What does legal advice about contracts have in common with cockroaches and Twinkies?
The answer is that they all endure unchanged forever – at least if you believe the urban myths about cockroaches being able to survive a nuclear blast and Twinkies never going stale. In truth, although cockroaches are six to fifteen times more radiation-resistant than humans, they ultimately succumb to its effects. And Twinkies, according to their manufacturer, only have a shelf-life of 25 days.
On the other hand, the contract advice that design professionals receive from lawyers and risk managers really hasn’t changed much over the past three decades. We know because that’s how long we’ve been counseling engineers and architects about their contracts. So, in celebration of our respective fourth decades of construction law practice, here is a brief overview of some timeless contract pointers.
Select appropriate clients and projects. Do you and your firm have the experience and capacity necessary to make the project successful? Make a clear-eyed assessment about the risks of working with this client, on this project, and make sure the reward you’ll receive justifies taking those risks.
Have a written contract. In some jurisdictions, you are required to have a written contract to perform professional services. Still, even if you’re not in one of those places, a written contract helps educate your client and set reasonable expectations about your services.
Don’t start work without a signed contract. We know it doesn’t always happen, but once you begin work, you lose any leverage you might have had to negotiate reasonable contract terms.
Use your form contract when possible. If your firm has a standard form contract, try to use it whenever possible. If your client insists on using a different contract form, comparing it to your standard contract can help you identify the business and legal terms you want to negotiate. Even if your client won’t agree to sign it without revision, this helps set expectations, frame your discussions and “set the anchor” for your negotiations.
Assess the insurability of contract terms. Have reasonable, attainable insurance requirements. When you receive an RFP or a client’s proposed agreement, send the “insurance requirements” section to your insurance broker immediately to verify that you have (or can even purchase) the required coverages.
Contracts must be signed by licensed, insured entities. Are you and your firm licensed and registered to practice where the project is located? Don’t wait until it’s time to sign the contract; it takes time to become reciprocally licensed and register your firm.
Draft a clear scope of services. Your scope should clearly define the services you will perform, those you could perform as additional services and those you will not. Do not agree to attach your entire proposal (typically replete with aspirational marketing language) to the contract to serve as a scope of services. A good scope really can save your bacon when disputes arise.
Set a reasonable, attainable standard of care. The law requires design professionals to use the degree of care and skill ordinarily exercised by similar professionals on projects at the same location and time frame. You can, however, change this standard by contract. If you elevate it to “the highest standard of care” or promise “defect-free design,” you jeopardize professional liability insurance coverage and set an unattainable standard for your services. For the same reason, do not guarantee or warrant your services – these, too, are unattainable, uninsurable promises of perfection.
Don’t promise compliance. Promising that the project will comply with “all laws, codes and standards” is unwise because they can conflict with each other such that it is impossible to comply. They also may be subject to differing interpretations. Contracting to “conform the services to applicable laws, codes, and standards consistent with the professional standard of care” is more consistent with reality.
Don’t guarantee the cost of the Work. Don’t agree to design the project to a fixed budget. You don’t control the market forces that affect bids and the cost of construction. Beware any obligation to redesign for free until the bids are within budget.
If you agree to an indemnity clause, make it an insurable one. If you agree to indemnify (“make whole”) your client for damages caused by your negligence, that is probably okay because you’d be responsible for those damages anyway. But if you agree to indemnify your client for damages caused by parties you don’t control, or for non-negligent errors, you assume liability you otherwise wouldn’t have, jeopardizing your professional liability insurance coverage.
Include a limitation of liability. Limitations of liability are a reasonable way to balance project risk and reward, and they are enforceable in most states. Remember that they only bind the parties who signed the contract – your liability to the rest of the world is not affected.
Obtain the right to rely on information provided. Suppose your client provides information about the site or the project. In that case, it is reasonable to obtain the contractual right to rely on the accuracy and completeness of the information provided unless your client is willing to have you verify the information for an appropriate fee and adjustment to the project schedule.
Provide for the ability to suspend or terminate your services if you are not paid. If you are not being paid, you will want to have the contractual right to suspend or terminate your services without risking liability for project delays.
Observe, don’t inspect. “Inspection” requires a much greater degree of inquiry than “observation.” Unless you really mean to inspect in detail, use the term ‘observe’ in your contracts, site visit reports and notes.
Disclaim responsibility for means, methods, or jobsite safety. Your contract should unambiguously provide that the contractor is solely responsible for following the plans and for means, methods, and jobsite safety—failure to include such language subjects you to liability for jobsite injuries and contractor deviations from your design.
Limit responsibility for “record drawings.” Use the term “record drawings” rather than “as-builts,” and make clear that your role is to assemble information from the contractors, not to verify every detail of the constructed project.
Address copyrights and ownership of documents. If your client wants to own the design documents, find out why. In many cases, granting them a license to use your design for specified purposes will be sufficient. If you decide to give your client ownership of copyrights, consider charging an additional fee, be sure to retain rights to non-unique elements, and obtain an indemnity and disclaimer of responsibility for future use without your professional involvement.
Provide for force majeure and delay conditions. Circumstances outside your control (“force majeure”) can prevent you from meeting the project schedule. Your contract should provide for an extension of time (and ideally additional fee) in these situations. Consult with your lawyer for the “magic words” to make your clause predictably enforceable in your jurisdiction.
Exercise caution with Latin and Batman phrases. When your contract includes Latin, legalese, or awkward phrases that would sound normal coming from Batman, but no one else (“Time is of the essence, Robin!”), chances are excellent that they are legal terms of art. Don’t assume those fancy words have ordinary meanings – review them with your lawyer “posthaste.”
Use an appropriate contract with sub-consultants. If you retain sub-consultants, make sure your agreements with them are consistent with your upstream agreement. If your agreement with the client says you will litigate all disputes, but your sub-consultant agreements agree to arbitration, you will end up with two different proceedings and potentially inconsistent results. If you are a sub-consultant, review the upstream agreement and make sure you can live with its terms.
Like the Dude in The Big Lebowski, contract advice abides. Be prepared for the next time your lawyer asks, “What does your contract say?”