Contracts Flashcards
Actions contrary to designer’s recommendations
Level 1. You should not be responsible for actions or decisions made by the owner, contractor or any other party that are contrary to the advices and recommendations you have made for a project. This lack of responsibility should be communicated to the client. However, you should also be aware that if this contrary action relates to issues related to Health, Safety or Welfare of the general public, you may have a duty to advise the client that you may have to go further, and report any such deviations that do not meet code regarding HSW issues.
Adequacy of Insurance Limits for Subs
Level 2. If you are the prime designer, we normally recommend that for certain disciplines such as AR, ST, CV, GT, you require at a minimum the same levels of insurance that you are required to carry.
Addendums/Exhibits
Level 2: Frequently, addendums and exhibits restate clauses already existing in the contract. In order to achieve clarity of understanding, any time this occurs and the wording between the two clauses are different, there should be a notation indicating the clause in the contract is “deleted and replaced by” the wording of the addendum/exhibit. If not a complete restatement, then the addendum/exhibit should explain its intent to “modify” the intent of the entire document.
Additional insured
Level 1. Compliance: Additional insured status is only allowed on Auto, GL and form following excess policies
Additional Insured (PL)
Level 1: There are no additional insureds allowed on the professional liability policy.
Additional Insured (Other lines)
Level 1: There are two conditions. 1) The coverage must be primary and non-contributory and be on a blanket basis. 2) The contract must be signed by both parties.
Additional Insured (Contractor’s GL)
Level 2. Whenever possible, you should approach the client/owner to request that the contractor include you as an additional insured on the contractor’s GL policy.
“Agents, assigns, affiliates, members, representatives as “additional insureds” or “indemnitees, or any other party requested.”
Level 2. We believe that this is an excessively broad range of “indemnities,” which can be expanded post-loss to a point where you owe duties to everyone on the project. Therefore, there should be a caveat that the agents be “named or identified,” pre-loss, or the word “agents, affiliates, members” be deleted. Even if your GL and Auto policy include a “blanket insured endorsement,” you still want control of those able to advance a claim under your policies.
Alleged claims
Level 1: Your duty to indemnify should be for claims to the extent the damages are caused by your negligence. Alleged is a backdoor manner of getting a defense obligation.
any, all, fully, completely, but not limited to, without limitation, of any kind or nature whatsoever
level 3) are examples of absolutes or warranty, and are identified in the documents. We may not separately address them as they appear, but this discussion is applicable to all the references. There are also words and/or phrases which create potential coverage issues by raising the standard of care or expanding the scope of services beyond the scope intended under the contract and your perspective of the scope as well. While it is our recommendation that these words and phrases be deleted if possible, we believe these potential exposures to be second tier concerns, which can be conceded in the hopes of negotiating other contract provisions which creates more direct coverage issues.
Level 1. When it comes to insurance coverage or provisions, these words and phrases create significant compliance issues. Every policy has terms, conditions, endorsements and exclusions that limit coverage. Therefore, no coverage can be unlimited.
any act, error, omission or breach
Level 2: You should only be responsible for “negligent” breaches, acts, errors or omissions. Anything above that is above the standard of care.
any and all laws, codes
Level 2. It should be understood that the only codes which apply to your work are those codes which were in effect when the plans and specifications were presented for permitting. The use of “any and all” could conceivably make you responsible for codes which change after the permitting process and bar you from collecting any additional fees for a material change in the contract. Also, conformance with all codes could be construed as providing services above the standard of care, which is a coverage issue.
Insert “applicable” where indicated. Changes in code after the project has started or different interpretations of the code after permitting should be considered “additional services.”
Future codes: Often, current codes are subject to multiple interpretations; therefore, when mention is made relative to future codes, it is difficult to discuss compliance since the interpretation of the new code could be significantly different based on subtle wording within the final drafting.
Arbitration or binding dispute resolution techniques
Level 3. These types of dispute resolution techniques can be as time consuming and expensive as litigation without the benefit of the rules of evidence or appeal. Again, it is preferable to avoid leaving the fate of your firm with one person.
Arising out of or resulting from, related to, based on, or in connection with, attributable to
Level 1. Claims arise from multiple causes, and given the fact it is your design that is being constructed, you can always be brought into the dispute even if your work is negligent-free. Using the “but for rule,” you can be dragged into a litigation because the claim would not have occurred “but for” your design. Recent case law would suggest that this “arising out of…” language is comparable to the defend obligation. We would prefer you use the language “to the extent caused by…”
As-Built Drawings
Level 3. Be advised that the contractor is the one who should be supplying such documents. The designer should be providing “Record” drawings, which would be a synthesis of their personal observations in conjunction with the contractor records. This more accurately describes what your role is in this function.
Assignment of the contract to a third party
Level 2. There are four issues that need to be addressed:
1) Transferee must have comparable financial standing and ability to pay for services provided under this Agreement.
2) You have the right to terminate the contract if the assignee is unacceptable.
3) You should retain ownership rights until project is completed and you are paid so as to ensure you have control of documents if contract assigned.
Relative to item 3, what if the party to whom the transfer is granted has a bad history with your firm? You could be stuck in a bad scenario.
Assume all duties and obligations (Subconsultant)
Level 2: Your duty to all parties is to perform your work “to the professional standard of care for the scope of services assigned to you under the agreement.” These are the only duties you should be assuming. You do not assume all of the responsibilities for the prime designer since their scope of services is much broader than yours. Therefore, a statement should be added to indicate your duties and obligations are “confined to the scope of services as described in this agreement.” Also, you will have to be careful relative to any warranties or guarantees offered under the prime contract as those would not be covered under your Professional Liability policy.
Assume all duties and responsibilities (Design-Build)
Level 1: This is significant because the Design-Builder assumed duties and responsibilities for which you should have no involvement: ex: warranties, guarantees and certifications relative to the work itself; means, methods, techniques, installation and sequencing of the work; jobsite safety. You should specifically have no responsibility for these issues. Therefore, it is imperative that you include language in the contract which states: “Designer will assume those duties and obligations described in the scope of services of this Agreement.” There should be specific attestations elsewhere in the contract that Designer not responsible for warranties, guarantees, certifications; means, methods, techniques, installation and sequencing of the work; jobsite safety. Also, you will have to be careful relative to any warranties or guarantees offered under the prime contract as those would not be covered under your Professional Liability policy.
At Designer’s sole cost
Level 2. Argument could be made that at designer’s sole cost means the designer the only party responsible. This can be especially difficult in design build, or if the contractor and owner relationship is concerning. It is recommended that the wording read, “at no additional cost to the Owner.”
Audit requirements
Level 2. If you are required to reimburse the Owner for “overcharges” or pay for the audit costs, or reimburse, plus:
1) payment for the audit itself
2) coverage will not apply to the return of fees or the interest since it is considered a return of fees.
From a risk management perspective, you should take certain precautions to ensure the audit is a fair and equitably exercise. We recommend the following:
1) You have the right to reject the selected auditor
2) You are involved in the drafting of the directives for the audit.
3) There are no ex parte meetings between anyone and the auditor. (You, owner and auditor should all be meeting at the same time.)
With the special interests groups watchdogging public projects, this may become even more vital.
BIM Modeling
Level 2. When it comes to BIM, you can allow the client to keep ownership of the BIM model itself, but recommend that you have a cutout for your own work, especially your standard details and inventions or developments.
Budget of Project
Level 2: If you are being provided with a requirement to guaranty the project budget, there should be a disclaimer for fluctuations in the cost of materials and labor. It should be understood that the prices fluctuate based on the cost or availability of materials or skilled labor, and that is something over which you have no control.
Builders Risk/Performance Bond/Payment Bond/ Surety
Level 1: The insurance requirements call for you to have Builders Risk and Performance or Payment Bonds as well as sureties. These are coverages or financial instruments that are normally purchased either by the Contractor, and in the case of Builders Risk coverage, by the owner. You as a designer may not even be able to purchase these instruments, which could result in a determination of non-compliance with the insurance provisions.
Carrier licensed in the state
Level 1. Compliance. The proper term for this is “Admitted.” Companies are either admitted or non-admitted.
Certified Copy of Policies
Level 2: This is not so much a coverage issue as an issue of time and effort. The process involves an executive level representative of the insurance company reviewing the contract for certification. Often these representatives are not available for long periods of time, and do not proceed with urgency unless the certified copy is necessary for litigation support. From a reasonableness perspective, a copy of the Certificate of Insurance along with applicable endorsements should be adequate for the needs to the client.
Change in applicable law or subsequent contradictory interpretation of law
Level 2: Within the professional standard of care, the laws to which a consultant should conform are those laws “applicable” at the time the Contract Documents are submitted for permitting. Any subsequent change in the law, or contradictory interpretation of law after the plans are permitted should be considered additional services.
Change in Scope/Services
Level 2. It should be required that any increases or decreases in scope, change orders, directives, or anything that changes your role or scope should be accepted only if presented in written format.
Change Order Review Contract Clause
Level 2. Upon Client’s request, Consultant shall review proposed change orders from Contractor or others, but solely for purposes of confirmation of consistency with the general intent of the Contract Documents prepared by Consultant. Consultant shall not be required to review such proposed change orders for causation, entitlement, cost, or schedule and shall have no responsibility therefore except as expressly stated by Consultant in writing.
Cleanup of Jobsite
Level 1. This falls outside your scope of services and is the sole responsibility of the contractor
Communication
Level 1: You should not be responsible for communications that are not directed through your offices.
Consequential Damages
Level 3. The waiver of consequential damages should be mutual
Constructability
Level 1: This issue is too subjective based on the relative abilities of the contractor selected to perform the work. It could be viewed as a means & methods discussion
Construction Manager at Risk
Level 1. The construction manager (CM) acts as consultant to the owner in the development and design phases, but as the equivalent of a general contractor during the construction phase. The CM at-risk is responsible for early coordination during the design phase, value engineering, and constructability reviews as well as the selection, scheduling, and sequencing of trade subcontractors. The term “at-risk” conveys that the CM under this method bears the risks of the general contractor, such as price escalation, delay, etc., that are not present in an agency CM situation. As such, there are coverage concerns relative to the exclusions addressing work that you do under the professional liability policy.
Consultant’s professional opinions of probable Construction Cost
Level 2. Opinions are to be made on the basis of Engineer’s experience and qualifications and represent Engineer’s best judgment as an experienced and qualified professional generally familiar with the construction industry. However, since Engineer has no control over the cost of labor, materials, equipment, or services furnished by others, or over contractors’ methods of determining prices, or over competitive bidding or market conditions, Engineer cannot and does not guarantee that proposals, bids, or actual Construction Cost will not vary from opinions of probable Construction Cost prepared by Engineer.
Constructibality Review
Level 1. While you may be called upon to clarify points or issues on the project in collaboration with the contractor, the ultimate constructability review should be performed by the contractor constructing the project. It must be remembered that you do not know the true capabilities of the contractor, and therefore cannot comment on its ability to construct the project as designed. However, you want to be involved in the collaborative process to determine the capabilities of the contractor, and be able to challenge any issues they raise relative to the constructability of the project.
Continue working during pendency of a claim
Level 1. There should be a corresponding requirement that the owner or client continue to pay for those continuing services.
Contractors or Attorneys as Additional Insureds/Indemnitees
Level 1: Neither contractors (unless a client) or attorneys should be considered as additional insureds or indemnitees. The contactor may be a contributing factor to the cause of the loss, and indemnifying them could be tantamount to reimbursing them for their own negligence. Attorneys draft the contracts under which you operate. As a fact witness as to your duties and obligations, they have a vested interest aside from representing their client. Any gaps in the contract language would be visited back on the attorney, who then has a conflict of interest.
Contractor, vendor, supplier
Level 3. You are a “consultant,” and the change should be made as there are inherent duties associated with each type of entity. Means and methods and warranties are two examples of such duties that could create coverage issues for the designer. We recommend an addendum to the contract clarifying your firm’s role.
Contractor-based contract
Level 1. Such, contracts incorporate duties and obligations throughout the document which fall beyond or outside your professional scope of services. As the document is so infused with non-professional requirements for issues such as jobsite safety and warranties or guarantees, we recommend you approach the client with your standard design agreement which more accurately describes your role on the project. If that is not feasible, our comments are set out below in this review.
Contractual liability under Professional Liability Policy
Level 1. This coverage doesn’t exist. It is directly excluded under the policy. Meeting the professional standard of care is a “legal” obligation, so is enforceable under the insurance contract. Any performance based contractual obligations are precluded from coverage.
Counsel of Owner’s choosing
Level 2. Most carriers want to retain the decision relative to what counsel to utilize. Even if they will allow for outside counsel, that counsel would have to be willing to agree to the carriers’ litigation management guidelines and fee rates. It should be understood that the eroding feature of the policy requires adherence to some sort of controls relative to rates or the limits could be prematurely exhausted.
Declaratory/Injunctive/Equitable
Level 1: An action in equity, injunctive or declaratory relief without monetary relief being sought does not trigger any of your insurance policies. Your PL policy is not triggered unless there is a demand for money or services. Therefore, non-monetary demands do not trigger coverage.
Deductible vs. Self-Insured Retention
Level 1. Compliance. The contract calls for you to have a deductible of no more than ____. You have a ______ deductible. The amount of the deductible should have no impact on the client because it is an agreement between the carrier and its insured. A deductible, by its very nature, must drop down and resolve the claim, at which time the carrier then pursues their insured for the unpaid balance of the deductible. Set out below is a commentary on this issue from the International Risk Management Institute in case you need an authoritative source.
Under an SIR, the excess insurer generally has nothing to do with losses that do not penetrate its attachment point. The insurer may, however, require notification when a claim is reserved for an amount that pierces the attachment point. Under a deductible, however, the insurer pays every loss (up to the maximum limit of liability), and is then reimbursed by the insured up to the amount of the deductible. In practice, small losses are simply paid by the insured to avoid the “dollar-trading” problem. (Int’l Risk Management Institute)
Defend, protect, be liable for, save, shall be responsibility for, keep, contribute to sums
Level 1. It should be understood that claims generally arise from multiple causes, and are rarely is resultant from just one cause. Therefore, the obligation to defend, save, protect, etc. is one assumed under contract only, and may be create a coverage issue for your firm. Coverage may not be available for the costs associated with that defense. In these instances, your obligation should be restricted to “indemnifying” the client “to the extent the damages are caused by the negligent errors or omissions of the design professional.”
A possible alternative for drafting the indemnification clause is to bifurcate the obligations based on the applicable policies. For instance, for GL or Auto exposures, the defense obligations can remain as a duty owed under the contract. However, if the claim is one based on professional negligence, then the obligation should only be to indemnify.
Delay by Owner in Notifying Consultant of Error, Defect or Omission
Level 1: if the owner discovers a defect, deficiency, error or omission, and delays or fails to report same to the consultant, then the owner should be responsible for damages, costs associated with the “delay” in notifying the consultant.
Delegated Design Contract Clause
Level 2. Where any design services are provided by persons or entities not under Consultant’s direct control, Consultant’s role shall be limited to its evaluation of the general conformance with the design intent and the interface with Consultant’s design and portion of the project. Except to the extent it is actually aware of a deficiency, error, or omission in such design by others, Consultant shall have no responsibility
for such design and may rely upon its adequacy, accuracy, and completeness in all respects.
Descriptions of Types of Claims to be Covered Under the Various Policies
Level 2: You are providing insurance policy forms which are standard in the market. It should be understood that coverage cannot be verified until there are allegations made against you in a claim or suit. The coverage is dependent on the allegations levied against you and not the type of claim it may be; therefore, committing to covering certain types of claims can creates some issues if there is a denial of a claim based on the allegations, and not on the facts. This could, in turn, create a breach of contract exposure for you for non-compliant insurance coverage. Therefore, we recommend deleting the claims descriptions.
Design/Builders
Level 2. You should make sure that they carry Contractor Professional Liability coverage for their changes to your work as well as for designs they may do themselves. It would also help should the design/builder retain other design consultants directly.
Dimensions & measurements
Level 1: Dimensions and measurements are laid out by the designer on the Contract Documents: however, the designer should have no duty to verify dimensions and measurements in the field.
Disclaimer Text
Level 2. Attached or Overstamped:
Consultant’s Professional Stamp and Seal shall apply only to the portions of plans, specifications, surveys, reports, or other documents specifically identified or described below. Consultant shall not be responsible for any other associated documents.
Endeavor to guard the Owner against defects and deficiencies of the Contractor
Level 2. Your role on the project site is to determine that when completed the project will be in conformance with the Contract Documents. It is infeasible to think that you are not continuously on the site, yet should be required to be responsible on this level. It draws you into “any” defect or deficiency, a far broader exposure than you anticipated.
Enforcing the indemnification provision of the Contract
Level 1. Your policy provides indemnity and defense for amounts you are legally obligated to pay as damages. Defense requirements in connection with enforcing the indemnity provision fall outside the coverage provided in your insurance policies.
Expenses in Addition to Policy Limits/Professional Liability
Level 1. Compliance. Defense costs for professional liability are within the policy limits. Expenses outside limits are not available in the U.S. Market.
Extended Reporting Tail/Extended Discovery Period
Level 1. Compliance. These types of coverages are only available to you if you cease design activities as a firm. It is used by designers that are retiring or leaving the industry. Therefore, you cannot provide a tail coverage. You can agree to “Maintain the coverages for a specific period of time,” but cannot continue the policy itself.
Fast-Track
Level 3: You may wish to have the owner acknowledge that there is a higher tendency for delays and additional costs on Fast-Track projects.
Fiduciary
Level 1. There is a reference that the relationship between you and the client is one based on “trust and confidence.” You should be an independent contractor in the relationship, but these words imply you have a fiduciary duty to the owner. You do not, and such wording raises your duty above the professional standard of care, creating a possible coverage issue. Your relationship is “arms’ length,” and your duty to the client is not to put their welfare above yours, but to meet the professional standard of care. In the context of the contract, if “trust and confidence” appear along with a description of you as an “independent contractor,” it should be understood that the two are mutually exclusive, and the “trust and confidence” should be deleted, or wording should be added indicating the agreement does not, nor does it intend to create a fiduciary relationship between the parties.”
