ConstructionRisk.com Report (September 2018)

Inside this Issue

• A1 - Webinar (on demand): Quality Assurance/Quality Control for Designers & Design-Builders
• A2 - Design Professional Duty to Mitigate Against Storm and Flood damage
• A3 - Suggested Wording to Use When Revising and Redlining Design Professional Contracts for Risk Allocation and Insurability of Risks

Article 1

Webinar (on demand): Quality Assurance/Quality Control for Designers & Design-Builders

See similar articles: Arch PUA Webinar | Designers and Design Builders | QA/QC | Quality Assurance | Quality Control | Quality Control Webinar | Webinar

In this webinar presented for Arch/PUA Insurance, the discussion is how to improve Quality Assurance and Quality Control (QA/QC) to improve the quality of design documents, enhance client value of your work, have highly productive lean project management for QA/QC, eliminate the necessity for redesign, and increase profitability. It written and presented by James T. Brown, AIA, ASQ, president QAE, LLC, and the webinar discussion is joined and facilitated by Kent Holland.

View the Arch PUA Webinar here.  1 hour of HSW credit, registered with AIA. 

Anyone insured with Arch/PUA can receive AIA and CE credit for this webinar.   

 

This article is published in ConstructionRisk.com Report, Vol. 20, No. 8 (Sep 2018).

Copyright 2018, ConstructionRisk, LLC

Article 2

Design Professional Duty to Mitigate Against Storm and Flood damage

See similar articles: Design Professional Duty to Mitigate | Storm and Flood Damage

This Briefing Paper along with an on-demand webinar were written and presented by Kent Holland for Zurich North America Insurance.   The paper and webinar are available by clicking below on the Continue Reading link.

As storms seem to be increasing in severity, and areas that were previously flooded once per hundred years are now being flooded multiple times in just a few years, design professionals may be held to an enhanced standard of care to consider the foreseeable risk of damages that can result from failure to design to mitigate flood loss and damages. Is resiliency against flood damages such an important obligation that a design professional must design for it based on current science and the evidence at hand even if the law, regulations and government agencies are not requiring it?

As discussed in this briefing paper and webinar, regulations and codes don’t set the limit on what is required when it comes to a design professional’s duty of care – but merely the floor.

When the facts in the air and on the ground demonstrate that areas will be flooded every few years instead of every 100 or 500 years as predicted by current FEMA maps, does a design professional have a duty to design to mitigate against the damages of the more severe and frequent floods? If it is well-known that there is a high likelihood of flooding in an area, and that damages from such flooding could be significantly mitigated or reduced by elevating all new construction several feet, would the professional standard of care render a design professional liable for damages that could have been avoided if it had specified that foundations be built to higher elevations?

There is likely to be an increasing amount of litigation against design professionals for damages that could have been avoided through prudent flood resistant design.

Watch this recent Zurich webinar here by entering this password and registering: b762-Rc$

Read the paper here

 

This article is published in ConstructionRisk.com Report, Vol. 20, No. 8 (Sep 2018).

Copyright 2018, ConstructionRisk, LLC

Article 3

Suggested Wording to Use When Revising and Redlining Design Professional Contracts for Risk Allocation and Insurability of Risks

See similar articles: Contract Clause Template | Contract Clauses | Standard of Care | Suggested Contract Wording | Template of Contract Clauses | Time of the Essence

By: J. Kent Holland, Jr.

The wording for clauses presented in this paper are what ConstructionRisk, LLC uses as our templates for suggested revisions when redlining a design professional contract to allocate the risk more equitably and make the contract more insurable from a design professional’s point of view.

Statement of Purpose and Disclaimer

The risk management comments, or suggested redlined contract revisions if any, provided by this email, or attached hereto, are provided as an accommodation service to the client of the insurance broker, the insurance carrier, or a managing general agent of the carrier.  This information is not legal advice and cannot be relied upon as such.  Any suggested changes in wording of contract clauses, and any other information provided herein is for general educational purposes only, to assist in identifying potential issues concerning the allocation of risks under the contractual agreement and to identify potential contract language that could reduce overall risk to the insured.  As the changes presented are kept to a minimum with the hope of facilitating successful compromise with the insured's client, they are not necessarily what would be best or most desirable, and it is likely that legal counsel would suggest other language depending upon the circumstances of the matter and the applicable law.  This review is not intended to provide an exhaustive evaluation of risks, and does not necessarily identify and suggest changes to all uninsurable risks in the contract.  Nor does this review in any way affect, change or alter the coverage provided under any insurance policy. Advice from legal counsel familiar with the laws of the state applicable to the contract should be sought for crafting final language for this and any other contract.

Table of Contents 

1.  Flow Down – incorporation by reference
2.  Standard of Care
3.  Explaining Warranties
4.  Limitation of Liability
5.  Mutual Waiver of Consequential Damages
6.  Indemnification.
7. Time is of the Essence.
8.  Ownership and Copyright of Documents
9.  Cost Estimates being exceeded
10.  Compliance with Laws
11. Site Visits
12. Certifications
13. Withholding fees
14. Payment Provisions
15. Prevailing Party fees
16. Confidentiality
17. Retainage
18. Waiver of liens
19. Reliance Letter LoL
20.  Audit Rights
21. Consent to Assignment to Lender.
22. No Personal Liability
23. NDA

The language below can be used when reviewing a number of the key risk allocation clauses that we most often see in design professional contracts.

1. FLOW DOWN Incorporation of Reference–

Option (a) 

At the conclusion of whatever flow down clause the subcontract has (particularly if there is a long prime contract that might contain uninsurable warranties or indemnity obligations, add the following in order to do a disclaimer of warranties and Indemnitees:

“provided however, that notwithstanding any clause in the Prime Contract or this Agreement to the contrary, Subconsultant expressly disclaims all express or implied warranties and guarantees with respect to the performance of professional services, and it is agreed that the quality of such services shall be judged solely as to whether Subconsultant performed its services consistent with the professional skill and care ordinarily provided by firms practicing in the same or similar locality under the same or similar circumstances (“Standard of Care”), and provided further that Subconsultant shall not provide indemnification of any indemnitee other than to the extent damages arise out of third party claims against the indemnitee and to the extent caused by Subconsultant’s willful misconduct or negligence, and provided further that Subconsultant shall not defend any indemnitee against professional liability claims.”

Option (b)

This is a shorter version of the above paragraph to eliminate flowing down uninsurable warranties and indemnity obligations. Add the following clause to the end of the incorporation by reference clause:

“… provided however that the Standard of Care and the Indemnification provisions set forth in the Professional Services Agreement take precedence over the Contract between Prime and its Client.”

Option (c) Make the subcontract terms prevail over the prime agreement terms

Consider this from the AIA A C401 - § 1.3:

“To the extent that the provisions of the Prime Agreement apply to This Portion of the Project, the Architect shall assume toward the Consultant all obligations and responsibilities that the Owner assumes toward the Architect, and the Consultant shall assume toward the Architect all obligations and responsibilities that the Architect assumes toward the Owner. Insofar as applicable to this Agreement, the Architect shall have the benefit of all rights, remedies and redress against the Consultant that the Owner, under the Prime Agreement, has against the Architect, and the Consultant shall have the benefit of all rights, remedies and redress against the Architect that the Architect, under the Prime Agreement, has against the Owner. Where a provision of the Prime Agreement is inconsistent with a provision of this Agreement, this Agreement shall govern.”

Option (d)  Can make the strictest terms apply when we are the Prime.

“Subcontractor is bound to Prime for the performance of the Work in the same manner as Prime is bound to Owner under Prime’s contract with Owner. The pertinent parts of such contract will be made available upon Subcontractor’s request. In event of any conflict between these Terms and conditions and a contract between Prime and Owner, the more strict provision in favor of Prime shall govern.”

Option (e)   This is just a variation of option (d) “CONFLICTS/INCONSISTENCIES. In the event of any inconsistencies within or between any parts or provisions of this Contract, any Schedule, Exhibit or Attachment to this Contract, any Task Order or any applicable standards, codes or ordinances, the Consultant will (1) provide the better quality or greater quantity of services or (2) comply with the more stringent requirement; either or both in accordance with the Department’s interpretation.”

Option (f)  This is where we represent the prime consultant and need to include strong language in the subcontract to be able to enforce prime contract provisions. (The Prime Agreement prevails over subcontract)

“Except as specifically stated otherwise herein below, (1) Subconsultant shall perform the Services as required for the Project in conformance with the Prime Agreement and shall comply with the terms, conditions, and provisions of this Subconsultant Agreement in addition to the terms, conditions, and provisions of the Prime Agreement; (2) Subconsultant shall assume toward Prime Consultant under this Subconsultant Agreement all of the same obligations and responsibilities that Prime Consultant assumes toward the Client under the Prime Agreement, including but not limited  to, any payment provisions, waivers of consequential damages and delay damages, indemnities, warranties, dispute resolution procedures, and notice provisions; and (3) the Prime Agreement shall take priority in the event of a conflict between a specific provision of this Subconsultant Agreement and a specific provision of the Prime Agreement. For the avoidance of doubt, Subconsultant understands and agrees that (1) it owes to Prime Consultant the same obligations that Prime Consultant owes to the Client and to any third party under the Prime Agreement, and (2) Subconsultant shall be liable to Prime Consultant to the same extent that Prime Consultant is liable to the Client or to any third party under the Prime Agreement.”

Option (g).  Incorporation of Only the Scope of Services from the Proposal (use if we are the Prime and want our contract terms to supersede those included in a subconsultant proposal, but want to incorporate the Proposal as to scope only)

“  Scope.  Consultant agrees to perform the services described in the proposal, if any, attached as Exhibit A (the “Proposal”) and in the scope of services, if any, attached as Exhibit B (the “Scope”; the Proposal and the Scope are referred to collectively as, the “Services”).  Any terms and conditions in the Proposal not specifically defining the nature and scope of the Services to be performed, including any limitations of liability, waivers of damages, or disclaimers of warranty or liability, shall not constitute part of this agreement, regardless of whether such terms and conditions conflict with the terms and conditions contained in this agreement. Any conflicts between the Proposal, on one hand, and this agreement and the Scope, on the other hand, will be resolved in favor of this agreement and the Scope."

2. Standard of Care.  

Option (a) “Consultant shall perform its services consistent with the professional skill and care ordinarily provided by firms practicing in the same or similar locality under the same or similar circumstances (hereinafter the “Standard of Care”).”

Option (b) – Same as above but add express disclaimer of warranties. (This is particualy useful where the contract seems to include supplier, vendor or contractor type wording instead of professional services wording)

“Consultant shall perform its services consistent with the professional skill and care ordinarily provided by firms practicing in the same or similar locality under the same or similar circumstances (hereinafter the “Standard of Care”) and expressly disclaims all express or implied warranties and guarantees with respect to the performance of professional services.”

Option (c) Where various contract language creates potential warranties rather than striking out every instance of that wording, consider using adding this clause:

“Notwithstanding any clause in this Agreement to the contrary, Consultant expressly disclaims all express or implied warranties and guarantees with respect to the performance of professional services, and it is agreed that the quality of such services shall be judged solely as to whether Consultant performed its services consistent with the professional skill and care ordinarily provided by firms practicing in the same or similar locality under the same or similar circumstances (hereinafter the “Standard of Care”).”

Option (d)  Where we can’t get rid of the warranty language, we could use the following language to state that “warranty” only means meeting the standard of care.

“Any term or condition purporting to require Designer to provide an express or implied warranty or guarantee relative to its provision of professional services shall be interpreted as limiting Designer’s professional services obligation to compliance with the Standard of Care stated herein.”

3. Explaining Warranties are limited to goods and equipment – not to the quality of professional services

Option (a)  Where the contract has contractor type warranties consider agreeing to those warranties but only as to materials and equipment.

“Contractor warrants and guarantees that all Materials and equipment furnished under the Contract Documents shall be new unless otherwise specified, and that all construction work it performs will be of the specified quality, free from faults or defects in Materials or workmanship.”

Option (b)  If there is a warranty of completeness of Documents, consider adding:

“Consultant agrees that all Drawings and Specifications and other documents prepared by Consultant for the Project that are utilized by Owner and/or Owner’s contractor or contractors, shall be reasonably accurate and complete to the extent as is customary for typical construction documents.”

Option (c) Warranties and guarantees set forth in this Agreement are only as to the quality of materials, equipment, goods, and construction work, with it understood that there shall be no warranty or guarantee as to the quality of professional services.

4. Limitation of Liability 

Option (a) Limit to a Dollar Amount.

“To the fullest extent permitted by law, the total liability, in the aggregate, of Consultant and its officers, directors, partners, employees, agents, and subconsultants, to Client, and anyone claiming through or under Client, for any claims, losses, costs, or damages whatsoever arising out of, resulting from or in any way relating to this Project or Contract, from any cause or causes, including but not limited to tort (including negligence and professional errors and omissions), strict liability, breach of contract, or breach of warranty, shall not exceed the total compensation received by Consultant or $100,000, whichever is greater.”

Option (b) – Limit to Insurance

“To the fullest extent permitted by law, the total liability, in the aggregate, of Consultant and its officers, directors, partners, employees, agents, and subconsultants, to Client, and anyone claiming through or under Client, for any claims, losses, costs, or damages whatsoever arising out of, resulting from or in any way relating to this Project or Contract, from any cause or causes, including but not limited to tort (including negligence and professional errors and omissions), strict liability, breach of contract, or breach of warranty, shall not exceed the amount of insurance proceeds available up to the amounts of insurance required by this Agreement.”

In Florida, include this is Font 5 sizes bigger and all caps (Required by Code):

PURSUANT TO FLA.STAT.ANN. § 558.0035, AN INDIVIDUAL EMPLOYEE OR AGENT OF CONSULTANT MAY NOT BE HELD INDIVIDUALLY LIABLE FOR NEGLIGENCE.”

In other states can use this:

No principal, officer or employee of Subconsultant shall have personal liability for actions taken in the performance of services under this Agreement.

5.Mutual Waiver of Consequential Damages 

“Consultant and Client waive all consequential or special damages, including, but not limited to, loss of use, profits, revenue, business opportunity, or production, for claims, disputes, or other matters arising out of or relating to the Contract or the services provided by Consultant, regardless of whether such claim or dispute is based upon breach of contract, willful misconduct or negligent act or omission of either of them or their employees, agents, subconsultants, or other legal theory, even if the affected party has knowledge of the possibility of such damages.  This mutual waiver shall survive termination or completion of this Contract.”

6. Indemnification. 

Option (a)  - our standard 

“Consultant shall indemnify and hold harmless the Client, its officers, directors, and employees ("Indemnitees") from and against those damages and costs (including reasonable attorneys fees and cost of defense) that Indemnitee incurs as a result of third party tort claims to the extent caused by the willful misconduct or negligent act, error or omission of the Consultant or anyone for whom the Consultant is legally responsible, subject to any limitations of liability contained in this Agreement.”

Option (b) – our standard for California where must remove affirmatively removed the “defend.” This is necessary even under the new California statute.

“Consultant shall indemnify and hold harmless (but not defend) the Client, its officers, directors, and employees ("Indemnitees") from and against those damages and costs (including reasonable attorneys fees and cost of defense) that Indemnitee incurs as a result of third party tort claims to the extent caused by the willful misconduct or negligent act, error or omission of the Consultant or anyone for whom the Consultant is legally responsible, subject to any limitations of liability contained in this Agreement.”

Option (c) – Agree to defend, but not for professional claims.  Insert the following sentence where appropriate in the indemnity clause

First option:  “The duty to defend shall not apply to professional liability claims.”

               Second option: “"The foregoing duty to defend shall apply solely to any such defense obligations that are covered by Consultant’s Insurance specified in this contract.”

Third option:    Consultant shall indemnify, defend (but only to the extent such obligation to defend is covered by Consultant's general liability insurance) and hold harmless ….

                Fourth option – Delete duty to defend and replace with obligation to reimburse attorneys fees.  Can do the following:

“Consultant will reimburse Client for reasonable defense costs for claims resulting from Consultant's professional negligence based on the percentage of Consultant's liability.”

 

NOTE:  For comparison to the AIA construction contract see the following from A201 (2007):

• 3.18 INDEMNIFICATION
• 3.18.1 To the fullest extent permitted by law the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity that would otherwise exist as to a party or person described in this Section 3.18.

 

7. Time is of the Essence.    Change to read: 

Option (a)  “Time is of cardinal importance.   NOTE:  Can add option (b) to this if needed.

Option (b)   “Consultant recognizes the importance of meeting the schedule that is applicable to its services, and shall perform its services to meet the schedule as expeditiously as is consistent with the exercise of professional skill and care and the orderly progress of the Project.”

Option (c)  If client will not agree to change the time of essence wording, add the following words to the end of the sentence or paragraph:

"Notwithstanding the foregoing, this is not a warranty or guarantee and in no event will Consultant be responsible for damages due to delays beyond Consultant’s reasonable control."

8. Ownership and Copyright of Documents.

Option (a) – our standard.  Require client to indemnify and defend us.

“Client agrees to indemnify, defend and hold the Consultant harmless from and against any claims or damages that may result from the subsequent use, reuse, transfer or modification of Consultant’s drawings and specifications, except on projects where the Consultant has been retained to provide services.”

Option (b)  - add this if it appears we might be giving away our own design library.

“Client acknowledges and agrees that the documents and data to be provided by Consultant under the Agreement may contain certain design details, features and concepts from Consultant’s own practice detail library, which collectively may form portions of the design for the Project, but which separately, are, and shall remain, the sole and exclusive property of Consultant.  Nothing herein shall be construed as a limitation on Consultant’s right to re-use such component design details, features and concepts on other projects, in other contexts or for other clients.”

9. Cost Estimates being exceeded 

NOTE:  If contract says consultant will perform redesign services as a result of cost estimate being exceeded or construction bids coming in over budget, they often state it is without additional compensation.  We can agree to the redesign, but need to limit when we will do it for free.

Option (a)  After agreeing to language stating consultant will provide redesign services, insert the following:

“…. and will do so without additional compensation is due to failure to perform services consistent with the Standard of Care.”

Option (b)  - This is a much longer version and we don’t use it often.  But it is good.

“Notwithstanding any other term of this Agreement, if Consultant has any duty to design the Project within a Construction Budget, its duty shall be limited to responsibilities that are reasonably within its direct control, thereby excluding matters that are beyond the control of Consultant including, but not limited to, unanticipated rises in the cost of labor, materials or equipment, changes in market or negotiating conditions, and errors or omissions in cost estimates prepared by others. Therefore, any such redesign effort required of Consultant necessary to maintain the project within the Construction Budget that is not due specifically to the negligent act error, omission, or willful misconduct on the part of Consultant shall require an increase to the compensation of Consultant.”

Option (c)  Just a general disclaimer of any warranty of cost estimates.

We don’t insert this often but it can be useful:

“It is recognized that neither the Consultant nor its client has control over the cost of labor, materials or equipment, over the Contractor’s methods of determining bid prices, or over competitive bidding, market or negotiating conditions. Accordingly, Consultant cannot and does not warrant or represent that bids or negotiated prices to construct the part of the project for which it has provided services will not vary from the Owner’s budget for the Project or from an estimate of the Cost of the Work or evaluation prepared or agreed to by Consultant.”

10. Compliance with Laws  

When we seen a clause stating that the consultant will comply with the law, codes, etc, the easy option is to insert that consultant will exercise the standard of care to comply.

Option (a)  Insert these words into the obligation, and make sure it describes what the consultant will actively do, and not merely the passive tense of how the “services” will comply, etc.

“Consultant will exercise the standard of care to comply…”

Option (b).   A much more verbose way of disclaiming liability.  We rarely use this.

“Consultant shall exercise the standard of care to comply with requirements of all applicable codes, regulations, and current written interpretation thereof published and in effect during the Consultant’s services. In the event of changes in such codes, regulations or interpretations during the course of the Project that were not and could not have been reasonably anticipated by the Consultant and which result in a substantive change to the construction documents, the Consultant shall not be held responsible for the resulting additional costs, fees or time, and shall be entitled to reasonable additional compensation for the time and expense of responding to such changes. The client acknowledges that the requirements of federal, state, and local laws, rules, codes, ordinances, and regulations, including the Americans with Disabilities Act, are subject to various and possible contradictory interpretations. The Consultant will use reasonable professional efforts and judgment to correctly interpret and apply such requirements. Consultant, however, cannot and does not warrant or guarantee that the work will comply with the interpretation of such requirements by others.”

11. Site Visits

We don’t want to agree to “endeavor to guard the owner against…..”  That was old language from AIA B101 (1997) It was replaced in the 2007 edition.

Our standard based on current AIA B101 wording:

“On the basis of the site visits, the Consultant shall keep the Owner reasonably informed about the progress and quality of the portion of the Work completed, and report to the Owner (1) known deviations from the Contract Documents and from the most recent construction schedule submitted by the Contractor, and (2) defects and deficiencies observed in the Work.

12. Certifications 

With all the lender certifications we are being required to sign it is important to include in the contract a statement limiting what the consultant must sign.

Option (a) 

“Consultant shall not be required to execute certificates, consents or reliance letters that would require knowledge, services or responsibilities beyond the scope of this Agreement, and shall not be required to sign any documents that would result in Consultant having to certify the existence of conditions whose existence the Consultant cannot ascertain.  Any certificate will state that it is based on the best of the Consultant’s knowledge, information and belief.”

Option (b) 

“Consultant shall not be required to sign any documents that would result in Consultant having to certify, guarantee or warrant the professional Services rendered hereunder by Consultant or its Subconsultants or the existence of conditions whose existence Consultant cannot reasonably ascertain beyond the Standard of Care.”

13. Withholding Fees 

If we agree to allow the owner to withhold fees when they believe they have a potential claim or indemnification recovery, it turns everything backward for the a/e, resulting in the a/e having to make a claim against its client to be paid.  That becomes an uninsurable fee dispute.  In contrast, if the client has to sue our insured, it is potentially insurable.  So consider revising the withholding provisions.

Option (a) 

“The Owner shall not withhold amounts from the Consultant’s compensation to impose a penalty or liquidated damages on the Consultant, or to offset sums requested by or paid to contractors for the cost of changes in the Work unless the Consultant agrees or has been found liable for the amounts in a binding dispute resolution proceeding.”

14.      Payment Provisions.   – particularly pay-if-paid clauses

Option (a).  At the end of a sentence in a subcontract stating payment to the sub is conditioned precedent on payment by the owner, add the following:

"provided however that in no event shall subconsultant be paid the uncontested amount of any invoice later than 90 days from submittal, and provided further that if payment is not made within 60 days of submittal, subconsultant, shall without further notice be entitled to suspend its services until payment is made."

Option (b)  “If the Owner, fails to pay the Consultant undisputed amounts due within thirty (30) days after the time that such amounts are due to be paid, the Contractor may, upon seven (7) additional days’ written notice to the Owner, stop the Work until payment of such undisputed amount is paid.  The Contract Time and Contract Sum shall be extended appropriately to reflect the Contract’s reasonable costs of shut-down, delay and start-up.”

Option (c) 

Suspension for Non Payment

“If client fails to make payments of the Consultant’s Fee or reimburse expenses when due, other than in connection with a good faith dispute of the amount owing or by reason of the breach of this Agreement by Consultant, Consultant may suspend performance of services hereunder if such failure to pay continues for seven (7) days following notice to client of such breach.”

“If the Owner fails to make payment to the Engineer when due, and such failure is not based on any default by the Engineer under this Agreement and such payment is not otherwise disputed by Owner, the Engineer may suspend performance of its services upon seven (7) business days written notice in advance to the Owner, unless Owner cures its failure to pay within that period of time. The Engineer shall not be liable to the Owner for any delay caused by a suspension of services under this Article. The Engineer may terminate this Agreement if the Owner is delinquent for longer than forty- five (45) days on payments that have been properly documented and are not disputed, after giving Owner an additional seven (7) day written notice of its intent to terminate, and an opportunity for the Owner to cure.”

Option (d) Suspension for Non Payment

“If the Owner fails to make payment to the Engineer when due, and such failure is not based on any default by the Engineer under this Agreement and such payment is not otherwise disputed by Owner, the Engineer may suspend performance of its services upon seven (7) business days written notice in advance to the Owner, unless Owner cures its failure to pay within that period of time. The Engineer shall not be liable to the Owner for any delay caused by a suspension of services under this Article. The Engineer may terminate this Agreement if the Owner is delinquent for longer than forty- five (45) days on payments that have been properly documented and are not disputed, after giving Owner an additional seven (7) day written notice of its intent to terminate, and an opportunity for the Owner to cure.”

Option (e) another version of the same idea:   "If prime A/E fails to make payment of undisputed amounts properly due Consultant for services or expenses within forty-five (45) days of submission of Consultant's invoice, Consultant shall provide Prime A/E with a written notice to cure. If Architect fails to make payment of such sums to Consultant within ten (10) days of receipt of such written notice, Consultant may suspend performance and services under this Agreement until payment of such undisputed amounts is made by Architect."

15. Prevailing Party Attorneys clause

Try to delete it because it creates uninsurable liability. But if it can’t be deleted, then add a definition to make it an objective rather than subjective determination of who “prevails.”

Here is the unacceptable typical clause we see: “The prevailing party in any court proceedings shall be reimbursed all legal fees, court costs and expert witness costs by the other party.”

Add this definition to the clause: “Prevailing party is the party who recovers at least 67% of its total claims in the action or who is required to pay no more than 32% of the other party’s total claims in the action when considered in the totality of claims and counterclaims, if any. In claims for monetary damages, the total amount of recoverable attorney’s fees and costs shall not exceed the net monetary award of the Prevailing Party.”

16. Confidentiality– Make it possible to disclose when required by law, regulation or ethics.  We don’t generally focus on this clause but consider something like this when appropriate:

Option (a)  “Consultant will not disclose proprietary or confidential information of the client to others or publish it in any form at any time; provided, however, that notwithstanding the foregoing, Consultant may disclose any such information to its Affiliates, employees, and consultants, as well as to any regulatory agencies or instrumentality's when such disclosure is necessary, or otherwise required by law or ethical obligation.”

17. Retainage:A good fix if the contract includes large retention:

Option (a)  When the Project is fifty percent (50%) complete, retainage shall be reduced to five percent (5%).  When the Project reaches Substantial Completion, retainage shall be reduced to zero percent (0%) plus one hundred fifty percent (150%) of the value of any Work remaining.  At Final Completion, all retainage shall be released.  Retainage on early Trade Subcontractor(s) may be reduced to zero percent (0%) thirty (30) days after completion of early Trade Subcontractor’s Work

18.  Waiver of Liens.  If the contract states consultant shall waive all liens, add something like the following:

Option (a).  “Provided Consultant has been paid all amounts due on its invoices, Consultant shall execute lien releases….

Option (b) just add "so long as Professional has been timely paid by Client in accordance with this Contract. “

Option (c) “To the extent Consultant is paid for Services, Consultant shall indemnify, defend and hold harmless Customer, Client and the Property upon which the Services are performed, free from all mechanics’ and materialmen’s liens

Option (d) If the lien waiver is also a general release, be careful that a lien release does not release all potential claims of the consultant against the client but is limited instead to release only those claims related to payment of invoices. For example, add something like the following:

“The foregoing release shall not be construed as a general release, nor a release for claims arising from third party claims for personal injury or property damage.”

19. Reliance Letter LoL – where consultant is required to sign a document to allow third parties to rely on its work product and reports that third party should obtain no greater rights than the client we contracted with. Insert something like this into the Reliance letter:

“Consultant's aggregate liability to Relying Parties for any and all conceivable or potential liabilities or damages arising out of or related to the services rendered by Consultant for the Client or the Report is limited to the total sum of $__________ whether the cause of action is for negligence, breach of contract, warranty, strict liability, or any other legal theory; and that this limitation of liability is cumulative (i.e., with respect to the Relying Parties as a whole and not with respect to each Relying Party individually), and may only be collected in connection with a single action at law or equity brought by the Relying Parties as a whole or any individual Relying Party.”

20. Audit Rights.  We don’t want to give audit rights on a flat fee contract.  It should only apply to cost reimbursable contracts or those costs on another type of contract that are otherwise reimbursable based on the amount incurred.

Option (a)  “Professional shall maintain, and require its consultants of any tier to maintain, detailed records pertaining to all Reimbursable Expenses. Such records shall be made available to Owner and its authorized representatives for purposes of audit promptly after receipt of written notice from Owner.”

21. Consent to Assignment to Lender.  Be sure we include language requiring the lender to assume all unperformed obligations of the owner/client, including payment of outstanding fees.  And make the reliance of the lender subject to the same conditions that applied to the client. The wording we insert will be specific to each certificate but the sample below gives some ideas.

Option (a)  

“Certifications and Consents to Assignment. If the Owner requests the Consultant to execute certifications, consents to assignment of contract, or reliance letters that are reasonably required by lender to take some action, the proposed language of such certificates/consents/reliance documents shall be submitted to the Consultant for review at least 10 days prior to the requested date of execution. The Consultant agrees to execute such certificates/consents/reliance documents, provided that: (1) they are subject to and consistent with the terms of this Agreement, (2) Consultant has been paid all amounts owed for services rendered prior to assignment, or Lender agrees to pay all amounts owed, (3) Consultant shall not be required to execute certificates/consents or reliance letters that would require knowledge, services or responsibilities beyond the scope of this Agreement or that in any way might, in the sole judgment of the Consultant, increase Consultant’s risk or the availability or cost of its insurance, (4) it is understood that the words “certify” or “certification” shall mean an expression of the Consultant’s professional opinion to the best of its information, knowledge and belief, and does not constitute a warranty or guarantee by the Consultant.”

Option (b)

A much shorter version: “In the event of a default by Owner under any loan agreement with lender, the unperformed part of this Agreement will be performed by Professional for the benefit and at the expense of lender, should lender so elect, provided that there is no significant interruption in the performance of Professional’s services and all obligations of Owner to Professional are paid or performed by lender or appropriate accommodations are agreed between Professional and lender.”

22. No Personal Liability.     When the client has a clause stating it will have no personal liability, we should revise the clause to make that MUTUAL.”

NO PERSONAL LIABILITY

“In the event of any dispute between the Owner and Consultant due in whole or in part to any act or omission of the other party or relating to the Agreement, each party agrees that it shall only assert its claim against the other.  Notwithstanding anything to the contrary contained in any other provision of this Agreement, the directors, officers, partners, members, agents or employees of Owner and Consultant shall not have any personal liability under this Agreement for any obligation at any time, it being understood that each party shall look solely to the other party for the satisfaction of any claim such party has against the other party, their directors, officers, partners, agents, or employees of any of them.”

23. Nondisclosure Agreement (NDA).  When it is required that all documents be destroyed, add something like the following:

Option (a) "...provided, however, that Engineer may retain one file copy for its records, subject to its obligation to continue to maintain the confidentiality of such information in accordance with the requirement of this NDA."

Option (b) "...provided, however, that Engineer may retain one file copy for its records as may be required by law or reasonable engineering or professional practice, subject to its obligation to continue to maintain the confidentiality of such information in accordance with the requirement of this NDA."

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 20, No. 8 (Sep 2018).

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