construction operations

19/10/2015

A recent case has highlighted that a competent Bank’s Monitoring Surveyor (BMS) is vital to the success of a construction project. A BMS can help determine a project’s success by following certain processes correctly. Conversely if a BMS ignores such processes, this can prove disastrous to the outcome of a project.

This was demonstrated in the recent case of Lloyds Bank plc v McBains Cooper Consulting Ltd (October 2015) where both personnel at the bank and the BMS probably lacked experience in dealing with an ill prepared and overly optimistic borrower.

In this case the BMS breached the retainer by failing to properly forecast and adequately report cost overruns on variations to the building contract. The funding facility required from the bank was also insufficient due to the misreporting by the BMS of what exactly should be included in the facility. No allowance was made for costs such as interest and professional fees or for the prolongation costs as a result of delays. The bank were ultimately forced to terminate the loan to stem the flow of losses sustained by them and sued the BMS for breach of retainer and negligence.

However, despite the clear negligence of the BMS, the bank was also found to be contributorily negligent because it had failed to respond in the correct manner to the progress reports. The bank had bizarrely failed to provide the BMS with a copy of the facility letter, so the BMS was unaware of the actual level of the facility. The court also believed that the BMS was negligent in part here because it did not request a copy of the facility letter. We all may jest at these incredulous facts but we have to remember that this actually happened.

There were, of course, the inevitable causational issues that troubled the court on whether the negligence caused the shortfall in the construction completion costs that fell outside the agreed facility with the borrower. The judgment on this was that the bank had to bear a third of the losses – an expensive lesson to learn.

This case highlights how vital a competent BMS is to the success of a project, and also what can go wrong if the key relationship between bank and BMS does not function as intended.

Lessons learned from this case are:

  • Be sure that both parties are clear on the scope of the facility letter and, whilst it may sound trite, read it and do not assume it will mirror previous projects
  • Adhere to the regular site visit programme stipulated by the lender
  • Do not authorise drawdowns that aren’t included in the facility without first seeking prior approval from the lender
  • Highlight cost overruns and make efforts to ensure the lender understands the reality of those overruns

For more information on this topic or any construction related issues please contact Karen Elder at Beswicks Legal on 01782 205000 or karen.elder@beswicks.com