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The role of the Principal Agent across the Built Environment Professions
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PETER E RICHARDS (MSc) Pr. CPM; Pr. CM

February 2017

Comments and feedback can be directed to Peter at: peterr@dvpm.co.za.



THE ROLE OF THE PRINCIPAL AGENT ACROSS THE BUILT ENVIRONMENT PROFESSIONS

 

Introduction

The scope of service for the role of the principal agent outlined by PROCSA[i] in its Client / Professional Service Agreements is not consistent with the principal building agreement published by the JBCC[ii]; nor is it consistent with the definitions used by several of the statutory councils for each of the built environment (BE) professions; nor is it consistent with the law of agency in South Africa.

 

PROCSA, however, is not alone in the way it uses the term. Several of the councils for the BE professions have also adopted definitions for the role of the principal agent which fall outside the scope of the JBCC principal building agreement. These definitions are not consistent with each other, nor do they also accord with the law of agency in South Africa.

 

In the light of these departures, one should possibly ask whether the term principal agent is not generally misunderstood, or whether the term has started to take on a broader meaning in professional practice?

 

As will be more fully discussed, each profession appears to view the role of the principal agent differently depending on how it perceives that the role would be discharged within the framework of its own standard appointment. In other words, the extent to which the role of principal agent could be regarded as embedded within, or otherwise treated as an extension to, its own standard service. This distinction has resulted in each profession calculating the fee for the service of principal agent differently, and with varying results.   

 

In an attempt, I assume, to standardise the role of principal agent across the BE professions, PROSCA has more recently started to include a separate scope of responsibilities for the principal agent in Annexure B of its standard form of agreement for the appointment of each professional discipline.[iii] The responsibilities are termed ‘basic principal agency services’ but no explanation is given to the meaning of the word ‘basic’, nor how it should be applied in regard to the principal agent’s services.

PROCSA has also published a dedicated Client / Consultant Professional Services Agreement for the principal agent where such an appointment is separately made, possibly outside the professional team[iv]

 

From the above, it is clear that no real consensus exists between PROCSA and the various statutory councils on the role of the principal agent. The reasons for this state of affairs is unclear.

 

I do think that part of the difficulty lies in a misunderstanding of the role of an agent under South African law, the result of which has been to confound duties of the principal agent with the typical responsibilities of the project manager and the principal consultant.

 

Agency, representation and mandate


The term ‘agency’ in South African law is defined as ‘…[t]he performance of a juristic act on behalf or in the name of one person (‘the principal’) by another (‘the agent’) who is authorised to act, that creates, alters or discharges legal relations between the principal and a third person (‘the third party’). [v]   

 

In the built environment, the third party is the building contractor.

 

In this regard, the principal agent fulfils a vital role on behalf of the client under the building agreement given the complexity and dynamics of the multi-disciplinary environment in which a building contract is undertaken. He/she does so by:

1.    performing certain of the client’s obligations under the building contract, thereby discharging the client’s obligations in this respect;[vi] and/or

2.    accepting the performance of certain of the building contractor’s obligations to the client, thereby extinguishing the contractor’s obligations in this respect as well.[vii]

 

Given this understanding of the functions of the agent under South African law, it follows that no role of agency can be said to exist where the act of an appointed built environment professional is merely a performance of its own obligations to the client in terms of the professional service for which it is appointed.      

 

For the sake of completeness, it should also be noted that the principal agent’s powers under the JBCC principal building agreement, do not extend to creating or altering legal relations between the client and the building contractor. If such a power is required, the principal agent must, in the first instance, revert to the client for an extension of his mandate, the details of which should be notified to the building contractor.      

 

Function of the principal agent


Typically, the function of principal agent is contracted by the client with one of the project professionals, either as a supplementary or as a dedicated service in terms of the building agreement. The purpose of this service, as discussed earlier, is to discharge particular legal relations between the parties as set out in the agreement (i.e. between the Client and the Contractor). This function is rendered to the exclusion of other agents also named in the schedule to the building agreement, but whose role in this regard is limited to the nature of their professional discipline (e.g. the architectural design, engineering design, quantity surveying, project management, etc). These latter agents may only act under the delegated authority of the principal agent.[viii]

 

It should be understood, therefore, that a built environment professional typically fulfils a dual role for the client: namely, that of consultant, in regard to the nature of the particular professional service it is contracted to provide, and as agent representing the Client in the discharge of the legal relations between the parties as they relate to that service under the building contract [ix].

 

Such a consultant, however, could also be appointed to the role of principal agent which, as explained above, is a fundamentally different role.   

 

However, in a situation, where a project manager or principal consultant has not been appointed, it is not helpful, in my view, to redefine the role of principal agent in a manner that starts to include typical project management or principal consultant functions, and then to term them merely as ‘basic principal agency services’ or ‘basic principal consultancy services’ in an attempt either to limit the scope of the services, or to excuse the level of competence or performance necessary to carry them out.   

 

The role and function of a principal agent, or a principal consultant does not admit a so-called ‘basic’ service. The redefinition is therefore erroneous and could easily lead to confusion in the mind of the professionals appointed to fulfil these additional functions, who, if not competent to do so, would most certainly present a contractual risk.  


Definition of the principal agent


A review of the definitions given to the term principal agent by the statutory councils of the BE professions, as well as the definition used by PROCSA in its suite of agreements for the appointment of each BE professional discipline, starts to highlight the inconsistencies to which I have already made reference. The inconsistencies are further magnified when the definitions are compared with the role and functions of the principal agent as described in the JBCC principal agreement.

a)    Architectural Profession (SACAP) : ‘[P]rincipal Agent means the person appointed to fulfil the obligations of the agreed form of contract.[x] ‘Contract’ in this case ‘…[m]eans an agreement entered into by the Client with a contractor for the execution of the works or part thereof; may also be referred to as the building contract’.[xi]

SACAP further explains the definition and states explicitly (correctly in my view) : ‘[F]or this stage [i.e. Stage 5 – the construction stage] the relationship between the client, contractor and architectural professional as ‘agent’ or ‘principal agent’, is defined in the building agreement.[xii] The explanation correctly interprets both functions in terms of the South African law of agency.

b)    The Engineering Professions (ECSA) : ‘Principal Agent means the Professional Services Provider appointed as such.’[xiii]

Clarification of the definition is given under section 3.3.8 of Board Notice 117 of 2013[xiv] and, with limited exceptions, correlates almost exactly with the wording used for the duties of a principal agent listed in the dedicated Client / Professional Services Agreement for a principal agent as published by PROCSA.[xv]

The difficulty with the correlation, however, is that the duties thus defined are, with limited exceptions, more akin to the role and responsibilities of the project manager as part of their standard services[xvi] than it does in respect of the duties assigned to the principal agent under the JBCC principal building agreement.[xvii] 

c)    Quantity Surveying Profession (SACQS) : ‘[P]rincipal Agent means the entity appointed by the client to manage and administer the agreement entered into between the employer and a contractor for the execution of the project or part thereof.’[xviii]

Neither of the terms ‘the agreement’, ‘contractor’ or ‘project’ are defined in the notice. It must be assumed, therefore, that the meaning thus given to the term principal agent by the QS profession must be widely applied to the overall project, and not merely in terms of the building agreement.

d)    The Construction Project Management Profession (SACPCMP) : ‘[P]rincipal Agent means the person or entity appointed by the client and who has full authority and obligation to act in terms of the construction contracts’[xix] It is clear from this definition that the scope of the principal agent’s mandate (correctly again, in my view) is derived from, and circumscribed by, the construction agreement. This is as it should be.

e)    PROCSA: ‘[P]rincipal Agent means the entity so named in the schedule appointed and authorised by the client to manage and administer the contract(s).[xx]

The term ‘contract’ in PROCSA’s agreement means ‘…[a]n agreement entered into between the client and a contractor for the execution of the project or part thereof’[xxi]

Use of the word ‘project’ in this definition, unfortunately, leads to an ambiguity in the interpretation of the definition for the term ‘contract’, as the use of term ‘project’ could, I assume refer, inter alia,  to an agreement entered into for the execution of the [construction] works as the project (or part thereof), or it could refer to an agreement entered into for professional services related to the overall project, or part thereof.

Fortunately, however, the definition of the term ‘contractor’ in the PROCSA agreement eliminates the ambiguity. In this instance, Contractor means : ‘[T]he entity or entities entering into contract(s) with the client for the execution of the works or part thereof’[xxii] - in other words, the building contract/agreement. 

Read together, therefore, it would appear that the role of the principal agent in the PROCSA suite of agreements is derived from the building contract.

However, the listed duties of the principal agent as given in PROCSA’s various agreements for the appointment of individual professionals contradicts the definition, and includes standard services of the project manager and the principal consultant.[xxiii]      

f)     JBCC Principal Building Agreement: Principal Agent means [t]he entity appointed by the employer with full authority and obligation to act in terms of this agreement’[xxiv] The details of the roles and responsibilities of the principal agent thus detailed in the building agreement is consistent with the law of agency in South African.  

 

Fees for Principal Agency


The variability of approach by the professions in regard to the role of a principal agent is also evident in the methodology used to calculate the fees for the service.

Based on a construction value of R30m, a fee has been calculated below for the services of a principal agent for each of the professions.              

 

a)    Architect’s Fee: SACAP proposes no fee scale for the principal agent but advises only that: ‘[W]here the architectural professional is not the principal agent, a reduction of the fee for the work not exceeding 10% of the fee for [work] stages 5 and 6 can be considered.’ 10% of the Architect’s fee for these work stages based on a project of R30m, therefore, equals R86,305.[xxv]    

The reason that no additional fee is charged for the role of principal agent is explained in Board Notice 72 of 2015 published by SACAP which states as follows: ‘[A] standard service comprises appointment as architectural professional, principal consultant and principal agent.[xxvi] The role of principal agent, therefore, is fully embedded within the architect’s standard service.

b)    Engineer’s Fee: The fee for the service of principal agent as published by ECSA is calculated at 1% of the total cost of the works comprising the project. Based on a project of R30m, the fee would therefore equal R300,000.[xxvii]     

c)    Quantity Surveyor’s Fee: The fee for the service of principal agent as published by SACQS is calculated at 45% of the total quantity surveying fee for the project.  Based on a project value of R30m, therefore, the fee would be R676,170.

d)    Construction Project Management Fee: No additional fee is provided for the in the guideline tariff published by the SACPCMP for principal agent, nor is there any calculation given should the role of principal agent be excluded from the service. The logical conclusion to be drawn from this situation, therefore, is that the role of principal agent is completely embedded within the role of the construction project manager in terms of the standard scope of service.

 

It would appear, therefore, that the methodologies adopted by the various professions for the calculation of the fee for the service of principal agent are based on either: [i] a percentage of the profession’s fee for [work] stages 5 and 6 of the project life cycle; or, [ii] as a percentage of the total construction value; or, [iii] as a percentage of the overall fee for the profession rendering the service. No consistent approach therefore exists in the calculation of the fee for the delivery of the service.    

 

Conclusion and Recommendations


From the above, one can conclude that confusion exists across all the BE professions regarding [a] how the role of the principal agent is derived; [b] how it is defined; [c] its function in the regulation of the legal relations between the construction client and the building contractor under the building agreement; and [d] how the fee for the service should be calculated.  

 

The confusion is evident in how the scope of services for a principal agent contradict the definitions given therefor by certain of the statutory councils for the BE professions, as well as by PROCSA. As previously stated, the confusion is further is magnified when the role of the principal agent starts to be augmented by the inclusion of functions related to the roles of a project manager, or that of a principal consultant. Both these roles, however, have nothing to do with the function of an agent in regard to a third-party under the law.

 

My recommendations, therefore, are that the professions should collaborate with each other and reach a consensus on the role of the principal agent. They should then agree on the methodology used for the calculation of the fee for the delivery of the service.

 

Thereafter, the Council for the Built Environment (CBE), as the overarching statutory body for all the professions in the built environment, should brief PROCSA on how the role of principal agent should be defined in all its agreements for the appointment of the various professional consultants. A similar process should be followed for the role of the principal consultant.    

 

-o O o-



[i] Professional Consultants Services Committee, Johannesburg. www.procsa.co.za

[ii] Joint Building Contracts Committee, Johannesburg. www.jbcc.co.za

[iii] PROCSA (2005): Client / Professional Services Agreement [Edition 3.2]. Architect. Professional Consultants Services Agreement Committee, Johannesburg, South Africa. Annexure B. § B1

[iv] PROCSA (2005): Client / Professional Services Agreement [Edition 3.2]. Principal Agent.

[v] Du Bois, F. Ed. 2007. Wille’s Principles of South African Law. 9th Edition. Juta & Co, Ltd., Cape Town. § 984.

[vi] Du Bois, 2007. § 986. Section 3

[vii] Ibid.

[viii] JBCC (2014): Principal Building Agreement [Edition 6.1]. The Joint Building Contractors Committee, South Africa. § 8. Clause 6.2 

[ix] Ibid.

[x] Government Gazette 38638. 30 March 2015. South African Council for the Architectural Profession. Notice 72 of 2015: Government Printer. § 12

[xi] Government Gazette 38638. § 12

[xii] Government Gazette 38638. § 3. Para 2 under ‘Context’

[xiii] Government Gazette 36529. 3rd June 2013. Engineering Council of South Africa. Notice 117 of 2013: Government Printer. § 7

[xiv] Government Gazette 36529. 3rd June 2013. § 20-22

[xv] PROCSA (2005). See Annexure B pf the agreement for Principal Agent.

[xvi] PROCSA (2005). See Annexure B pf the agreement for Project Manager.

[xvii] JBCC (2014): Principal Building Agreement [Edition 6.1]. The Joint Building Contractors Committee, South Africa

[xviii] SACQS (2013).  Amendment of Tariff of Professional Fees Quantity Surveying Profession Act (Act 49 of 2000). 2013 Tariff of Professional Fees Schedule. The South African Council for the Quantity Surveying Profession, Johannesburg. § 19

[xix] Government Gazette 34858. 23rd December 2011. South African Council for the Construction and Project Management Professions. Board Notice 202 of 2011. Government Printer.  § 3  

[xx] PROCSA (2005). See Annexure B pf the agreement for Principal Agent. § 5

[xxi] Ibid

[xxii] Ibid

[xxiii] See (iii) and (v) supra

[xxiv] JBCC (2014). § 6

[xxv] Government Gazette 38639. 30th March 2015. South African Council for the Architectural Profession. Board Notice 73 of 2015. Government Printer. Section 1.3.3 § 7 read together with Table 1 of the same Notice on § 3 

[xxvi] Government Gazette 38638. § 7. Section 1.3.3

[xxvii] Government Gazette 36529. Section 4.4(8) § 38

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