The most misunderstood role in construction

The superintendent – independent certifier or principal’s agent?

In a perfect world, construction projects would run smoothly.

Principals would have perfect drawings and perfect specifications which set out exactly what to build and even, notes on how to build it. With this perfect information, builders would know exactly what difficulties to expect when building, plan accordingly and deliver each project perfectly on time and for the originally agreed price.

Unfortunately, we don’t live in a perfect world.

Principal’s drawings/specifications are often grossly incomplete, don’t make sense or they simply change their mind about what they want.

Builders also don’t really have any way to perfectly plan out the works.

To deal with these uncertainties, construction contracts are flexible and allow:

• Payments to be made progressively, depending on how much of the work has been completed up to that point;
• The price to increase or decrease, depending on whether the principal wants more work or less work carried out than originally agreed; and
• The amount of time to complete the work to increase or decrease, depending on if there are any issues which caused the work to be delayed.

Of course, each contract has tens (or sometimes, hundreds) of other clauses, terms and conditions – but at their core, construction contracts deal with changes to the price and timing for construction work.

Given this ability to change, who should decide:

• how much payment should be made from one party to another?
• how much the price of the works should increase or decrease?
• how much the date for the completion of the works should change?

Enter the role of the superintendent.

Role of the Superintendent

Traditionally, the role of the superintendent was created to allow an independent third party to handle minor disputes regarding the valuation of claims under contracts such as progress claims, variations and extensions of time.

A superintendent is not a party to the contract. He or she is an independent third party that usually agrees through its arrangement with the principal to be bound by any obligations stated under the construction contract.

Usually, the parties will define the obligations of the superintendent under the contract, which ordinarily includes:

• Assessing and certifying the value of payment claims;
• Assessing and certifying the value of variations claimed by the contractor;
• Assessing and certifying the duration of extensions of time claimed by the contractor;
• Inspecting quality of materials and workmanship and issuing directions to rectify any defective work;
• Assessing and certifying the value of other claims for extra payment (such as claims following the discovery of a latent condition or requirement to comply with a legislative change);
• Determining whether the works have achieved completion.

When the Superintendent carries out one of these functions, it must do so fairly, reasonably and impartially. These obligations are implied by law and arguably, cannot be contracted out of: Pacific Associates Inc v Baxter [1990] 1 QB 993 at 1029.

It used to be quite common for architects or engineers to fulfill the role of superintendent and the above common law obligations were incorporated into their codes of ethics.

For example, clause 18 of the Board of Architects of Queensland Code of Practice provides that:

“18. An architect: (a) must act with fairness and impartiality in administering building contracts;”

A similar requirement used to exist for Engineers. In the Institution of Engineers Australia Code of Ethics requires, clause 5 (b) provides:

"....in our capacity as Superintendent administering a Contract, we must be impartial in our interpretation of the Contract..."

Because professionals such as architects and engineers are bound by a code of ethics and subject to disciplinary proceedings for breaching them, they should carefully consider whether they are sufficiently impartial to take on the role of a superintendent – so as to avoid personal liability for any wrongful certifications under the contract.

In Walton v Illawarra [2011] NSWSC 1188 at [74], McDougall J discussed whether an architect was biased in acting as a superintendent under the contract:

“In my view, both the dual roles that Ms Indyk held and the demands made of her by Illawarra in her capacity as architect placed her in a position where the possibility of conflict was real, and the appearance of bias was likely to result.”

No doubt, the above comment from the Court would have been enough for disciplinary proceedings by the Australian Institute of Architects.

Superintendents are usually also engaged to be the principal’s representative (i.e. the person who does everything on behalf of the principal – which is usually a company). When carrying out this role, the superintendent does not have to be fair, reasonable or impartial. This is because, it is acting essentially as an agent of the principal and should therefore be seen as an extension of the principal.

A question now arises, how do we tell when then the superintendent is acting in the role of a certifier or the role of the principal’s representative?

A ‘dual hat’ role

Some of the roles of the superintendent relate to the assessment of claims (as set out above) whist others relate to doing certain things on behalf of the principal as its agent. These include:

• issuing directions to the contractor on behalf of the principal;
• resolving contract document ambiguities;
• approving programs regarding the timing and sequencing of the work;
• examining and testing materials;
• directing variations.

These two streams of responsibilities often lead the superintendent to being described as having a ‘dual-hat’ role.

This requirement, however, appears to have been expressly removed from the Engineers Australia current code of ethics and replaced with a requirement to “act impartially and objectively” generally.

When exercising its role as an agent of the principal, it is under no obligation to act fairly or impartially. This is why contracts are often amended to state that when a superintendent is deciding whether to unilaterally extend time under the contract, it does so as agent of the principal without any obligation to do so in favour of the contractor (discussed below).

It's important to be aware of which role the superintendent is fulfilling and at which time. Often, contractors will mistakenly think the superintendent is helping them, only to later receive a hefty claim from the principal!

Perhaps the best explanation of the dual hat role is described by Judge Thayne Forbes QC in Davy Offshore Ltd v Emerald Field Contracting Ltd (1991) 55 BLR 1. In that case, His Honour (using the older term of architect/engineer instead of superintendent) said at [61]:

"... it is clear that the obligation to act fairly is concerned with those duties of the architect/engineer which require him to use his professional judgment in holding the balance between his client and the contractor. Such duties are those where the architect/engineer is obliged to make a decision or form an opinion which affects the rights of the parties to the contract, eg. Valuations of work, ascertaining direct loss and expense, granting extensions of time, etc. When making such decisions pursuant to his duties under the contract, the architect/engineer is obliged to act fairly."

 An interesting question arises as to whether an employee of the principal can be a superintendent under the contract. It seems difficult to imagine how an employee could remain impartial and fulfill its roles to act fairly and impartially as a superintendent when it has a distinct interest in obtaining the best result possible for its employer.

In Perini Corporation v Commonwealth of Australia [1969] 2 NSWR 530, the Director of Works for the Commonwealth could be appointed as the superintendent under a contract. When the superintendent made a number of decisions based on policies held by the government, the contractor alleged that the superintendent had breached its obligations to act fairly and reasonably.

Ultimately, the Supreme Court of New South Wales found that the director was entitled to act as a superintendent, but that his duties to act fairly and impartially overrode its duties as an employee to the Commonwealth.

So as the law presently stands, there is no impediment to an employee of the principal fulfilling the role of the superintendent.

What you need to look out for in clauses that affect the role of the superintendent?

Now that we understand what the superintendent is all about, let’s consider common issues to look out for in contracts regarding the role of the superintendent.

Common Issue no. 1 – Sole discretion to extending time in the absence of an EOT

 Most contracts contain a fall back clause which allows the superintendent to issue the contractor an extension of time, even if it hasn’t claimed an extension of time.

This clause is usually included to avoid the time for completion being set at large in the event that the principal delayed the contractor, but the contractor has no entitlement to claim an EOT.

 If one of these clauses exist, an adjudicator or Court can ‘step into the shoes’ of the superintendent and provide a unilateral extension of time to the contractor.

 In Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211, Hodgson JA held that, even though the contractor had not applied for the extension of time, “this power is one capable of being exercised in the interests both of the owner and the builder, and in my opinion the Superintendent is obliged to act honestly and impartially in deciding whether to exercise this power.”

 To stop this from occurring, it is common practice for savvy lawyers to limit this ability to extend time unilaterally to the “sole and absolute discretion of the superintendent”. In Hervey Bay, it was held that the inclusion of these few words was sufficient to take away the ability of an adjudicator and the Court to award an extension of time to the contractor.

 Next time you review a contract, have a look to see whether the contract limits the ability to unilaterally extend time to the “sole and absolute discretion of the superintendent”. Contractors should look to negotiate this clause out of the agreement whilst principals should insist that it is included.

Common Issue no. 2 – To what extent is the superintendent an agent of the principal?

 When reviewing a contract, it is crucial to examine what roles are to be fulfilled by the superintendent. If the superintendent has the authority to give directions on behalf of the principal, then it means that it is the principal’s representative when it is not carrying out any functions as a superintendent.

 Why is this relevant? Take the example where a direction is issued by the principal directly to carry out variation works, however, under the contract the superintendent is the only party authorised to do so.

 In this scenario, the contractor would arguably not have to comply with the principal’s direction because it did not have the power under the contract to issue any such direction. As a matter of caution, if a contractor receives a direction from a principal to do something, and the principal is not entitled to issue that direction, it should request that the superintendent confirm the direction.

Common Issue no. 3 – what if there is no superintendent?

As we explored above, the primary role of the superintendent is to certify the value of progress claims and other claims under the Contract.

Most contracts expressly require that the principal ensures there is a superintendent appointed. For example, clause 20 of the AS 4000 series contracts provides:

“The Principal shall ensure that at all times there is a Superintendent, and that the Superintendent fulfils all aspects of the role and functions reasonably and in good faith."

Similar clauses exist in all major standard form contracts – see clause 23 of AS2124 as an example.

What if there is no superintendent? It is not uncommon for a superintendent to be removed from a contract because they resign, have a falling out with a principal or in rare circumstances, pass away. Should this occur, who is left to fulfill the role of the superintendent?

The short answer is: no one. This exact situation was considered in Niclin v SHA. In that case, a plaintiff sued to recover the amounts certified in a payment certificate on an “alternative basis”.

The problem was that the certificate was issued by the principal’s in-house legal counsel, rather than the superintendent.

Ultimately, the Court held that the payment certificate was invalid, however, because there was no mechanism to deal with an unanswered payment claim – the Court found that the claimant’s only avenue was to terminate the contract and sue for damages.

To avoid this situation from happening to you, consider inserting a clause which:

• Deems that any payment claim is the certificate if it is not responded to within a certain amount of time;

An example clause would look like this:

 “If the Superintendent does not issue the progress certificate within 14 days of receiving a progress claim in accordance with subclause [insert], that progress claim shall be deemed to be the relevant progress certificate.”

• Deems that if there is no superintendent under the Contract, then the principal or one of the principal’s representatives is deemed to be the superintendent.

 “If at any time there is no Superintendent appointed under the Contract, the Principal shall be deemed to be the Superintendent until a new Superintendent has been appointed and shall be authorised to fulfill all aspects of the Superintendents’ role under the Contract.”

 Common Issue no. 4 – Impartiality of the superintendent

 In a construct only or a traditional contract, the architect/engineer who documented the project would inherit the role of the superintendent.

No doubt, by the time the contract is executed, the architect/engineer has formed a close and longstanding relationship with the principal and it is not uncommon for them to work collaboratively in all respects on the project.

In this scenario, the superintendent is also a consultant on behalf of the principal.

Alternatively, in a design and construct contract, if the same architect/engineer prepares the preliminary design, then they are likely to be engaged by the contractor to finalise the design for the project.

Now, the superintendent is also a consultant on behalf of the contractor.

In either case, it is likely that the superintendent will find it hard to be impartial – acting as a certifier under the contract but an agent for either the principal or the contractor as a designer.

Care should be undertaken by superintendents to ensure that they maintain their impartiality when acting as a certifier. In Vestas – Australian Wind Technology Pty Ltd v Lal Lal Wind Farm Nom Co Pty Ltd [2020] VSC 554, a suspicious contractor who was unsatisfied with a number of decisions by a superintendent sought an injunction for all correspondence between a superintendent and principal to be made available.

Whilst the application was dismissed, Justice Delaney 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
• place the principal in breach of contract.

As we explored above, most contracts impose an obligation on the principal to ensure that the superintendent carries out its functions fairly and reasonably. Accordingly, if the principal fails to fulfill this role it is the party that will be in breach of contract.

Most contracts contain (or should contain) a clause which provides that if the superintendent does not issue a progress certificate, then the progress claim is deemed to be the progress certificate – see the example above.

In the lead up to a dispute, it is common for the principal to “chime in” on the superintendent’s assessment of a progress claim. Since Vestas, there is now a real risk that if the principal oversteps the mark in influencing the superintendent, it may cause the certificate produced by the superintendent to be invalidated.

Should this occur, it would be as if there were no certificate at all and the contractor’s progress claim would deemed to be progress certificate. In other words, the contractor would be entitled to the claimed amount in full!

Concluding thoughts

The role of the superintendent is plagued with difficulties. On the one hand, they are paid by the principal and expected to ‘fall into line’ like most other consultants.

On the other, they are obligated to act impartially and ironically, if they act blindly in accordance with their client’s instructions, they can do more harm to their client than if they fulfilled their role independently.

Over the past decade, it was a common practice for employees, consultants or directors of a principal to fulfill the role of the superintendent. Obviously, this led to a tirade disputes and litigation with no objective certifier on projects.

Recently, there has been a trend for the role of the modern superintendent to be fulfilled by a third-party expert who has a good understanding of not only contract administration, but also design management and procurement.

Hopefully, the return of the ‘impartial superintendent’ (or, its original role) will reduce the number of disputes in construction projects.

Alex Tuhtan                                                   Dan Everett

Partner                                                            Director / Development Manager

Shand Taylor Lawyers                                   EVERETT Property Development Management

22 January 2021

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*All my articles are drafted with references to case law and legislation. This is not to bore you with the intricacies of the law, but to allow you to rely on my material when resolving your own disputes – should it not be feasible to instruct a solicitor such as myself.

As a disclaimer, the content does not constitute legal advice and should not be relied upon as such. Appropriate legal advice should be obtained in actual situations. Feel free to contact me at [email protected] should you require any assistance in resolving a legal dispute.