Contracts From Hell: Negotiating Design Professional Agreements – Part 2

Disputing Contract

This is the second part of my two-part blog series on negotiating architects and engineers contracts, both of which are based on our annual Willis A&E Halloween webinar special, Contracts From Hell.  In part I of this series I focused on the importance of design professionals holding their ground when it comes to negotiating fair and insurable professional agreements.   

Unfortunately, many design contracts are one-sided and drafted to the detriment of the design professional.  There is perhaps no greater culprit in  of insisting upon one-sided  professional services agreement than public entities.

This post will focus on negotiating specific clauses and assessing those “deal makers” and “deal breakers” every design professional should understand and address before signing on the dotted line. Of course, every project is unique and you should seek professional legal guidance with respect to your individual situations.

The Importance of a Written Contract

It is very important to have a contract in place for all your projects – large and small.  I would recommend that every A&E firm consider using a recognized and insurable association agreement such as the AIA or EJCDC agreements or develop their own standard insurable contracts.

In addition, it may be advantageous to have your own standard terms and conditions.  This would typically be a one-page document containing your “greatest hits” of contract clauses and should accompany any letter agreement and be disclosed prior to negotiating a final agreement.  This document will put you in a much better position than going forward on a verbal basis should a dispute arise.

Lastly, I would recommend developing a contract review checklist as a tool when reviewing agreements.  Not only will this help you in assessing clauses presented in owner drafted or modified association agreements, it will help you catch those important clauses owners and their attorneys tend to forget or intentionally not include.

Your broker should have experience in understanding the risks associated with design agreement sand be able to draw on their experience to help you and your legal counsel.

Deal Makers and Deal Breakers

A “deal maker” is a clause that an A&E firm should strive to get in every one of their professional agreements.  A “deal breaker” is a clause that would be just that – a deal breaker.  These are critical clauses all A&E firms should be well versed in and learn how to negotiate.  Here are some “Deal Makers” and “Deal Breakers” to consider, which are from the DPIC Contract Guide along with some additional issues to consider.

More Clauses to be Aware of

Here is a fairly good list of critical clauses, but you certainly could add to this list.

Indemnities

Too many owner-drafted agreements are uninsurable, requiring a defend obligation prior to a finding of negligence and not limiting the indemnity to the firm’s negligence.  Be sure to get both your attorney and broker to review any unfamiliar indemnity language.

Jobsite Safety

It should be clear in absolutely EVERY A&E contract that the design professional is NOT responsible for jobsite safety or construction means and methods.  Also, be certain to educate your staff as to their role on the jobsite.

Hazardous Materials

This clause should be in EVERY A&E contract.  It can become a real mess if your contract is silent on this.  Also, while on the subject,  the owner should hire the geo tech.  The vicarious exposures the A&E firm would have to take on to hire the geo tech is unreasonable.

Ownership of Instruments of Service

Make the effort to determine what your prospective client really wants when it comes to ownership of documents.  A license to use may be sufficient.  Don’t give away anything until you’ve been paid in full, and require your consent prior to re-use.

Getting Named on GC’s GL

This is very important and well worth the effort.  Most general contractors’ general liability policies provide additional insured by contract.  You can be sure the owner’s getting named – and you just want the same – along with all your subcontractors!

Mediation

Many consider mediation to be better than arbitration in that it’s non-binding and has proven to be far more effective in actually fulfilling the intent of providing quick and cost-effective dispute resolution.

Limiting Your Liability  and Waiver of Consequential Damages

This is an appeal to fairness in consideration of risk and reward.  Learn how to effectively negotiate these clauses!

Termination

A very important and often overlooked clause.  Terminations agreements should be mutual (not one-sided) and fair.

Assignment

Another overlooked clause that came back to haunt a lot of firms after the economic downturn. Don’t agree to any assignment without your consent.

Certifications, Guarantees and Warranties

Just say NO!

Insurance

 Get your broker to review – before you sign the agreement.

Liquidated Damages

These don’t belong in A&E agreements and are uninsurable.

Permits and Approvals

Agree to “assist” only!

Lender Requirements

Be careful of unreasonable mandatory cooperation clauses.

Stop Work Authority

NEVER agree to stop the work.

I would recommend that every firm come up with their own list and educate their staff on these issues along with your firm’s internal “Go/No-Go” project evaluation procedures.

If you are interested in a sample copy of our terms and conditions please contact me at WillisAE@Willis.com–but, again, you should always seek advice from your counsel.  I am also attaching a copy of our Willis A&E 2014 webinar schedule.  To register for any of these webinars visit our website at www.WillisAE.com.

About Dan Buelow

Dan Buelow is the Managing Director of Willis’ Architects & Engineers practice, based in Chicago, where he an…
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