Your engineering company has been invited to participate as a member of a Design/Build team as a Consultant on a large infrastructure project funded by a new tax. The Design/Builder is comprised of a joint venture between a large national general contractor and a regional design entity. The Design/Builder is awarded a Design/Build Agreement by the Owner and the team has a celebration party. Your company is excited about the new job, until the proposed Consulting Agreement lands in the office.
The contract includes an incorporation by reference clause. That clause states that “Consultant shall perform its services in strict accordance with the Design/Build Contract, which is incorporated herein by reference”. You recognize that this type of clause may have some limitations and not incorporate all the provisions of the Design/Build Agreement, but only those relating to the performance of the consulting services.
However, to be careful, the Design/Builder also includes a “flow-down clause” which states that: “Consultant assumes toward Design/Builder all of the obligations and responsibilities that Design/Builder assumes to Owner in the Design/Build contract”. You recognize that this clause exposes your company to all of the risks that the Design/Builder is willing to accept given its assessment of potential profit to be made from the Project and its contingency, which is a lot more than your company can build into its budget.
To be even more cautious, Design/Builder added: “Design/Builder shall have the same rights and privileges as against Consultant herein as Owner in the Design/Build Agreement has against Design/Builder.” Now that gives you even more pause for concern. The Owner included a “no damages for delay” clause in the Design/Build Agreement. If the Design/Builder causes a delay because of its failures to properly coordinate and manage the job, you are not going to receive any additional compensation, but only an extension of time.
If you are a consultant, how to do you handle this proposed consulting agreement which includes these provisions? First, you argue that none of them should be included in the contract and that the Consultant Contract should include all of the terms and conditions agreed to between the contracting parties so that the Consultant can properly identify and address its scope of services and potential risk. You need to know and understand what issues the Design/Builder is concerned about and not just accept everything and the kitchen sink.
Second, if that argument is not successful, then you must ask the Design/Builder to identify the specific terms that it wishes to incorporate because many terms that apply to construction – like the standard warranties that the Work shall be new and free of defects – simply do not apply to professional services. Figure out which ones the Design/Builder is concerned about and address each directly. You can include a “flow down” provision in the contract that specifies which provisions are going to flow down to your company.
Finally, if the Design/Builder simply insists that all of the risks it assumed toward the Owner should be imposed upon an engineering consultant, it is time for you to walk away. Unless the consulting services are a substantial portion of the overall Design/Build Services, it is impossible for a consultant to include sufficient profit and contingency into the Consulting Contract to adequately cover this risk.
If you need legal advice concerning a design or construction issue, please contact the attorneys of Gibbes Burton, LLC at (864) 327-5000.