It's 2018 and everything old is new again. The contract still matters.
You may be surprised to learn how many A&E clients forget the significance of their contracts until they are in trouble. To many, the contract is to be negotiated (hopefully signed) and then stuck in a drawer or saved on the computer, never to be looked at again. Even more troubling are the number of occasions when clients come to us with a legal problem, and we discover that they have not even reviewed the contract prior to the last resort call to their attorney, or insurance carrier, or in the course of their recent dealings with the Owner. It is as if they forgot to review the terms and conditions of their deal before they start to make very important decisions. It is only well after the fact, when they should have pulled out the contract for a review, that they discover one of the following all too common unfortunate results:
- There is no written contract;
- There is a written contract but it was never signed by the Owner;
- There is a signed and written contract but it cannot be located; or
- There is a signed, written contract but it was not followed in ways that are meaningful to their situation such that the A&E professional has now put himself/herself in a vulnerable position
A Written Contract Matters
No matter the project, having a written and executed agreement that lays out the essential terms is critical to making sure that expectations are met as to the scope of services and the fee, which are the two areas that drive most lawsuits.
While it is true that errors or omissions are involved in many/most claims, the vast majority seem to boil down to a more critical basic human emotion which can be summed up as dashed expectations.
For example, Owners who claim that a certain service is a basic service versus an additional service. Or the A&E professional has to suffer through an Owner changing his/her mind over and over and over again, resulting in redrafting of documents. Ultimately, this results in the A&E professional spending vastly more time, a.k.a. money, on a project than budgeted or scoped, which leads to a major problem. All problems are fundamentally financial. It all boils down to money. When someone tells you in a negotiation or when a problem develops that is not about money, it is about the money about 99% of the time!
In some states, like California, the legislature even mandates that a written contract is required in most circumstances. While there are exceptions, the vast majority of situations involving an A&E require a written agreement. A written, executed and "locatable" contract is a best practice in every situation.
Critical Clauses -Back to Basics
There are several specific provisions worth paying extra attention to before the contract is signed:
Scope of Work
It is crucial to carefully lay out what you plan to do for a basic fee and what you will do for additional fees. What you will NOT be doing on the project should be called out in many situations. Understand the challenges of any given project and tell the client early and often about those challenges.
Avoid ambiguity to the extent possible in your description of the scope of work. Clearly define the proposed services and never oversell what you are going to do in the actual contract. Examples of ambiguous terms to avoid include:
• “Provide any and all services required for project completion”
• “Provide complete design services”
• “Provide comprehensive design services”
Warranties and guarantees establish liability even in the absence of negligence, but there are no warranties in most states unless you create one through the language in your contract. Some words to watch out for are “warranty,” “guarantee,” “free of defect,” “assure,” “ensure,” “insure,” “complete,” and “fit for its intended purpose.” A warranty may well be created through the use of these words.
Limitation of Liability (LOL)
These provisions will spell out the maximum amount of damages you will be subjected to in the event of a problem, and are lawful in most states. Ideally, you want to have a limit based on the total fee paid or a set amount, whichever is higher.
• i.e. “Owner agrees to limit A&E’s liability for Owner’s damages to the sum of $50,000 or A&E’s fee, whichever is greater”
• Courts have found that language like “whichever is greater” or “higher of the two” suggests enforceability
• Courts have also looked in the exchange between the parties to determine if there was an “opportunity to negotiate” the clause as opposed to it being presented as a “take it or leave it” ultimatum
At a minimum, insist on limiting exposure to the limits of insurance available at the time of settlement or judgment. Note that limitation of liability clauses are not enforceable in all states.
Make sure your client can pay! It doesn’t matter what the contract says if the client is underfunded or goes bankrupt.
• Establish the identity of the true Owner of the project and any lenders to establish lien or stop notice rights/preliminary notices
• Secure a retainer and signed agreement before starting work
• Do your research; conduct an internet search on the client
• Clearly define when payment is due; 45-60 days or stop work with no repercussions
• Define and discuss penalties for non-payment or late payment, such as stop work, interest, collection, and legal fees
• Don’t work for free!
Some lessons never change and the one that rings loudest is one that has existed for many years. Get it in writing or it never happened! Once you have your contract in place, follow it and consult it periodically but especially BEFORE there is actual trouble. Too often clients come to see us after they have acted and failed to follow the contract. Don’t let that be you! It may be 2018 but the lesson is timeless:
FOLLOW THE CONTRACT!
About the Authors
Megan Lieber, Esq. is an Associate based in the Carlsbad, CA office of Collins Collins Muir + Stewart, LLP. Megan practices primarily in representing design professionals in all aspects of their professional practice, as well as defending public agencies and private companies in litigation, trial, arbitration and appeals. She is a member of the California Bar and active in a number of professional associations.
Brian Stewart, Esq. is the Managing Partner of Collins Collins Muir + Stewart, LLP. Brian practices primarily in representing design professionals in all aspects of their professional practice, as well as defending public agencies and private companies in litigation, trial, and arbitration. He is a member of the American Board of Trial Advocates. He is licensed in California and Illinois and is active in a number of professional associations.
Meet the All Risks A&E Program Team
Sue Harker, Program Manager | 877-334-8786 x4501 | firstname.lastname@example.org
Sue joined All Risks over six years ago and leads the A&E team. Prior to All Risks, she was Vice President of Underwriting at Insight Insurance/Argo, overseeing the A&E, Accountants and Insurance Agents Professional Liability programs. She is known to show up at the office in workout clothes, so she can squeeze in a run or Orangetheory Fitness class. She has also become a Spartan Race addict.
Kim Stone-Vilim, Accountants Product Manager | 877-334-8786 x4502 | email@example.com
Kim has been with All Risks for over six years and assists on the A&E program as needed and is Program Lead for the All Risks Accountants program. Previously, she was with Insight Insurance/Argo and was a practicing CPA. In her free time, Kim enjoys running, working out at Orangetheory and trying new recipes.
Josh Reinert, Underwriter | 610-232-0300 x3216 | firstname.lastname@example.org
Josh has been part of the All Risks team for nine years, almost all of which as an Underwriter for the Architects & Engineers program. Outside of work, he enjoys spending time with his wife, two children and their family dog. He is a die-hard Philadelphia Eagles fan and also spends a lot of his free time taking part in outdoor activities, including snowboarding, camping and hiking.
Lauren Schellinger, Associate Underwriter | 610-232-0300 x3211 | email@example.com
Lauren is the Associate Underwriter for the A&E team. She has been with All Risks for seven years and is located in our Philadelphia, PA office. In her free time, Lauren enjoys going to the beach and spending time outdoors with her dog.
Sarah Heiss, Underwriter | 877-334-8786 x4503 | firstname.lastname@example.org
Sarah has been with All Risks for nearly four years. Previously, she was with Insight/Argo, Travelers/St. Paul and CNA. She has 25+ years of Professional Liability experience. In her free time, she enjoys walking and biking outdoors and spending quality time with family and friends. She also enjoys summer weekends in northern Wisconsin.
Key Features of the All Risks A&E Program*
• Free financing available for insureds with premiums of $10,000 or more
• Free Retirement Extended Reporting Period option for Sole Proprietors insured consecutively with us for seven years
• Free Contract Review through two law firms that specialize in A&E
• “800” Hotline for pre-claims assistance
• Option for Defense Outside the Limit
• Auto Renewal Endorsement for qualified firms
• Contractors Pollution Liability included in form
• Worldwide coverage
• ADA, FHA, OSHA Legal Expense Reimbursement
• Crisis Event Reimbursement
• Disciplinary Proceedings Reimbursement
• Peer Review Reimbursement
• Network Security Supplemental payment
• Mediation deductible credit
• Limitation of Liability deductible credit
*Program highlights and coverages are subject to underwriting guidelines, for illustration purposes only, and are not to be considered a contract of insurance.