03 November 2021
11 min read
#Construction, Infrastructure & Projects
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Many construction contracts provide for a superintendent to perform various assessment, valuation, certification and other contract administration functions.
The superintendent is a party or person engaged by the principal (almost always) and while being central to the administration of the contract, is not a party to the contract. Instead, the superintendent is a third party with the contract merely defining the role of the superintendent. Among other things, a superintendent is typically responsible for valuing, assessing and certifying payment claims, variation claims and extension of time claims.
However, things get tricky when the superintendent has dual roles under the contract as both an agent for the principal and as an independent certifier. These dual roles frequently cause tension due to the contradictory nature of the competing duties, and have been the focus of a number of cases, which we will discuss below.
This article examines what it means for a superintendent to be “independent”, where the duty comes from and what it applies to. We also look at common problems and misconceptions regarding the role of a superintendent and the consequences that may arise when a superintendent does not act independently when required to do so.
The contract may provide that the superintendent has a dual role as both an agent for the principal and as an independent certifier. When acting as agent of the principal, the superintendent must act in the best interests of the principal. However, when acting as a certifier, the contract may require that the superintendent is to act independently. The wording in different contracts may vary, but this duty may arise under a number of terms, such as “impartially”, “honestly”, “fairly”, or “reasonably and in good faith”.
When performing those valuation, assessment and certification functions, a superintendent is not to act as the principal’s agent. Instead, the superintendent must act as an independent assessor, must act without bias and is not to be influenced by the principal. The superintendent must reach its own conclusion, coming to its own decision on the point in question. In this sense, the superintendent must act “independently” by reaching decisions without the external influence of the principal.
The independent certifier duties of a superintendent are separate from the obligations a superintendent owes to a principal as its agent, which attach to other functions to be performed by the superintendent, so a principal must be careful not to direct the superintendent on how to act in any of its certifier duties.
The duty of impartiality came to prominence in the case of Perini Corporation v Commonwealth of Australia [1969] 2 NSWLR 530, where the court found that the superintendent has a dual role and that the certifier (superintendent) under the contract had certain duties imposed on him by the contract, including the obligation to act fairly, justly and with skill to both parties to the contract.
The case also considered the situation where an employee of the principal acts as superintendent under a contract. The court found that while an employee was entitled to act as a superintendent, their duties to act fairly and impartially overrode any duties they had as an employee.
The court in Peninsula Balmain Pty. Limited v Abigroup Contractors Pty Limited [2002] NSWCA 211 found that the superintendent is the owner’s agent in all matters “only in a very loose sense” and that, when exercising certifying functions where the superintendent is to act honestly and impartially, the superintendent is not acting as the owner’s (principal’s) agent “in the strict legal sense”. The court reasoned that the issue of a certificate by the superintendent does not bind the owner (principal) to any extent beyond what is prescribed by the building contract itself, meaning the owner can challenge such certificates. If, in the strict sense, the superintendent was acting as the owner’s agent, the owner would not be able to challenge the issue of the certificate. The court further reasoned that the project management agreement in question authorised the superintendent to act as the principal’s agent, but required the superintendent to act in a professional manner in various functions, including the administration of the building contract and in the certification role.
The role and functions of the superintendent are given effect by the express terms of the construction contract between the principal and the contractor. The superintendent role is found in the Australian Standards suite of contracts and many other contracts in common use. For example, the Australian Standard, AS2124, expressly requires the principal to ensure that the superintendent acts “honestly and fairly”. Such words have the effect of requiring the superintendent to act impartially and to reach their own conclusions when fulfilling valuation, certification and assessment functions.
Some contacts refer to an architect or engineer, but the roles are similar. Separately, the superintendent’s obligations to the principal, as agent, are often found in the agreement under which the superintendent is engaged, which specifies a scope of services.
The superintendent’s duty to be independent does not apply all the time. When acting as agent for the principal, the superintendent must act in the principal’s best interests and in accordance with the contractual obligations on the principal. When acting as agent, the superintendent’s functions typically include approving subcontractors, controlling employees, resolving contract document ambiguities, postponement and suspension of work, and ordering variations.
When discharging its certifier duties, a superintendent may be asked to assess payment claims, variation claims and claims for extensions of time, to certify the payment of liquidated damages or delay costs payable, or issue certificates of practical or final completion to name a few. These functions require impartiality and independence.
When reviewing a contract, it is crucial to examine what roles the superintendent will fulfil. Furthermore, if the superintendent has the authority to give directions on behalf of the principal, then the superintendent is acting as the principal’s representative when it is not carrying out any valuation, assessment or certification functions.
It is not uncommon for some principals to appoint their own project manager as the superintendent. However, there is an inherent conflict in attempting to carry out both of those roles. Most project managers in this situation will see their duty to the party paying them as overriding the duty to act honestly, fairly and independently.
There is a common misunderstanding that the superintendent is responsible for poor work on site or faulty materials. It is important to remember that administering the contract and supervising the works are separate functions, and only the former is the responsibility of the superintendent.
The superintendent’s duties are defined by the contract, and the powers of the superintendent are limited to those conferred by the contract. This means that the superintendent’s role is likely to differ slightly in nature and scope between projects and contracts. However, in any contract where the superintendent is required to act impartially, the superintendent will retain the duty to be independent when undertaking the role of a certifier under the contract.
Many construction contracts contain an obligation on the principal to ensure that the superintendent carries out its functions reasonably and fairly. If the principal fails to fulfil this obligation, it will be the principal that is in breach of the contract (not the superintendent). If the conduct persists or is serious enough, it may be sufficient to constitute repudiation of the contract by the principal.
An important aspect that must be considered carefully involves communications between the principal and superintendent, particularly in relation to the superintendent’s certification role. If undertaken incorrectly, communication of this kind could undermine the superintendent’s independence.
The case of Kane Constructions Pty Ltd v Sopov [2005] VSC 237 concerned a dispute over a building contract. The matters in dispute were numerous but included a claim by Kane, the builder, that the principal breached its contractual obligations and had, among other things, exercised undue influence over the superintendent. The contract (an AS2124-1992 form of contract) included a requirement that the principal must ensure that the superintendent “[A]cts honestly and fairly”.
The court found that the relationship between the principal and superintendent was “undesirably close”. The court also found that the superintendent failed to understand the obligations of his role, in that he failed to not only be seen to be independent, but also failed to actually be independent. The court stated that there is a line of authorities where the courts have considered interference with a certifier or superintendent and provided a set of indicia of interference with a superintendent, which includes:
In Vestas – Australian Wind Technology Pty Ltd v Lal Lal Wind Farm Nom Co Pty Ltd [2020] VSC 554 (Vestas), a suspicious contractor who was unsatisfied with a number of decisions by a superintendent applied for an injunction seeking all correspondence between a superintendent and principal to be made available. While the application was dismissed, the court commented that “any private communication is sufficient to undermine the independence of the Principal’s Representative when acting in the certification role so as to amount to actionable breach”. In other words, if a principal unduly influences the decision of the superintendent, any such decision is likely to be void and likely to place the principal in breach of contract.
Vestas makes it clear that there is now a real risk that if a principal oversteps and is seen to be influencing the superintendent on a project, for example, in the assessment of a progress claim, the superintendent’s certificate may be invalidated. This leads to a situation where there is effectively no progress certificate at all, which under some contracts may mean that the progress claim submitted is deemed to be the progress certificate and the builder would be entitled to payment in full.
So as to not invalidate the decisions of a superintendent or give rise to a breach of contract, a principal should generally avoid:
Instead, a principal should:
Further, superintendents themselves must take care to ensure they maintain their impartiality when undertaking certifier functions.
The superintendent is not a party to the construction contract between the principal and the builder. The contractor then has no claim against the superintendent for breach of contract.
However, the contractor may look beyond contractual remedies and seek redress against the superintendent in tort, although successful actions of this kind by contractors are relatively rare. Similarly, although the superintendent may be liable to the principal for breach of its consultancy agreement, principals also seek redress in tort.
In instances where the principal oversteps and compromises the independence and impartiality of the superintendent in its certifier role, the contractor may have a claim in breach of contract against the principal for the principal’s failure to ensure the independence of the superintendent.
The dual role of superintendent can be hard to navigate. The superintendent is almost always paid by the principal, and could be expected to ‘fall in line’ along with the principal’s other consultants.
Principals need to understand their obligation to ensure that the superintendent acts honestly, fairly and independently. Failure to do so could result in the principal repudiating the contract.
Superintendents also need to understand their obligation to act honestly, fairly and independently and how this trumps any perceived loyalty to the principal.
The common industry practice of using employees, consultants or directors of a principal to undertake the role of the superintendent is likely to lead to difficulties in complying with the obligation of independence. A better practice is for the principal to appoint a third party with a good understanding of contract administration, design management and procurement.
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Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
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