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Key Contract Provisions
The contract outlines the roles and responsibilities of the parties. Contracts are also used in determining the obligations and defenses a design professional may have when a claim has been filed. It is important to develop standard terms and conditions for your firm, and attach them to every proposal.
Here are a few suggestions to consider for your standard terms and conditions.
Standard of Care
State that the professional services performed under the contract will be consistent with what any reasonable design professional would provide under the same circumstances, in the same time frame and in the same jurisdiction. State that no other implied or express warranty is made concerning the professional services performed under the contract. Consider a term that requires your client to provide a certificate of merit affidavit from a professional practicing in the same discipline and identifying the specific breach of the standard of care, prior to submitting a claim to you.
Limitation of Liability
Any professional firm that continually accepts unlimited project risks can eventually expect huge losses and, perhaps, financial disaster. To make matters worse, in some circumstances, a firm's principals could also face personal bankruptcy. You need to balance your loss exposure in proportion to your expected financial return and insist that most of the project's risk remains with the party who stands to profit the most - the project owner. Manage your risks by placing Limitation of Liability clauses in all your contracts. Client would agree, to the fullest extent permitted by law, to limit the liability of the Consultant to a total aggregate amount. This can be your fee, a precentage above your fee, or at a maximum your insurance limit available at the time of a claim.
Indemnification
Of all the provisions in an agreement for consulting services, indemnities have the most far-reaching liability implications. They are also the most difficult clauses to negotiate, especially if a client, or their attorney is not inclined to be reasonable. Indemnification, or hold harmless, is an agreement to assume a specific liability in the event of a loss. It may mean a shifting of risk from one party to another. When a consultant indemnifies a client, you may be taking some of the client's potential or actual legal liabilities. Remove "duty to defend" wording and watch for "all" claims, damages, losses, etc. Your indemnity obligation should be tied to negligence in the performance of services consistent with the standard of care.
Payment Terms
Spell out when payment or payments are due. Clearly identify the milestones that trigger payment. Identify when late charges or interest starts. Owner obligations: Identify the information the Owner is required to provide including a project budget; project information including surveys and title information; geotechnical reports; environmental reports; any financial, time, environmental, zoning or political constraints. Basically, identify all the information you will need to begin the project. And expressly provide when this information is to be delivered to you.
Termination
Always include a termination clause, which includes termination for cause - including non-payment; termination due to suspension of the project, termination for convenience or no cause.
Waiver of Subrogation Rights
Require all parties to the contract to waive subrogation rights against the other. In that case, to the extent an Owner is reimbursed by insurance (or can be reimbursed by insurance), neither the Owner nor his insurance carrier can recover from you.
Waiver of Consequential Damages
Include a clause where the Owner waives consequential damages in the event of a claim. A waiver of consequential damages might protect against claims such as delay damages for late completion of the project, loss of use, lost profits, and increased interest charges.
Dispute Resolution
Always include a method to resolve disputes between the parties. More than 95 percent of all lawsuits involving design firms professional liability are settled before they go to trial after years of legal maneuvering and mounting legal fees. Beginning the process with good faith negotiation is the best first step. If the parties cannot come to an agreement, non-binding mediation is next the step attempting to resolve a claim. Include a time period for mediation to occur prior to litigation - but one that gives you enough time to investigate the claim; e.g. 45 or 60 days. Litigation would be the last, and most costly step if the parties cannot come to an agreement.
Many design firms successfully use contracts containing these terms, or are able to negotiate something acceptable with these terms as a starting point.
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