RLI DESIGN PROFESSIONALS Design Professional Learning Events DPLE 103 How to review a contract Part two RLI Design Professionals is a Registered Provider with The American Institute of Architects Continuing Education Systems. Credit earned on completion of this program will be reported to CES Records for AIA members. Certificates of Completion for non-AIA members are available on request. This program is registered with the AIA/CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement by the AIA of any material of construction or any method or manner of handling, using, distributing, or dealing in any material or product. Questions related to specific materials, methods, and services will be addressed at the conclusion of this presentation. Copyright Materials This presentation is protected by US and International Copyright laws. Reproduction, distribution, display and use of the presentation without written permission of the speaker is prohibited. © RLI Design Professionals Learning Objectives • Managing important contract provisions • Preparing the contract review summary • Establishing contract review do’s and don’ts • Identifying contract review resources Objectives and goals of the contract review • • • • • Understand the ground rules Identify expectations and responsibilities Identify possible barriers to achieving profit targets Identify time factors Identify exposures to loss especially uninsurable provisions To achieve one primary goal: PROTECT THE ASSETS OF YOUR ORGANIZATION Important provisions • • • • • • Scope of Services Schedule & Delays Payment Changes Cost Reliance on information furnished by Owner • Permits and other approvals • Standard of Care • Compliance with laws • Indemnification • Insurance Scope of services provisions • Avoid broad scope statements in the general terms & conditions • Delete phrases such as, “any and all services necessary” Owner services and responsibilities • Pay you for services performed • Give you all information you need about the project • Designate someone as a representative Payment provisions 1. Specify when and how you are going to get paid 2. Invoice process is understood 3. Payments should not be contingent upon other financial events 4. Owner’s failure to pay in accordance with the terms of the Agreement is considered substantial non-performance 5. Waivers of Claims should be limited to waivers of claims for payment only 6. Right to charge interest on unpaid amounts Schedule and time of performance • Milestone Dates • Allow for extensions resulting from reasonable circumstances • Must recognize factors beyond your control and relieve you of liability for delay • Must accommodate for review and approval time • Avoid “Time of the Essence” provisions • Avoid provisions that impose a strict completion date Schedule provision Consider a provision along the lines of the following: The Design Professional shall perform its services under this Agreement in accordance with and consistent with the mutually agreed upon project Schedule. However it is recognized that the Design Professional shall be entitled to exercise independent and prudent professional judgment in accordance with the generally accepted standard of care in the performance of such services. Change provisions Careful review of the various different contract clauses relating to change is critical. These clauses are: 1.Changes to your firm’s Scope of Services 2.Change orders during the construction phase 3.Changed conditions (differing site conditions, unforeseen conditions) Changes to Scope of Services 1. Clearly explains the process by which change in scope is handled 2. Changes in scope may not proceed without written change order, written approval from your firm and client authorization 3. Client should not have unlimited rights to change your scope without your approval 4. Provides for appropriate compensation. Change to Scope of Services • Is there mutual agreement required? • Does the agreement delineate the factors that define a change in scope? • Are you entitled to additional compensation for changes in factors beyond your control or through no fault of yours? Change orders 1. 2. 3. 4. 5. Not required to be perfect Use a contingency Standard of Care Change Orders do not equal negligence Only if increased cost due to your negligence Changed conditions 1. Additional services and/or additional time to respond to a changed condition should equal additional compensation and/or a schedule adjustment. 2. Changed Conditions are often beyond the control of the design professional. 3. At times, unforeseen field conditions require a renegotiation of the firm’s scope of services. Cost provisions • Your estimate is just an estimate • Your estimate is not a warranty or guarantee • Many factors beyond your knowledge or control • Include contingencies • The estimate and budget subject to revision if not out to bid out after a certain amount of time • What happens in the event bids exceed the budget • Compensation for redesign Reliance on information furnished by Owner Your contract must include your right to rely upon the accuracy, completeness and technical sufficiency of information or services furnished by the Owner/Client or others through the Owner. Unforeseen conditions Additional services Review of existing conditions as an Additional Service subject to its own Scope and Schedule. Permits & approvals • A/E’s responsibility is to assist Owner with its responsibility to apply for permits • A/E cannot guarantee the amount of time required for review and approval • Schedule must contemplate review times • Schedule can be extended due to delays in approval by Owner or others Standard of care 1. Require your firm to perform to the highest standards in the profession or even worse are a warranty or guarantee that your firm will perform to the highest standards in the profession. 2. Uses words such as best, highest, first class, workmanlike manner 3. Uses wording such as “to the satisfaction of the Owner” or “in the sole judgment and determination of the Client” or “most economical manner consistent with the best interest of the Owner” Standard of care The Design Professional shall perform its Services under this Agreement in a manner consistent with the level of professional skill and care ordinarily exercised under similar circumstances by members of the A or E profession at the same time and in the same locality. No warranty or guarantee either express or implied is made or intended by this Agreement. Compliance with laws 1. In accordance with those laws etc. referred to as “Laws” applicable to the project 2. In effect as of a certain date 3. Any changes required of your firm after that date is an Additional Service 4. Avoid words such as, “each and every”, “any and all”, “strict conformance”, “strict adherence”. These words can create an express guarantee of compliance 5. Based upon performance in accordance with the generally accepted standard of care 6. Entitled to exercise independent professional judgment Compliance with laws The Design Professional shall perform its services in accordance with the generally accepted standard of care in compliance with those laws, codes, regulations or ordinances which are applicable to the services being performed and the project and which are published and in effect as of the date (the services commence: the date the Owner approves the Construction Documents). Indemnification provision 1. Review it carefully 2. It should not be the only provision you review 3. Limit to the liability of the owner for damages resulting from your firm’s negligence 4. Should not obligate you to defend the client before any determination of liability Indemnification provision The Design Professional shall indemnify and hold harmless the Owner, its officers and employees from and against all claims, damages, liabilities, losses, costs and expenses (including reasonable attorney’s fees) but only to the extent arising out of the negligent acts, errors or omissions of the Design Professional or of those for whom the Design Professional is legally liable which result from the Design Professional’s performance of its professional services under this agreement. Insurance provisions • The limits of liability – can you meet the requirements? • Can we get reimbursed for the additional premium? • Other than the limits of liability does my coverage satisfy the requirements • Are there any unreasonable time periods that I must keep the coverage in effect? Insurance provisions • Are there any other provisions that create a possible breach of contract exposure? • Am I required to name the Owner as an Additional Insured under the professional liability policy? • Are there any provisions that are simply not commercially available? Contract review summary letter to client • Clear, concise identification of the provision(s) at issue • Reasonable wording for modification that takes into consideration your client’s interest as well as your own • Prepared in a manner that takes into consideration what is in the best interest of the project This concludes The American Institute of Architects Continuing Education Systems Program Laurel Tenuto, Client Risk Management Coordinator Laurel.Tenuto@lrlicorp.com Barbara Sable, Director, Professional Enterprise Risk Solutions Barbara.Sable@rlicorp.com Thank you!