by Steven G. Shapiro

In a hypothetical commercial office development, an owner invites several architecture firms to bid for the project. Prior to the interviews, the developer distributes the conceptual narrative of the project, along with a proposed form of design services contract to be executed by the winning team. The draft contract provides, in part, that in the event of a termination by the owner, for any reason, the architect is obligated to transfer all of the intellectual property rights regardless of the payment of any severance.

As a result of this language and other possible onerous provisions, some firms may decline to bid on the project, while others may inflate their bid to account for the additional risk and liability.

When facing a contract with a variety of deal breakers, the first temptations may be to avoid the project or inflate the bid. Alternatively, however, there can be a chance for the architecture firm to gain a competitive advantage and possibly create a business opportunity. Working with their legal counsel and insurance agents, architects can evaluate the risks associated with certain provisions of an agreement and draft alternative language.

The principals can arrange to contact the developer for a pre-bid consultation regarding the stance of the owner and possibly amend the terms of the contract. There will be owners, of course, who will stridently refuse to consider alternatives and declare that their form of contract is non-negotiable. Other owners, however, are sometimes unaware of the current industry standard or do not fully appreciate the impact of a stated contract provision and may be willing to entertain reasoned modifications.

Of course, such proactive measures by the design team can involve legal fees and valuable time. In addition, there is the chance that the evaluation and discussion with the developer may also help a competitor. Although public procurement is subject to strict rules of disclosure, private development is subject to the terms and conditions of the proposal and the dictates of the market.

Working within the norms of ethics and business practice, the firm that is able to detect a softening in the stance of the developer may be able to submit a proposal that reflects a lower prediction of risk. For instance, in the example above, the design team may identify the absolute transfer of intellectual property without the guarantee of payment as a deal breaker. At a pre-bid meeting, the developer might then indicate that the language will be modified to guarantee payment when the owner terminates for its convenience.

As a result, the design team can submit its bid with some comfort that it has less liability exposure than it originally anticipated. With some careful evaluation and investigation, although with some costs, the firm has gained a possible competitive advantage over its rivals. A seemingly prohibitive agreement can be rendered into a more manageable working document.

Copyright 2006 The American Institute of Architects. All rights reserved. Home Page