New Year’s resolutions for design professionals: negotiate new contracts carefully
By: Catherine Bednar
The start of a new year is an excellent time for design professionals to review and implement measures for avoiding and minimizing their potential exposure from liability claims. Below are some key contract issues to consider as you pursue new projects and business opportunities.
- Avoid Heightened Standards of Care and Warranties. Architects and Engineers are held to professional standards of care. The standard is not perfection; instead, design professionals must perform their services with the level of skill and care ordinarily provided by other professionals practicing in a similar location and under similar circumstances. Avoid signing contracts that impose higher degree of care than is required by common law, such as contracts requiring a “high degree of care”, “the utmost care” or “first rate service.”
Likewise, architects and engineers should avoid contracts that demand guarantees or warranties. For example, a proposed contract might state an Architect’s plans will “conform with the local building codes”, or that the system designed by an Engineer will meet designated performance standards. The inclusion of such provisions in the contract can leave your business exposed, as professional liability policies only insure for negligence and do not cover breaches of warranty.
- Consider Dispute Resolution. Parties often enter contracts with the assumption the project will go smoothly and any problems worked out, but unanticipated conflicts often arise. Dispute resolution provisions dictate how disputes will be resolved and in what forum. Contracts may require mediation as a precursor to arbitration or litigation. Mediation can be a cost-effective way to resolve disputes quickly and economically. In addition, design professionals should consider the pros and cons of both litigation and arbitration, discussed at length here.
- Limit Your Liability. Whenever possible, design professionals should allocate their risk by including a limitation of liability provision. These provisions can limit the design professional’s liability to the client for any damages arising out of the services performed. Liability may be limited to a specific dollar value, the fees paid to the designer or the available insurance coverage. The enforceability of these provisions is determined by state law. Typically, such provisions must be included in a signed contract that was fairly negotiated and must not be otherwise unconscionable.
- Clearly Delineate Scopes of Work. In order to minimize their exposure, design professionals should clearly delineate their scope of work and avoid performing tasks outside of the contract. The contract should clearly identify the phases of the project, and the design deliverables associated with each phase.
If the Architect or Engineer is permitted to rely on data and information provided by others, the contract should explicitly state so. The contract should also identify any aspects of the project that are beyond the designer’s capabilities and must be handled by others. When a designer relies on a subconsultant to perform part of its work, the subconsultant agreement should be consistent with the prime agreement and should ensure the subconsultant will indemnify the designer for the subconsultant’s errors and omissions.
In addition, where a contract requires the designer to observe the work, the language should limit the designer’s duty to generally observing whether the work conforms to the design plans and should not imply any duty to supervise or control the builder’s work, including safety measures. Designers may wish to specify a maximum number of site visits or limit the number of hours spent on such tasks.
- Be Wary of Bad Contracts (and Bad Clients). If a client proposes a contract that is confusing or heavy-handed, or if a client refuses to negotiate fairly, this may be a red flag indicating increased risk associated with the project. As a general rule, good clients will respect your desire to review and revise your contract with counsel.
For further information or inquiries, please contact Catherine Bednar at firstname.lastname@example.org