In an earlier post, we noted that without proper care, the contents of a proposal may be interpreted to be part of a contract for work (see “All Puffed Up…Proposals Can Bite Back”). To avoid this, your contract must be very explicit that there are no other documents which pertain to your professional services other than your contract. In addition, work should not begin without a signed contract in place which prohibits the Owner from relying prior marketing material. In the “Puffed Up” case, the contractor worked for months without a signed contract in hand.
Puffing has its place in presenting one’s qualifications and expertise; however, this puffing tends to accrete over a period of time, from one proposal to the next gradually ramping up the hype and hyperbole to extreme levels. Take care to review proposals for promises that are over the top.
In addition, and in no particular order, the following contract terms, conditions and provisions should be carefully vetted and included in any contract for professional services:
- A written contract should be in place on every project – large and small. Standard terms and conditions should be attached to every letter agreement even if it is just a one page “greatest hits” set of conditions.
- The professional standard of care: the ordinary degree of skill and care that would be used by other reasonably competent professionals of the same discipline under similar circumstances. You should explain the design professional’s standard of care as being more like that of a doctor or attorney where perfection is not guaranteed. .
- The Statute of Limitations for bringing an action for professional negligence against the design professional is 10-12 years. 10 years from the date of substantial completion or 12 years from the date the plans are delivered to an Owner. Important file documents should be kept at least 12 years:
- Plans & Specifications
- Memos to the file (CAUTION: Field notes, meeting minutes and emails can be double edged swords. It is important to understand that these are business records. Informal and reckless comments should be avoided in the event they are required to be produced in litigation.)
- Hazardous materials. The Owner should be responsible for all hazardous materials at the site. If the contract is silent, the design professional could be held responsible for their proper handling and disposal.
- The Owner should hire the geo-technical firm and the design professional must be able to rely on the contents of geo-technical report provided by the Owner.
- Ownership of instruments of service. There is significant arm wrestling over this term in most contracts. The Owner should be provided a license to use the design professional’s plans and specifications. If ownership is required, the copyright should not be transferred until design professional is fully paid. Written consent to reuse any part of the plans and specifications by Owner should be required. Also, it is wise to define the deliverable products to be provided to the client as the “instruments of service” under the contract so that everyone is clear on what is to be produced and transferred to the client.
- Additional insured status. Design professionals should be added to the general contractor’s general liability insurance as an additional named insured along with all your subcontractors. This is typically done without cost.
- Mediation is often required prior to the commencement of litigation or arbitration. It is non-binding, quick and cost effective. 85% of all cases submitted to mediation are settled that day.
- Limitations of liability, waiver of consequential damages. It is quite reasonable to limit the design professional’s liability to the amount of the fee involved or some other given amount. These limitations are enforceable in Indiana.
- The engineer should have the right to terminate services in the event payment is not received in 90 days.
- Insurance requirements. Always a good idea to have a contract’s insurance terms reviewed by your insurance agent or broker.
This article is not intended to be a definitive discussion regarding the complexities in drafting a professional services contract. Instead, we hope it begins a discussion and planning analysis. To continue a discussion of the issues presented in this article, or if you are facing a dispute now, please contact Greg Cafouros (firstname.lastname@example.org), Brian Bosma (email@example.com), or Syd Steele (firstname.lastname@example.org ) or any of our attorney’s here. It would be our pleasure to assist you.
 Most would agree that there is no such thing as a “perfect” set of drawings. In fact, the insurance industry estimates that the average negligent and non-negligent errors and omissions on a new construction project is 3% to 5% of construction values. For a renovation project it is in excess of 15%, and for design build and fast-track projects this can climb well in excess of 25%.
 A recent hotel case resulted in an owner recovering only $50,000.00 from the structural engineer for a $5 million error because of the limitation of liability clause in the engineer’s contract with the Owner.