by James B. Atkins,
FAIA, and Grant A. Simpson, FAIA
The
primary objective in contracting for professional services is to negotiate
a fair agreement with provisions that are reasonable and in accordance
with acceptable practice standards. AIA standard forms of agreement are
available to guide us in this effort. Other available resources are your
insurance agent and a legal counsel with experience in representing architects.
Your insurance agent can assist you in finding appropriate legal representation
when needed. Mindful of the risks so prevalent in our business, we do
our best to negotiate a contract that will protect us and allow us to
serve our client appropriately while providing an adequate fee for the
time spent.
However, there are times when we encounter clients with requirements
that go beyond our reasonable abilities and limitations. Their contract
demands exceed the level of service that we feel is within acceptable
professional limits. We reach that point in the negotiation process where
our better judgment tells us that we should walk away; where the risk
appears to be disproportionate to the reward. We come to the conclusion
that the client’s proposed terms are so onerous that the deal is
just not worth doing.
That is, until other considerations enter the picture. Perceived rewards
entice us to venture into the rocky realms of increased risk. We know
better, but the temptation is great. Perhaps it is an opportunity to
enter a new market or earn the business of a national client who can
bring us continuing work. It may be as simple as just needing the work
to keep our people busy. We wipe the perspiration from our foreheads
and take a deep breath as we sign on the dotted line. We shake hands
with the client and head back to the office hoping for the best, wondering
what we can do to manage this “fine mess” that we have knowingly
brought upon ourselves.
This article will touch on the options available for risk management
when we are faced with unreasonable demands or if we have already agreed
to a tough contract. Since risk management is about balancing the risk
with the reward, there are times when increased risks may appear to be
worth the chance. These options may not be cure-alls, but taking positive
and responsive actions is far better than doing nothing at all.
The contractual playing field
The chances we take when contracting for services can be treacherous,
and the AIA has provided us with documents that offer much protection.
AIA documents have been available for more than 100 years, and they
have proved to be reliable industry standards of practice. The AIA
aggressively manages the document content, constantly monitoring the
way the documents are used and responding with appropriate revisions.
For
example, when case law was established through a ruling in the court
declaring that supervision was an activity that exceeded the reasonable
expectation of the architect’s duties during construction, the
more appropriate term, observation, was employed to make contractual
requirements more acceptable. When the architect’s authority to
stop the work was viewed as an action with unbalanced risk implications,
it was removed from the documents.
When AIA documents are used, they can provide reasonable protection
for the design professional. It is when more stringent and onerous conditions
are introduced that the architect’s risks can rise above the rewards
consistent with market-driven fees.
Both public and private entities occasionally present take-it-or-leave-it
contracts that impose a higher standard of care than is normally required
of a design professional. Public clients usually control large amounts
of work; we must endure their contracts if we want the job. Also, private
owners with a national and worldwide presence often force contract conditions
with unyielding parameters.
Unreasonable requirements, such as payment for betterment, or value
added, as well as absolute defense indemnities for any and all claims,
should be considered to be deal-killing conditions in contract negotiations.
Unfortunately, on occasion, these are accepted by architects in service
contracts because of a lack of awareness or due to perceived necessity.
As a result, design professionals sometimes take a chance in the hopes
of a successful outcome.
Dangerous liaisons
Although many onerous contractual requirements may appear to be somewhat
benign, they could have more serious implications. For example, inspecting
the work connotes a more thorough review and determination of conformance.
Also, a certification of payment application backup documentation goes
well beyond the requirement to be “generally familiar with the
work” in that it requires a knowledge of the work that only the
contractor typically has.
Some contract requirements are more obvious and threaten with more certainty,
offering the unscrupulous owner a basis for filing claims against the
design professional. For example, requirements such as certifying work
conformance can make the architect responsible for the completeness and
accuracy of the work. Producing 100-percent complete documents carries
an obligation that cannot be fulfilled under the design professional’s
ordinary powers. Also, guaranteeing the design will not exceed a maximum
limit of cost of construction can cause architects to become an uncompensated
funding source for the owner, and can cause them to redesign until the
project is within the budget. This can be an open-ended liability.
Nevertheless, these requirements are frequently demanded in contract
negotiations, and they should not be agreed to unless the reward is worth
the risk to be taken.
Protective actions
Although you may have agreed to an onerous contract condition, it does
not mean that you must acquiesce. There are alternatives that can be
undertaken to mitigate and manage difficult requirements. They may
not provide complete resolution, but they will at least improve your
chances of success.
It is important to note that a formal change order
is not the only alternative for changing the course of a contract.
Changes can be effected in the form of oral agreements and written
understandings.
Silent acknowledgment
There is the issue of silent acknowledgment. If you document a change
in the conditions of your service agreement with your client in writing,
and no response to the contrary is given in writing, the change may
be determined to be enforceable and have credibility.
For example, your contract requires you to be present on the jobsite
one day per week. You realize that the contractor only meets at the site
on alternate Tuesdays, and visiting the site for two days every two weeks
provides better service to the project. This represents an “average” of
one day per week. You send a letter to the client advising of the change,
and you receive no response. Months later, after the project is completed,
the client complains that you did not provide the site visitation services
defined in your contract. The client refuses to pay your final invoice
and demands a refund to cover the services the client claims you did
not provide. You forward the client a copy of the letter, noting the
client’s failure to respond with an objection to the adjusted visitation
schedule.
While this may not guarantee exoneration from the client’s accusation,
nevertheless, it provides you with a reasonable position for rebuttal.
Alternatives to onerous contract requirements
Listed below are difficult contract requirements, and some general notions
for how to deal with them. Next week’s AIArchitect Best Practices
column will present suggestions and alternatives in more detail.
Inspections, not observations: There are only two inspections required
of the architect by AIA documents during construction: at substantial
completion and at final completion. If the contract wording requires
you to “inspect” the work during each site visit, your obligation
for determining if the work conforms to your design documents can be
greatly increased over the normal standard of care.
Certifying the contractor’s
work: Although the architect certifies the contractor’s application
for payment, the normal standard of care for architectural design services
does not include certifying the contractor’s work.
100-percent
complete design documents: Do not
affix the notation, “100-Percent
Complete Documents,” or any other quantitative representation on
your drawings. Instead, include descriptive notations, such as “Issued
for Construction,” or “Issued for Schematic Design Review.”
Guaranteeing budget conformance: It is not reasonable for the architect
to be made solely responsible for a project condition over which they
do not have authority or control.
Review and approval of payment application
backup: The architect is
required in AIA Owner-Architect agreements to “determine in general
if the Work ... when fully completed, will be in accordance with the
Contract Documents.” This is not a requirement to check each and
every detail in the contractor’s application for payment.
Unreasonable deadlines for submittal
and RFI review: The design professional
has both the right and the obligation to take the appropriate amount
of time necessary to review submittals or answer questions.
Indemnities and hold-harmless agreements: These clauses offer a guaranteed
protection that may be prohibited by the terms and conditions of your
professional liability insurance policy.
Deletion
of construction phase services: Owners sometimes ask architects
to delete construction-phase services from their work. Because the
architect typically contracts to issue a Certificate of Substantial Completion
at the end of the project, it is difficult, if not impossible, for
the architect to know if the project has been constructed substantially
in accordance with the drawings and specifications if they have not visited
the site and reviewed the work during construction.
Conclusion
We may not always succeed in negotiating a contract that is in complete
alignment with our preferred services approach. Opportunities and rewards
may sometimes lure us into treacherous contractual conditions. Our
chosen “business decision” may be to agree to contract
wording that places us at a higher risk than we typically accept. We
may find ourselves in another fine mess that challenges us.
We must remember that although the ink may be dry, the opportunities
for effective risk management remain. There are actions that can be taken
to improve our exposure and possibly mitigate onerous requirements altogether.
The important thing to keep in mind is never to give up. Many contingent
actions can be taken throughout the project to improve your risk exposure
and the chance for a successful project. Do not forget that a component
of successful projects typically includes a satisfied client.
We must take risks if we are to do business, but opportunities for improvement
will always persist. Stay on top of your negotiations and stay close
to your clients. And if you find yourself in another onerous contract,
take advantage of the opportunities and resources available for minimizing
your risks and improving your chances for success.
And while you’re at it, be careful out there.
Copyright 2005 The American Institute of Architects.
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