10 _Must-Have_ Contract Clauses ‘Your survival in the marketplace may depend a5 ‘To help you build a beter contact, the Design much on effective risk management as anything else. Professional group of the XL Insurance companies ‘And a key ingredient in managing risk is having the has compiled this overview of 10 clauses we con- right professional services contract in place. A sider _must-have_pars of every contract. strongly worded, legally enforceable, writen contract can spell the difference between a great project with a elient who_s likely to work with you ‘again anda project you Of course, this document, while mean a a quick Per sks eal uid, i inno way intended as a substitute forthe il XZ. Inowance ‘Contract Gulde for Design Profisionls: Rk Management Handoo for “rchitects and Engineer, valable exclusively (0 ‘Contract language should payment (e., interest, collection costs) and your rights in the event of non-payment (¢.8., | ‘suspension or termination of services). “The more precisely you define and adhere to you payment terms, the more likely itis you, be paid | prompty and avoid fe-eated daputs, Such disputes are often disagreeable and can even lead {othe loss of future work from the same client. ‘Language that would permit your client to withhold payment of disputed invoices. ‘One ofthe most effective payment collection devices is to withhold submission of the client_s ‘documents for plan check or permit approval or for use by the client until you are full paid. ‘Your contract should never promise to assure the total accuracy of something | subcontractor_s HVAC installation) or confirm absolute compliance with a compliance. | cover breach of contractor waranty, the assumption of someone els. ibility or a promis to | Perform to a standard of care higher than legally required. The smallest error, whether caused by | your someone else, could lead oa claim of bresch of waranty erecta smb more eeeieageae | San Other terms that, in effect, guarantee, such as all, every, _insure,__ensure,__assure, _state_or | — You ean substitute contrac language that reduces your risk, doesn_t jeopardize your |” profesional bili nsurance coverage and answers your int sconces. | _Centfcnions, warranties and guarantees may also be found in the fine print of clients10 MUST-HAVF_CONTRACT CLANISES. > ‘Your contract should include a Waiver for Consequential Damages, those indirect expenses (eg, loss of profit) that are remotely connected toa design professional_s failure. This should include a provision that makes fear WHAT _patneither you nor you client wil be held responsible fr consequential damages because of any alleged failures by either party, {you ate to beheld responsible for consequential damages, you could be sued for damages totally out of 2% ‘Proportion to your fe or grossly exceeding the cost of repairing the actual damage. Receer _| Ay enemas ne ended contrat tt woud make you apni i consequential damage ~ Hyour contract remain silent about consequential damages, you can sil be sued for them, von r | Ame saqaseicierans eset eam cei entra FoRGEr | consequential damages. Be sure your Limitation of Liability and Consequential Damages clases are coordinated with each other, ‘our contract should include a Jobsite Safety provision that makes clear that responsibility for site safety and ‘construction means and methods remains with the contractor, not the design professional - ‘Agsuming any responsibilty for safety programs and safety procedures, either by contactor by your actions, can wHy have serious economie consequences, ‘fry Jmmauage that calls for your supervision_on a jobsite, or any extreme contract language that calls for you Dont | '© Assure strict compliane_with plans and specifications orto provide services beyona the ata] ACCEPT | stdard of care. Delete any clien-provided contact claus tha gives you contro or sharge ofthe contractor, ‘including the authority to stop work. — What you say and do during the project could change the terms ofthe contact. oe — You cannot ignore your duty as a licensed professional to step forward in the face of imminent threats to life or safety about which you are aware, contractual language of exoneration notwithstanding, Include in your contract a Limitation of Liability clause, an agreement between you and the client to establish the WHAT, ‘maximum liability you willbe responsible fr if there is a claim by the client on the project, Php rnc Sate es ld poet ican eal expecta es nd way Perhaps financial disasier. An LoL allocates a projects risk in some reasonable proportion to the profits and other ‘benefits to be derived by each party. mT ‘Asa general rule, any contract without an LoL. (Some exception are projects for public entities, which almow a never agree to an LoL.) Also, don_t use & preprinted lability cap in your agreement, as it ‘weaken the premise ACCEPT | that the clause was negotiated. om ~ fou may have more success in obtaining «Limitation of Liability from your client if you use a preprinted form DONT {3 contains an LoL provision witha lank space you can use to speciy the lability cap. FORGET | — Be sure to select a limit tht is meaningful (e.g, an amount tied o your project fees) and takes into account ‘tential damages on projec.WHAT DONT ACCEPT 10_MUST-HAVE_ CONTRACT CLAUSES 3 “Mediation is an approach to dispute resolution, typically voluntary, that helps disputing partes reach agreement ‘among themselves, thus maintaining or reopening their communications. Your contract should include a clause that calls for mediation asthe first step in settling disputes. Litigation and arbitration proceedings can be both expensive and time consuming, cuting into a frm_s billable hours, hurting morale and lowering productivity These adversarial processes can also destroy lient-consultant relationships. ‘A contract that doesn_t call for mediation as the first step in dispute resolution. Otherwise, you. have a dificult ‘time convincing a client to use mediation when the two of you are in the middle ofa dispute, SS Mediation has a remarkable track record especially when employed a the appropiate tage ofthe dispute. The average rte of settlement in medited cassis nearly 85 percent ‘The scope of services i a detailed description of those services you will provide tothe client, those you ean ‘provide for an additional fee and those you will not provide. It shouldbe as precise and complete as possible. It WHAT ‘should leave no ambiguity or question as to whether or not some duty or deliverable item is included within your basic fee. Unless your scope is carefully defined, you may not beable to differentiate included services from extra services way ‘not contemplated in your basic fee. This makes it difficult to charge for any additional services you are required to perform. ‘Any client-drafted clauses that ask you to agree (or even certify) that the scope of services proposed will be DONT | adequate to meet the project needs,_that you will _provide any and all professional services necessary for ACCEPT | completion ofthe project_or similar sweeping language, a | DON_T | Detailed checklists of all potential services can help you avoid overlooking scope items. You can use the scope FORGET | of services lists in the AIA, ESCDC or other professional association agreements, ‘Your contract should include a clause that affirmatively defines the standard of care to which you will perform. ‘The standard of care for design professionals requires only that you perform your services withthe degree of skill WHAT | and care ordinarily exercised by other members of your profesion under similar circumstances, atthe same time and inthe same ora similar locale. Any contact language that secks to rise your standard of care increases your risk. Your professional lability way {insurance will not cover you for this inereased exposure, since it represents an assumption of addtional liability {for which you would net otherwise be responsi ‘A client_s contract language that requires you t_perform to the highest standard of practice, Nor should you DON_T _| seeePt broad or ambiguous language such as _approprate_or_necessary,_or provisions that would have the ‘ACCEPT | ‘lint making o unilateral determination as othe performance f your services, such a8 tothe satisfaction ofthe Cient_or_in the Clients sole judgment, DON_T "Nowhere in the Standard of Care doctrine or definition is there any mention of _perfecton,_0._MUST-HAVE_ CONTRACT CLAUSES 4 ‘Your contract should include a termination clause that defines the circumstances (e.g, nonpayment of fees) WHAT | under which ether party may end its legal relationship and, depending on who initiates the action specly the Figs that each party as when the termination occurs. ‘A contract that doesnot adequately adress the subject of termination is en invitation to a dispute, Reasons you wry | mty want o terminate icine: client_s breach of any material condition, inability to reach agreement on eional services, changes inthe pres or subtantlly changed conditions ReMi | Language thar permis only the client to terminate o that transfers the ownership of documents, — Your frm wil neu substantial shutdown costs i you are terminated prematurely fom a project 0 which you DONT ave heavily commited your resources. FoRGET | - You might prefer to have he option o temporarily suspend your services and keep te contract in fore uti the client cures the breach. 1f your negligence damages others who reasonably and foreseeably could have been damaged, you may be liable wHy to them. In most jurisdictions, they would not need a contract with you in order to file a claim and win, DON_T | A contract that doesn_t addres the issue since, inthe absence of sucha clause, a court may follow what it ACCEPT | believes tobe precedent or itmay make new law based on its preilcions ‘The legal obligations of design professionals to third parties are difficult to interpret. Parties to a contract can DONT | esablish many of ther own rules to guide Judea interpretation. As with al conact sues, however, be sre to consult with your attomey and insurance agent or broker. . contract review A carefully conducted at the start of a projectTHE WORK GOES ONG ‘Ata groming frm such as yours, there never seems to be enough time to keep up with all the risk man- agement best practices and industry information that can help you continue to succeed, That_s why the Design Professional group of the XL Insurance companies offers our policyholders a fll menu of online educational resources: __Loss Prevention Library: Documents in PDF format offer invaluable advice on topics ranging from client selection to establishing contract. protocols. Profesional Liability Education Program (PLEP): Core and elective course offerings that «an be selfedministered by individuals or ‘g70ups. Topics include contract review, project forms and checklists and improving your negotiation strategies. Contract Guide Training Mods ‘Downloadable management training exercises ‘based on content from the XL Insurance Contract Guide for Design Professionals ‘Examples include a primer on professional services agreements and a training module on eal makers and deal breakers. _-Loss Prevention Publications: Downloadable ‘ractce management newsletier, trend alerts And articles that help design professionals ‘revent claims and reduce their costs of loss. ‘You may also want to learn more about our Small Firm Program, an innovative program geared tothe rofesionaaily insurance needs of rowing ems. Vist www sidp.com ____tofind out how you may be able to take sdvaniage of our expertise while also saving on your premiums. MUST-HAVE, CONTRACT CLAUSES 5 Hiere_s what one design professional had to say about the power and convenience of our educational resources: __I.don_t have the same challenges of large firms; 1 don_thave the same type of need as larger ‘corporations. When I understand where the risks li, | can monitor the things that my business needs to avoid, I don_t have a staff to help manage me ‘manage risk; I only have me and I rely on my agent to deliver the risk management information XL Insurance provides. Basically for me it_s keeping up withthe legal aspects of liability concerns. Taking XL Insurance Loss Prevention courses and attending thei loss prevention seminars presented by my agent definitely helps me understand the issues, Then I can figure out how NOT to get into dificulty_I can foresee problems_ that helps me avoid them. Sukumar B. Patel, SPI Engineering svar Company Lite Canaan Be DME INSURANCE 30 Ragsdale Drive