It should be no surprise to any design professional that the number one way to manage your professional risk is to insist on having a well-drafted contract signed and in place before starting work on any project, no matter how small the project. Yet, time after time, we handle claims where there is no signed contract. Sometimes, the architect or engineer sends a short proposal which is ignored, but many other times, there is nothing but a few emails. Often, these are small, last minute requests that seem harmless. Nothing can be more frustrating to an architect or engineer than to get sued over $500 of work, yet it happens all the time. It is important to implement a policy in your firm that no work will be performed unless there is a signed contract in place first. If the job is small, it doesn’t have to be a long AIA form. You can adopt differing forms depending upon the dollar value of the project and associated risk. But you need something.
The contract needs to be well-drafted. Does it need to be prepared by an attorney? Frankly, it would be wise to spend a few dollars having an attorney review something you plan to use day after day to manage your risk. But, if you cannot afford to have an attorney review your standard form contracts, here are 7 key provisions that you should consider including in your standard form:
- A well-defined scope of services. What specifically is it that you are going to do and even more importantly, what services are you not performing?
- The standard of care that applies to your services. It is not the best, the most fabulous, highest, or anything similar. You are going to perform the services with the same care and skill as other similar design professionals who perform similar services in the geographic area of the project.
- A limitation of liability. This can be a dollar amount or it can be a limit equal to the contract price. It is important that the limit not be tied to your insurance limits, however. The insurance policy may not pay the claim because of an exclusion or limitation.
- An exclusion of incidental and consequential damages. You do not want to pay a developer’s interest on his bank loan or potential lost profits because the project was delayed.
- An exclusion of implied warranties (in South Carolina you impliedly warrant your plans and specifications) so exclude all implied warranties including any implied warranty of fitness of the plans and specifications.
- Mutual indemnity, but only for claims of third parties, and only to the extent that you were negligent. Remember that your professional liability policy covers negligent acts, errors and omissions, not your breach of contract.
- Payment provisions that permit you to terminate the contract when payment is not made promptly. This goes without saying, but the termination provisions in your contract must allow you to terminate the agreement for cause if payment is not made on time.
Each of these provisions needs to be clear and well-written and preferably reviewed by more than one person before it is sent to your client to sign. If you need legal help or review of your standard contract forms, the attorneys of Gibbes Burton would be glad to help you.