specifications
    4. to administer the contract, deal with situations, certify and adjudicate disputes
  • in carrying out (1) and (2) the Engineer acts as a consultant to the Employer
  • in carrying out (3) and (4) the Engineer acts as an agent of the Employer
  • Employer enters into a contract with the Engineer and a separate contract with the Contractor ’ no privity of contract between Engineer and Contractor

A. Design functions

  • first and primary role of the Engineer ’ the more complete the design at the time of invitation for tender, the lower the risk of an unsatisfactory outcome
  • the Employer will usually have an idea of what the outcome of the project shall be (e.g. to be able to produce a certain quantity of a certain product per day) and consults the Engineer for help in shaping this into a viable and feasible project
  • the completed design should encompass
    • shape, form and dimensions of the project
    • function which the project is expected to perform, level and quality of such performance
    • selection of material and workmanship
    • production of documents
    • determination of projected costs, based on a Bill of Quantities
    • timing and sequence of the construction

B. Supervisory and administrative functions

  • achieving the quality under a construction contract is the responsibility of the Contractor, clause 4.1 FIDIC
  • However, the Engineer will closely monitor and supervise the construction progress in order to ensure that the outcome will meet the design specifications
    • the earlier a defect is discovered, the greater the possibility of finding a possible or feasible solution, the lower the cost of implementing such solution and the shorter the period of disruption and delay caused by the defect
    • supervisory role of the Engineer is accordingly viewed as a supportive role
  • this function encompasses the following issues:
    • monitoring and quality control
      • compliance with specified quality
      • progress in accordance with the planned programme
      • budget control in accordance with the cost plan
      • compliance with safety matters, environmental controls etc.
      • best be monitored by someone who is familiar with the original concepts and parameters of the design
    • administration and management
      • progress on the site depends to a large extent on the availability of information
        • how a certain provision of the contract is to be interpreted
        • how problems encountered on the site should be dealt with promptly and properly
        • whether or not a certain item is necessary for the completion of the work
        • whether or not a certain item should form a variation
        • whether or not a specific contractual obligation has been fulfilled by the Contractor
        • whether or not a certain item is properly measured
      • best be dealt with by someone familiar with the design
    • certification
      • contract usually based on interim payments being made periodically
      • Employer’s agent must possess the necessary knowledge to evaluate the work carried out by the contractor
      • best be dealt with by someone familiar with the design
      • certification on the edge between acting as agent and acting impartial
        • clauses 14.6 and 14.13: “fair determination”
        • however, House of Lords in Sutcliffe v Thackry (1974): Engineer acting as a representative of the Employer
  • in carrying out this function the Engineer exercises the certain powers delegated to him by the Employer under clauses 3.1, 3.3 and 3.5
    • giving his decision, opinion or consent
    • expressing his satisfaction or approval
    • fairly determining the value of the work (cf. cl. 14.6, 14.13)
    • otherwise taking action (e.g. issuing instructions, notifying, granting additional time and additional payment etc.)
  • although these powers have been delegated by the Employer, the Engineer is frequently obliged to exercise these powers impartially, thus assuming a role of an intermediary
    • much discussed in the same way as the role of a quasi-arbitrator (see infra)

C. Quasi-arbitrator

  • under the former FIDIC Conditions, each dispute, legal or technical, had to be submitted to the Engineer for a decision before going to arbitration
  • the Engineer is expected to exercises the role of a neutral, impartial intermediary adjudicating the disputes between the parties
  • role in the FIDIC Conditions 1999 taken over by the DAB
    • however, in many cases DAB may take the form of a sole member DAB, which would then likely be the Engineer
  • question arises as to which of the Engineer’s decisions are subject to a request for review by the Employer
    • clause 20.4 states that either party may submit disputes to the DAB
    • however, review of decisions modifying the contract are problematic
      • e.g. contract makes the use of a certain material subject to the approval of the Engineer, who does not approve ’ Contractor has to use different material
      • even if the material intended for use by the Contractor was in accordance with the contract, the decision of the Engineer is binding on the Contractor, eventually forming a variation and entitling the Contractor to additional payment
      • it would in this situation be inconsistent to oblige the Contractor to accept the order of the Engineer and incur additional expenses and then to allow the Employer to challenge this decision in order to avoid payment of these additional expenses under the variation procedure
      • general rule
        • when the Engineer is acting on behalf of the Employer, the Employer cannot request a review of this decision (binding effect on Employer)
        • when the Engineer acts as quasi-arbitrator between the parties the decisions can be subject to a review (both by the Engineer and the arbitral tribunal)

D. Criticism of the impartial role of the Engineer

  • institution of the Engineer taken from the English practice
  • question as to the role of the Engineer e.g. when an item has to be carried out to the satisfaction of the Engineer
    • does the Engineer express his own satisfaction or the Employer’s satisfaction on his behalf?
  • does he, accordingly, act as an agent of the Employer or as a fair, impartial consultant
  • important distinction between his role as an agent of the Employer and a fair and impartial consultant to the parties (e.g. certification)
    • “fair determination” (clause 3.5) is the moment when the Engineer moves from being the Employer’s agent to being an independent consultant to the parties
  • Criticism
    • on one hand the institution of the Engineer is justified by the need for quick binding decisions on day-to-day problems
      • necessary for the work process to have quick decisions that are binding on the parties, irrespective of their conformity with the terms of the contract
      • a standstill on the site is worse than a wrong order, which is also a reason why so many disputes resort to arbitration, where a quick decision that can be followed is regarded as more positive for the business between the parties than absolute justice
    • on the other hand the neutrality and impartiality of the Engineer is more than doubtful
      • the functions of the Engineer can be seen as the constant continuation of his initial design work (as set out above), since he is the most suitable person to do this job
      • according to clause the Engineer is the person appointed by the Employer to act as the Engineer for the purposes of the contract
        • the Employer selects and appoints the Engineer without involvement or consent of the Contractor, clause 3.1
        • accordingly, the Engineer has his contractual relationship only with the Employer
        • he acts under delegated authorities of the Employer “for the purposes of the contract” (i.e. between the Employer and the Contractor), thus, assuming the role of an agent
        • he is paid by the Employer
      • Therefore, he cannot be regarded as independent of the Engineer, which also raises doubts as to his impartiality and neutrality
      • However, the decisions of the Engineer are subject to final review in arbitration, so that whenever the Engineer did not act in conformity with the contract, this would constitute a breach of contract by the Employer and would result in liability towards the Contractor
      • this mechanism should be enough to prevent an abuse of power of the Engineer
  • Alternatives
    • in view of these problems, several attempts have been undertaken to deal with this situation
      • re-establish the neutrality of the Engineer
        • joint selection by the Contractor and Employer
        • joint payment by the Contractor and Employer
      • replace the Engineer by independent persons outside the construction process
    • criticism
      • the Engineer who prepared the design and the tender documents should not be precluded from the supervision and monitoring of the works since he is the person best familiar with it, even if he cannot be regarded as absolutely neutral, which is inconsistent with the involvement of independent persons outside the construction process
      • since the Engineer acts mostly as agent of the Employer, the Employer must maintain a unilaterally right to dismiss the Engineer whenever he loses confidence in his work, which would be inconsistent with the joint appointment and joint remuneration
    • compromise
      • the new FIDIC Conditions 1999 form some sort of compromise by introducing a review procedure before a DAB
      • the DAB is jointly appointed and remunerated by both, the Employer and the Contractor
      • the Engineer is not precluded of being a member of the DAB
      • however, the joint appointment is only in regard of the review of decisions within the two-tier system
      • for all other functions of the Engineer under the contract the former approach has been kept (unilateral appointment of the Engineer by the Employer)