| Follow These Steps When an Owner Presents You with a One-Sided Agreement
by Michael Strogoff, AIA
How do you . . . propose changes to a client’s standard contracts?
Summary: People who negotiate on behalf of corporation or institutional clients, or on behalf of public and municipal entities, often insist that their standard contracts are not negotiable. By making statements such as “other architects and engineers have signed this,” “our attorney won't agree to any changes in the body of the agreement,” and “making any changes will delay this project and jeopardize our schedule,” representatives from corporate clients, school districts, colleges and universities, public and district hospitals, redevelopment agencies, utility districts, and state and local governments expect design professionals to acquiesce. Unfortunately, most design professionals believe the party line and do exactly that. However, contracts can always be changed, even when clients steadfastly tell you otherwise.
Michael Strogoff, AIA, heads Strogoff Consulting, a Mill Valley, Calif.-based firm that specializes in practice management, ownership transition, mergers and acquisitions, and negotiation services to design professionals. Michael is also serving as the 2009 chair of the Practice Management Knowledge Community’s Advisory Group. This article was published in the Spring 2009 issue of AIA Practice Management Digest. For more information, visit Strogoff Consulting’s Web site or send him an e-mail.
Find out what the AIA Practice Management Knowledge Community is up to.
The statements expressed in this article reflect the author’s own views and do not necessarily reflect the views or positions of the American Institute of Architects. Publication of this article should not be deemed or construed to constitute AIA approval, sponsorship, or endorsement of any method, product, service, enterprise, or organization.
I was recently asked by an A/E firm to review an owner-architect agreement given to them by a new client. The agreement consisted of 18 pages describing the A/E team’s responsibilities; 3 pages describing the owner’s termination rights; a largely uninsurable set of indemnifications; a list of certifications and warranties required of the A/E team; and a set of lengthy appendices containing insurance requirements, schedule provisions, and compensation terms. The agreement incorporated by reference the client’s RFP and the A/E team’s marketing proposal. The agreement also described, in 60 words, the owner’s responsibilities:
The owner shall 1) attend all meetings with the A/E team that the Owner determines are necessary, 2) retain a construction manager to manage the project and perform a constructability review, the results of which the A/E team shall incorporate into the construction documents, and 3) promptly notify the A/E team of all claims the Owner intends to submit.
Where does one start in responding to such an unacceptable agreement?
Carefully analyze your client’s proposed agreement
Before reacting, carefully read through the entire agreement and highlight problematic clauses. Try to discern common themes, such as the client’s lack of clarity about the project, confusion about the design professional’s versus the contractor’s responsibilities, or the desire to shift an owner’s responsibilities to the design professional. Do any of the client’s special concerns jump out, such as its funding being jeopardized if the schedule gets delayed?
Next, create a list of the problematic clauses and arrange these by categories. Categories might include Scope of Services, Roles and Responsibilities, Cost and Schedule Control, Insurance and Liability, Dispute Resolution, and Compensation. Keep the number of categories to a minimum—the intent is to gain an overview and coherently organize your concerns.
Take a giant step back with your client
Meet with your client and determine the outcomes both parties want from the negotiation and from the owner-design professional agreement. For most clients, these objectives include: capitalizing on your team’s capabilities and areas of expertise, documenting each party's roles and responsibilities, lessening the workload on your client, helping the client manage its risks, educating each other about your respective goals, establishing dispute resolution procedures, and streamlining the design and construction process. With progressive clients, the outcomes might also include instilling a spirit of cooperation, establishing a constructive dynamic for working through difficult issues; and negotiating fees that reflect the value your firm brings.
Make sure you document this list in meeting notes, a memorandum, or a follow-up letter. You will want to refer back to this list to measure the progress of the negotiation and the agreement revisions.
Put your contract form on the table
Don’t accept the client’s agreement as the only valid starting point. Try pointing out aspects of your client’s agreement that are counter-productive to achieving its goals. For example, a client’s right to withhold fees might compromise your ability to meet an aggressive schedule, or a clause that holds the A/E team partially responsible for job site safety might weaken the client’s defense against a subcontractor’s claim resulting from a construction accident. Then offer your preferred agreement form as a more appropriate starting point. Even if your client refuses to use your agreement form, you can still refer to its content when negotiating specific terms.
Provide a context for your proposed modifications
Simply giving or e-mailing your client a list of proposed modifications is a sure-fire recipe for disaster. Not only will your list overwhelm most clients, it will likely create such an adverse reaction that your client might adopt a “take-it-or-leave-it” stance. Instead, preface your modifications with language such as:
We have distilled our concerns to those that help clarify our respective responsibilities or stem from the following principles that we try to follow in all of our agreements:
- Our A/E team accepts responsibility for actions over which we have control but should be not be responsible for items over which we have no control
- Our A/E team’s liability for professional services should be limited to the extent caused by our negligent acts, errors, or omissions and should be linked to our legal standard of care
- Nothing in the agreement should create or imply any contractual relationship between our A/E team and the Contractor or between our A/E team and your other consultants
- Terms or procedures should not jeopardize our insurance coverage.
Providing such a context increases the likelihood that your client and its advisors will perceive your proposed modifications as reasonable and appropriate for discussion.
Contact the decision makers
Clients that present one-sided agreements often rely on program managers, attorneys, or other representatives to negotiate on their behalf. Let these people know at the onset that you need to communicate directly with your client’s final decision makers as part of the process of responding to their draft agreement. Explain that this will allow you to understand the decision makers’ goals directly and save valuable negotiating time. If you are not successful in meeting directly with the decision makers, make sure you copy them on key correspondence (e.g., your initial response, proposed modifications, and negotiation meeting notes). No one is in a better position than these decision makers to authorize reasonable changes.
Get your insurance or legal advisor to grease the wheels
A single phone call or one-page letter from your insurance agent or attorney to your client can set the stage for a productive and efficient negotiation. Ask your advisor to emphasize both your commitment to the client and the nature of your concerns about the client’s draft agreement. If your client engaged an attorney to negotiate on its behalf, get your attorney or insurance agent to call that attorney directly, but make sure the conversation remains conceptual. Then keep your advisors in the background.
Use the appendices and attachments to make changes
Most corporate and institutional clients view the body of their standard agreements as sacred and will cite every reason under the sun to keep from modifying it. Beat them at their own game. Preserve the body of an agency's agreement and focus your efforts on modifying and/or adding terms to the appendices. An agency's representative usually has more authority to modify an appendix than to make changes in the body of the agreement.
Don't limit your modifications to only what is in the appendices. For example, a schedule provision contained within the body of an agreement that holds an architect liable for damages due to delays can be superseded by inserting language in an appendix such as, “The Architect shall not be responsible for the consequences of any schedule delays stemming from actions not completely within the Architect's control.” Start by listing all of the highly objectionable terms contained within the body of a client's agreement form and then insert neutralizing language in the appendices. Many clients like this approach because it doesn't create a precedent for modifying their standard language.
Obtain copies of recent agreements
One of the easiest ways to determine how much negotiating latitude you have with a public agency is to review its recent agreements with other design professionals. The easiest and least conspicuous way of obtaining these agreements is directly from other design professionals. (Public agencies know what each design professional signed, why shouldn't you also know?) Ask your colleagues from other firms that worked with the same client for copies of their agreements. Tell them to feel free to omit any portions pertaining to fees; your focus is the terms.
If you come up empty-handed, request copies directly from the public agency with whom you are negotiating. With rare exception, agreements entered into by public agencies are public domain. To maintain a low profile, request copies from the city clerk or its counterpart.
Make the modifications easy for the client to incorporate
Some client representatives are overworked, others lack the knowledge or ability to craft complicated contract modifications, and still others lack initiative. To improve your negotiating results, make your proposed modifications easy for them to incorporate. Try to obtain an electronic copy of their agreement and incorporate the modifications yourself, making sure to highlight them for easy review. If you cannot obtain an electronic copy, e-mail your proposed modifications so the client’s represent can easily copy and insert your suggested language. And always provide a cover memo that explains the modifications so they can forward it to others who are involved in evaluating the modifications.
© 2009 Strogoff Consulting. Reprinted with permission.
|
