Another Fine Mess: The Onerous Contract, Part II

by James B. Atkins, FAIA, and Grant A. Simpson, FAIA

Recapping from last week
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. “Another Fine Mess: The Onerous Contract, Part I” explored some options available for risk management when we are faced with unreasonable demands or if we have already agreed to a tough contract. The options that follow expand on some of those ideas. The options that we explore in this article may not be cure-alls, but taking positive and responsive actions is far better than doing nothing at all.

Site inspections
Black’s Law Dictionary states, “Inspection … has broader meaning than just looking (observation), and means to examine carefully or critically, investigate, and test officially.” During negotiations, it is advisable to review the AIA Contract Documents B141 and A201 site observation duties with the client and explain the differences between observation and inspection. If you elect to agree to “inspect,” then you should propose a fee commensurate with the time involved with the additional duties and increased risks.

If you have such a requirement in your contract, in the absence of specifically defined requirements for your “inspections,” you can attempt to establish the standard of care that you will meet by:

  1. Reporting your site observations on a form such as AIA document G711, Architect’s Field Report, which references “observations” rather than “inspections.”
  2. Including in your report the qualification: “Inspections performed by the architect under this contract have been conducted under the limited conditions as described by site observations in AIA document A201, General Conditions of the Contract for Construction, as referenced in the Owner-Architect Agreement.
  3. Arranging to discuss the subject of inspections versus observations in a project meeting and include the description provided in AIA document A201 in the meeting minutes. Do this even if the client or contractor objects to your position during the discussion.

If you are working from an AIA form document such as B141 or A201, you have a greater chance of establishing conformance to the “standard of care” established in and by the AIA family of documents for practitioners.

Certifying the contractor’s work
Although the architect certifies the contractor’s application for payment, the standard of care for architectural design services typically does not include certifying the contractor’s work. AIA document A201 clearly states in paragraph 3.3.1 that the contractor is solely responsible for their work and the work of the subcontractors,

The Contractor shall be solely responsible for and have control over construction means, methods, techniques, sequences, and procedures and for coordinating all portions of the Work under the Contract.

Certification of the contractor’s work by the architect could be interpreted to represent that the architect has confirmed that the work is in strict accordance with the contract documents and is complete. Such certification may cause the architect to be held responsible for the contractor’s incomplete, incorrect, or defective work.

During contract negotiations it is beneficial to help the client understand that although the architect will be responsible for its own acts and omissions, it is not a guarantor of the work performed by others. AIA document B141 states in paragraph

The Architect shall be responsible for the Architect’s negligent acts or omissions, but shall not have control over or charge of and shall not be responsible for acts or omissions of the Contractor, Subcontractors, or their agents or employees, or of any other persons or entities performing portions of the Work.

If you fail in this endeavor or discover that your contract includes an onerous certification, you can attempt to establish a reasonable standard of care for your services after the fact as follows:

  1. Your professional liability insurance agent will likely tell you that you are not covered under your insurance policy when providing such absolute certifications. If so, you should advise your client of this fact and attempt to negotiate a compromise with them.
  2. Inform your client that your certification is for “substantial” conformance to the contract documents as defined in AIA document A201-1997.
  3. If your client persists in demanding that you certify the contractor’s work, ask your professional liability insurance agent to contact the client and explain the potential owner liabilities of this action.
  4. Consider adding the following qualification to your Certificates of Substantial Completion:

    This certification is not a representation that the contractor’s work is correct or complete, but it is consistent with the architect’s responsibilities as stated in AIA document A201 as referenced in the Owner-Architect Agreement.

100 percent complete design documents
Contract documents are conceptual as defined in the AIA documents and, by definition, they cannot be 100 percent complete. This issue was explored in a previous AIArchitect article entitled, “A Loss Cause: An Architect’s Assessment of Errors and Omissions.” and will be explored in greater detail in upcoming AIArchitect “Best Practices in Risk Management” articles.

Most contracts appear to anticipate, and it is common in the industry for many architects to refer to the status of their documents as a “percentage of completion.” This industry habit is an effort to objectively quantify what is an inherently subjective process. There is no industry standard definition for what constitutes “completion” for the design or construction document phases of architectural services. That is one reason that phases of services were removed from the 1997 edition of B141.

Such objective measurements of subjective issues tend to go without discussion during contract negotiations. Architects, when negotiating an agreement, are often unwilling to engage in conflict on this issue because everyone knows that sooner or later the documents will be considered “complete.” If you should agree to a contract containing this requirement, try the following:

  1. 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.”
  2. Discuss the issue openly in a project meeting, explaining that no industry definition exists and that it is impossible for documents to be 100 percent complete. Record your discussion in the meeting report.
  3. Meet with the client and explain the conceptual realities of design documents. An upcoming AIArchitect article entitled “Drawing the Line” will address the conceptual nature of construction documents in greater detail. Record your conversations in a meeting report.
  4. If you are still not getting through, ask your insurance agent to contact the client and explain the conceptual realities and limitations of design documents.

Guaranteeing budget conformance
Some clients may ask you to guarantee that your documents express a design concept that can be constructed within a specific project budget. Supplementary clauses such as, “redesigning the project to conform to budget constraints” are sometimes imposed. 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.

Owners often mistakenly believe that the architect not only has ultimate control of project costs, but that their pursuit of design excellence is such that they will jeopardize the project budget with their efforts to have their way. During contract negotiations you must candidly explain to owners the relationship between time, cost, and quality. This issue was addressed in the Architect’s Handbook of Professional Practice, Update 2004, in an article entitled, “Maintaining Design Quality.” Essentially, this concept states that an owner may expect to control two of the three components—time, or cost, or quality—but not all three.

Owners have no doubt derived their mistaken beliefs about the architect’s control over the budget because many of the requirements for the design are expressed in the architect’s instruments of service. The reality is that owners, contractors, and designers all affect the time, cost, and quality on a project. Of the members of this team, the constructors are better positioned to be knowledgeable about costs and to offer advice as to when design changes should be implemented to meet budgets.

During negotiations, try to explain to the owner that you will not nickel and dime them for minor revisions in assisting with managing the budget, but you cannot be responsible for major changes when those changes are not consistent with prior owner approvals.

For example, an owner desires an arching barrel vaulted roof on their new villa. Estimates skyrocket, and the owner demands that you redesign with a flat roof. That demand is not consistent with prior program requirements and approvals, and it will require the architect to experience severe fee penalties. If, on the other hand, the project exceeds the budget, and the client asks you to change the specification from copper roofing to painted metal, it would probably be a wise business decision to make this minor change at your own expense.

As a rule, the design professional should never agree to be responsible for the cost of construction in excess of a budget. If the client resists and represents this requirement to be a deal-breaker, you should walk away from the commission, no matter how grand it may be.

In the event that you have onerous budget clauses in your contract, try the following:

  1. Firmly establish the owner’s program requirements. Document all program discussions thoroughly in letters, memoranda, or meeting reports.
  2. Firmly establish the basis for the owner’s budget, including the source, date, and quality of cost data.
  3. Notify the owner if you perceive a discrepancy between the program requirements and the budget. If you believe the budget is deficient for the desired program, give the owner definitive notification of this belief. Provide the owner with reasonable solutions for resolving the discrepancy, such as a reduction of program requirements or an increased budget.
  4. Do not proceed with designs for which you have notified an owner a discrepancy exists without a firm direction from the owner that resolves the discrepancy. If you do proceed, you set the expectation that the discrepancy has been resolved.
  5. Document all such resolutions in writing.

This subject could be reviewed in much greater detail, and it merits a great deal of brainstorming and discussion with the owner and the contractor.

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. Payment application backup on large projects can involve hundreds of pages of documentation, and any detailed review and approval of this information should probably be done through an audit by an accountant.

In errors and omissions claims, owners often allege that the architect has inflicted damage upon them by approving payment to a contractor for erroneous or incomplete work. This is often due to a lack of understanding by the owner as to the architect’s responsibilities for reviewing and certifying a contractor’s application for payment. To avoid this misunderstanding, it can be beneficial to help the owner understand the specific review requirements during contract negotiations.

Suggested negotiation points are:

  1. The architect does not make detailed inspections and is thus not in a position to know the specific conditions of the work for which the contractor has requested payment
  2. The architect does not guarantee the contractor’s performance of the work
  3. The contractor is responsible for their own actions.

Nevertheless, if you should have the requirement to make a detailed review of the contractor’s payment application backup in your contract, you may try the following:

  • If appropriate in the context of your contract terms, remind your client in writing that you are only required to determine “in general” if the work is in conformance with the contract documents. This does not include a comprehensive review, approval, or audit of the supporting data submitted by the contractor.
  • Advise the client that you are not an accountant and that you are not qualified to review and evaluate such accounting data.
  • Use AIA document G702, Application and Certificate for Payment, which states the limitation that, “the Architect certifies to the Owner that to the best of the Architect’s knowledge, information, and belief ...”
  • Request a change in services from the owner stating that the services of a professional accountant are required to discharge the responsibility for backup review under the terms of your contract.

Unreasonable deadlines for submittal and RFI review
The review of submittals by the designer can be time consuming if they are complex or submitted untimely or in an unreasonable sequence. RFIs often take time to review and resolve. Contractors use extended review time to claim delay and subsequently ask for additional general conditions costs. Nevertheless, the design professional has both the right and the obligation to take the appropriate amount of time necessary to review submittals or answer questions. A201 provides for a reasonable review time in paragraph 3.10.2:

The Contractor shall prepare and keep current, for the Architect’s approval, a schedule of submittals which is coordinated with the Contractor’s construction schedule and allows the Architect reasonable time to review submittals.

A201 gives the architect the significant authority to determine review time in paragraph 4.2.7:

The Architect’s action will be taken with such reasonable promptness as to cause no delay in the Work or in the activities of the Owner, Contractor, or separate contractors, while allowing sufficient time in the Architect’s professional judgment to permit adequate review.

If you must agree in your contract to specific review periods, or in the event that your contract contains the requirement that submittals and RFIs be reviewed and responded to in a short interval of time, consider the following alternatives:

  1. Inform your client in writing that review times vary with the size of the submittal and that you will endeavor to respond to these documents within the average number of days required in the contract.
  2. If you are using MasterSpec specifications or other documents that require a submittal schedule, request the submittal schedule from the contractor to confirm that the contractor has scheduled reasonable and adequate review time for each submittal. If necessary, demand in writing that the contractor provide a submittal schedule for your approval. Since you are allowed in MasterSpec and AIA contracts to agree to this schedule, advise the contractor if the time allotted is inadequate and unreasonable.
  3. Monitor the submittal schedule and determine if the contractor has met their obligations for sequencing and timing to fit your review availability. Advise during construction meetings if the contractor is not meeting their schedule and document in writing if deviations or nonconformance is evident.
  4. Advise the owner that AIA document B141, in Article 2.8.2, allows for a Change in Services to increase the architect’s fee for, “Review of a Contractor’s submittal out of sequence from the submittal schedule agreed to by the Architect.” While you may not be able to negotiate additional fees, you can use the clause as leverage in negotiating reasonable review times. In addition, AIA document B511 provides language for the review of multiple submittals.

Indemnities and hold-harmless agreements
Indemnities and hold-harmless agreements in contracts must be approached with caution. You should always consult with your attorney and your insurance company before you accept any indemnity or hold-harmless agreement. These clauses offer a guaranteed protection that may be prohibited by the terms and conditions of your professional liability insurance policy. However, mutual indemnities between the client and architect for damages caused by their own actions are common.

Deletion of construction-phase services
Owners sometimes ask architects to delete construction-phase services from their work. Since 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.

Many states mandate that construction administration must be performed by a licensed architect because they recognize the need for professional review to determine conformance. It is important that you retain this important phase of services in your contract so that your ability to determine conformance and completion will not be impaired.

If you have prepared construction documents and a separate architect is retained to perform construction-phase services on your design, you could be at a disadvantage in that you will not have the opportunity to discover discrepancies before they are constructed. The primary responsibility of the general contractor is to plan and coordinate the work in advance, and the primary objective of the architect during construction should be to resolve any conflicts or complications ahead of time. Design professionals who provide construction-phase services on the work of others often have less liability and thus may be less proactive in discovering problems.

If you are asked to delete this phase of work from your services, consider:

  1. Explaining the importance of the benefits of a single architect and your vested interest in finding and resolving discrepancies.
  2. Visiting the site anyway to review conformance generally. If you cannot visit the site and develop a comfort level with construction conformance, under no circumstances should you issue a Certificate of Substantial Completion or any other certification.
  3. Asking your insurance agent to contact the owner to explain the benefits of including construction administration with basic services utilizing the same architect.

We must take risks if we are to do business, but opportunities for improvement will always exist. 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. All rights reserved. Home Page


This article is the second part of the fifth in a series of monthly articles on risk management by Jim Atkins, FAIA, and Grant Simpson, FAIA. This series will continue next month in AIArchitect when the subject will be “Project Manager or Risk Manager?” and find out how project management and risk management are often indistinguishable.

Read the last month’s article, “Smoke, Mirrors, and Snake Oil: Risks in Marketing.”

Visit the AIA Risk Management Resource Center.

If you would like to ask Jim and Grant a risk or project management question or request them to address a particular topic, contact the AIA General Counsel’s office.

James B. Atkins, FAIA, is a principal with HKS Architects. He serves on the AIA Documents Committee and the AIA Risk Management Committee. Grant A. Simpson, FAIA, manages project delivery for RTKL Associates. He serves on the AIA Practice Management Advisory Group.

This article is intended for general information purposes only and does not constitute legal advice. The reader should consult with legal counsel to determine how laws, suggestions, and illustrations apply to specific situations.

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