Architectural/Engineering Contracts

Risk Management Guide

Architectural/Engineering Contracts

Risk Management Guide

 Contents
Page

Statement of Purpose and Disclaimer, About the Editor, Acknowledgements................................... 1

Accessibility......................................................................................................................................... 2
Advertising .......................................................................................................................................... 4
As-built Drawings ................................................................................................................................ 5
CADD and Electronic Media ............................................................................................................... 6
Certification ......................................................................................................................................... 8
Changed Conditions ......................................................................................................................... 12
Changes ............................................................................................................................................ 16
Claims Assistance for the Owner...................................................................................................... 19
Compliance with Law ........................................................................................................................ 21
Confidentiality.................................................................................................................................... 23
Consequential Damages................................................................................................................... 26
Copyrights ......................................................................................................................................... 27
Cost Estimates .................................................................................................................................. 28
Delays ............................................................................................................................................... 31
Disposal of Waste Materials ............................................................................................................. 33
Dispute Resolution ............................................................................................................................ 36
Environmental Conditions and Services ........................................................................................... 39
Governing Law and Jurisdiction........................................................................................................ 43
Indemnity........................................................................................................................................... 44
Information Provided by Others ........................................................................................................ 45
Inspection.......................................................................................................................................... 48
Insurance .......................................................................................................................................... 51
Integrated Written Agreement........................................................................................................... 54
Limitation of Liability.......................................................................................................................... 56
Owner’s Responsibilities................................................................................................................... 59
Ownership of Documents.................................................................................................................. 61
Payment ............................................................................................................................................ 63
Permits and Licenses........................................................................................................................ 65
Rejection of Work.............................................................................................................................. 67
Right of Entry .................................................................................................................................... 69
Scope of Services ............................................................................................................................. 70
Severability........................................................................................................................................ 73
Shop Drawings.................................................................................................................................. 74
Site Safety ......................................................................................................................................... 76
Standard of Care............................................................................................................................... 78
Survival.............................................................................................................................................. 81
Suspension of Services .................................................................................................................... 82
Termination ....................................................................................................................................... 83
Third-party Claims............................................................................................................................. 85
Time Bar to Legal Action................................................................................................................... 88
Timeliness of Performance ............................................................................................................... 89
Underground Utilities ........................................................................................................................ 90
Waiver of Terms of Contract ............................................................................................................. 92
Warranties and Guarantees.............................................................................................................. 93

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Statement of Purpose and Disclaimer
Thank you for choosing Zurich as your insurance carrier. Zurich seeks to provide its insureds
with helpful and thought-provoking risk management materials. This Risk Management Guide is a
compendium of issues and discussions that Zurich risk management sees from time to time.

This Risk Management Guide is provided as an accommodation to Design Professional

customers of Zurich's design professional business unit for educational purposes only. This Risk
Management Guide is not legal advice and cannot be relied upon as legal advice.

The Design Professional must consult competent counsel knowledgeable in the law of the are
rendered or under which law its contracts will be construed for legal advice. The appropriateness
and proper crafting of any contract provision are best addressed by local counsel who is
knowledgeable about the way contract clauses will be scrutinized and enforced by the Courts,
given the facts and legal circumstances presented and based on specific local rulings and local
law.

About the Editor

Ann Rackas Pate is a Construction Lawyer who knows Construction™. She has been an A&E Risk
Management Consultant for Zurich American Insurance Company since 2002. Her solo practice,
Rackas Pate Law, PLLC in Alexandria, Virginia (www.rackaspatelaw.com) is limited to
transactional aspects of construction law: business, contracts, mediation, arbitration and the
dispute resolution board process. As an attorney, prior to starting her firm, she was with the
American Institute of Architects as Managing Director and Counsel, AIA Contract Documents; and
Howard University as Project Manager of the LeDroit Park community residential redevelopment.
Before attending George Mason University School of Law, Ms. Pate had 15 years of experience in
architecture, engineering and construction management of commercial, industrial, institutional,
aviation and transportation projects in the public and private sectors.

Acknowledgements

Mark Musser, Esq., major contributor and coordinator of the 2005 update of this Guide. Zurich
wishes to provide special acknowledgement to our former colleague who labored many hours on
this revision project. Without his help and dogged commitment to the revision project, the 1997
version of this Guide would still remain collecting dust on the shelf.

Lindene Patton, Esq., Senior Vice President and Counsel to Zurich's environmental and design
professional unit, update project sponsor and editor

Kent Holland, Esq., author of the original 1997 version of the Guide
Donald B. Bauer, Esq., contributor to the original 1997 version of the Guide
William Bender, Esq., contributor to the original 1997 version of the Guide
Daniel S. Smith, Esq., contributor to the original 1997 version of the Guide
C. Russell Kirby, Esq., contributor to the original 1997 version of the Guide
Michael C. Loulakis, Esq., contributor to the original 1997 version of the Guide
James Kenney, Esq., contributor to the original 1997 version of the Guide

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Accessibility
Issue: Under various federal laws, including the Americans with Disabilities Act, the Architectural Barriers
Act, the Rehabilitation Act, and the Fair Housing Act, it is a violation to design and construct a facility not
meeting accessibility and usability requirements, unless structurally impractical to do so. For alterations to
existing facilities, the altered portions are to be made readily accessible to individuals with disabilities to
the maximum extent feasible. These laws may also apply if a project is financed with federal funding.
Some of the laws provide for minimum performance standards rather than strict code-like guidelines. A
professional judgment must, therefore, be made by the Design Professional, and project Owner,
concerning what is required and appropriate for a given facility.

If you create a design that is constructed by a facility Owner, and that Owner is subsequently sued for
alleged accessibility violations arising out of the design, as constructed, the Owner may look to you for
damages it sustains in modifying the building and paying possible penalties. If you warranted that your
services will be performed in compliance with "all laws, ordinances and regulations" you might be held to
have warranted that the design would strictly comply with the accessibility laws and, therefore, have
contractual liability to the Owner despite having exercised reasonable care in interpreting and applying
accessibility standards to your design.

Not only could you have liability to the Owner, but the U.S. Department of Justice has asserted that the
Design Professional’s firm may have independent liability to the government for civil rights violations.

The Department of Justice (DOJ) has been providing a hot line to answer questions concerning
interpretation of the law. Some Design Professionals have been using this whenever they feel they are
dealing with a gray area that could have more than one reasonable interpretation. Although these
interpretations are not binding, they may have persuasive effect in establishing that the Design
Professional exercised reasonable care in coming to a design solution. Don't assume that the
interpretation you get from the DOJ is the correct one. Since several different persons operate the
telephone bank, they often have differing interpretations of the law. This shows how difficult this
legislation can be to apply.

Consider this: Do not agree to warrant that your design will comply with all accessibility requirements.
Explain to the Owner that, because of the uncertainties concerning what is required, the best you can do
is exercise due diligence to determine what accessibility is appropriate for the facility and act reasonably
in interpreting and applying accessibility requirements to your professional services. In other words, agree
only to the normal standard of care. An example clause is as follows:

Accessibility Compliance Design Professional shall exercise usual and customary professional
care in rendering a design complying with Design Professional’s current understanding of
accessibility requirements. Design Professional makes no guarantee or warranty, either express
or implied, that its design complies with all accessibility laws, including but not limited to, the
Americans with Disabilities Act, The Architectural Barriers Act, the Rehabilitation Act, or the Fair
Housing Act.

Instead of making this a separate clause of the contract, you may prefer to include it as part of the
Compliance with Laws clause that is often found in Owner-generated contracts. An example is as follows:

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Compliance with Laws
Design Professional will exercise reasonable care to identify, interpret and apply the design
requirements under applicable laws, regulations and ordinances, including the Americans with
Disabilities Act, the Architectural Barriers Act, the Rehabilitation Act, the Fair Housing Act.

See also:
Compliance with Law
Standard of Care
Warranties and Guarantees

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Advertising
Issue: Design Professionals often use drawings, models, sketches, photographs and other materials that
are created while performing services for an Owner for the purpose of advertising and marketing services
to other potential clients. Displaying such information in brochures, advertisements and the like is a
valuable marketing tool and can help demonstrate to a prospect that you have the necessary
qualifications and have performed services of the kind desired. Most Owners appear to be willing to
permit some use of this material. Beware, however, of language in a contract that expressly forbids it. An
example is as follows:

No public announcement. Design Professional shall not make any public announcement or publicity
release regarding the Project or its Services under this Agreement without Owner's prior written approval
and shall not use any of the Contract Documents for public relations or promotional efforts without
Owner's prior written approval.

Consider this: Include a clause in the contract expressly authorizing the use of specified documents for
the purposes of marketing, promoting and advertising your services. Such a clause is included in AIA
Document B141 (1997) at 1.3.7.7:

The Architect shall have the right to include photographic or artistic representations of the design
of the Project among the Architect's promotional and professional materials. The Architect shall
be given reasonable access to the completed Project to make such representations. However, the
Architect's materials shall not include the Owner's confidential or proprietary information if the
Owner has previously advised the Architect in writing of the specific information considered by
the Owner to be confidential or proprietary. The Owner shall provide professional credit for the
Architect in the Owner's promotional materials for the Project.

See also:
Confidentiality

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As-built Drawings
Issue: The term "approval or review of as-builts" or "as-built drawings" suggests that the Contractor has
identified what changes have been made to the Contract Documents. If the Design Professional is
required to review such drawings, it is critical that the Contractor has specifically identified anything
contained in them that deviates from what was required by the original Contract Documents. The term
also may suggest that the Design Professional is assuring the Owner that it has reviewed the drawings
provided by the Contractor and observed and measured the construction to determine that the drawings
accurately reflect all work performed. Such review and assurance of Contractor's accuracy of drawings is
usually beyond the normal and reasonable scope of the services of a Design Professional and is not
normally within a Design Professional's ability to perform in any event. Some Owners may assert that by
approving "as-builts," you have warranted that the drawings reflect the correct locations of the items and
information portrayed on them, including such things as underground utilities.

Another significant issue is the use of "as-builts" by Design Professionals in the rehabilitation or retrofit of
an existing project. To what extent should the Design Professional be able to rely upon the accuracy of
the "as-builts" that the Owner provides to it? And what is the responsibility and liability of the Design
Professional to the Contractor to whom it provides the "as-builts" for the purpose of preparing the
Contractor's bids and how the Contractor will proceed with the work?

Consider this: Shorthand terminology can increase exposure to the Design Professional because of the
erroneous expectations that may be generated. Terms that may have more than one common meaning
are also not likely to illuminate issues for Judges or others called on to resolve disputes. Consider using
language that accurately reflects what actually happened. For example, what is the nature of the
drawings, who created them, who is responsible for the details reflected in them and to what extent are
you comfortable telling someone else the drawings may be relied upon as though they are your own
work. Instead of terming the drawings "as-builts," which means many things to many people title them
"record drawings" and note the drawings' origin and the extent of your review If the Owner’s contract
refers to "as-built drawings," consider striking that term and replace it with "record drawings," and explain
your anticipated level of review. Support this potential change to the contract by discussing with the
Owner the practical reasons why the change is necessary and appropriate. Similarly, on the drawings
that are created based on the information reported by the Contractor, have them marked with the term
"record drawings" and note the limited extent of review undertaken by you. Try to tell future readers of
the drawings, on the drawings themselves, the extent that they may rely on the work as your own work
based on what you are comfortable with claiming to be your own work and in the light of the liability
associated with the drawings being your own work. For example, the contract and the drawings might
themselves indicate that the drawings are prepared using information concerning the nature and location
of the Contractor's work, as reported by the Contractor, and the information has not been verified by the
Design Professional. If verification is required, it should be a clearly specified separate service, charged
for at appropriate rates and then performed with due diligence.

See also:
Certification
Warranties and Guarantees

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CADD and Electronic Media
Issue: As the use of computer assisted design and drafting (CADD) and transfer of design
documentation by electronic media become increasingly common, Owners are requesting that "final"
plans and drawings be given to them in electronic format. This may ostensibly be for the purpose of
maintenance of the facility for which they were prepared. Because of the ease of making changes to the
electronic documents, however, it is a relatively simple matter for the Owner or others to reuse them for
other modifications or additions to the project, or even for the design and construction of a new project.
This can subject the Design Professional to the risk of potential liability, since the Design Professional
has effectively lost control over the use of its documents and may not know they are being modified and
reused in a manner that is not appropriate — given the original project parameters, Scope of Services
and fees paid. Because of this possibility, consider if electronic documents should ever be sealed or
electronically signed or whether electronic documents are always drafts and only paper documents
should be sealed and signed.

Even if the Owner does nothing inappropriate with the electronic data, that data may become tainted,
damaged or unreadable during storage. For various reasons, the shelf life of electronic media is relatively
short and the data may become mixed up, misread and generally untrustworthy. If an Owner or some
other party to whom the Owner gives the electronic media relies upon it, that party could suffer from
defective design services not because of anything wrong with the original design services, but because of
defects in the media as stored and retrieved.

Consider this: To determine whether errors alleged by an Owner were in the original Contract
Documents or only in the retrieved electronic data (possibly including unauthorized changes by the
Owner or others) it is critical that you maintain a set of final Contract Documents by which you can
benchmark the electronic media to determine whether the data contained in that media are the same as
in the final work product you provided to the Owner. This may be done by making duplicate hard copy
originals (one for the Design Professional and one for the Owner) of all data that is given to the Owner in
electronic form, duly stamped at the time the services were rendered, to compare to the electronic media.

You should also seek to prevent the electronic media from being misused or reused for modifications or
additions to the project or for designing and building some other project without your knowledge and
consent. To prevent plans and drawings from being printed from the electronic media and given to third
parties who might use them in reliance upon the name and seal of the Design Professional appearing on
them, some Design Professionals delete their name and seal from the data that are contained on the
electronic media. You may also include a warning statement to each page of the electronic media
advising that the document was printed from electronic media, and it is possible the data may have been
altered or their integrity impaired due to storage in that media. To protect against the reuse of electronic
media, you may add a sentence to the end of the clause of the contract addressing Ownership of
Documents to state something similar to the following:

Ownership of Documents

CADD files and any other electronic data submitted by Design Professional shall be reviewed by
Owner for comparison to the paper Contract Documents including plans, drawings and
specifications. Owner shall notify Design Professional within _____ days of any defects it
discovers in the files or any inconsistencies between the electronic files and paper Contract
Documents.

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Design Professional shall not be responsible for any deviations, alterations, modifications or
additions in the electronic data in comparison to the paper Contract Documents or any reuse of
the electronic data by the Owner or any other party for this project, or any other project without
the prior express written consent of the Design Professional. Owner shall defend, indemnify and
hold completely harmless Design Professional against any claims, damages, or losses arising out
of the any deviations, alterations, modifications, or additions in the electronic data in comparison
to the paper Contract Documents or any reuse of the electronic data without prior express written
consent of Design Professional.

All documents, including the electronic files that are transferred by Design Professional to Owner
are Instruments of Service of the Design Professional created for this project only, and are not
intended to be deemed a sale of the files and data, and NO REPRESENTATION OR WARRANTY IS
MADE, EITHER EXPRESS OR IMPLIED, CONCERNING THE MERCHANTABILITY OF THE FILES
AND DATA OR THEIR FITNESS FOR A PARTICULAR PURPOSE.

Copies of Documents that may be relied upon by Owner are limited to only the printed copies
(also known as hard copies) that contain original signatures and seals of the Design Professional.
Files in electronic media format of text, data, graphics, or of other types that are furnished by
Design Professional to Owner are only for the convenience of Owner and shall not be construed
as containing original signatures and seals of the Design Professional. Any conclusion or
information obtained or derived from such electronic files will be at the Owner’s sole risk.

EJCDC Document E-500 (2002) at 6.03 explains the problems and use of electronic media, and
establishes responsibilities on the part of the Owner who intends to
use that media.

The clause provides in relevant part:

C. Because data stored in electronic media format can deteriorate or be modified inadvertently or
otherwise without authorization of the data's creator, the party receiving electronic files agrees
that it will perform acceptance tests or procedures within 60 days, after which the receiving party
shall be deemed to have accepted the data thus transferred. Any transmittal errors detected with
the 60 day acceptance period will be corrected by the party delivering the electronic files.

D. When transferring documents in electronic media format, the transferring party makes no
representations as to long term compatibility, usability, or readability of such documents resulting
from the use of software application packages, operating systems, or computer hardware
differing from those used by the documents’ creator.

See also:
Ownership of Documents

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Certification
Issue: A contract may contain language requiring you to issue a certification (possibly at the conclusion
of your services) stating that the work was completed in accordance with the plans and specifications. An
example of such a clause is as follows:

"Upon completion of the construction, the Design Professional shall certify that the work was
completed in accordance with the plans, specifications, and drawings."

This language appears to place an impossible burden on the Design Professional. Unless you watch
every move of every laborer of every trade, Contractor and Subcontractor every day, you cannot possibly
know with certainty whether all the work was completed in strict accord with the detailed plans and
specifications.

Giving an Owner such a certificate may subject the Design Professional to liability in the event that the
work was not performed per the plans and specifications. The cause of action may be brought by the
Owner asserting that the certificate constituted a misrepresentation or breach of warranty or guarantee. In
recent years, banks and institutions that have lent money to the Owner for the project have been bringing
suits against Design Professionals on the basis that they released the final balance of project funds in
reliance on such certificates. State agencies have also been requiring similar certificates that could
subject the Design Professional to liability to the State, especially on environmental projects where the
Design Professional is asked to sign off on the work that was done by the Contractor.

The law applicable to professional services does not expect you to warrant or guarantee perfect results
from your services. If, however, you create a contractual obligation to provide this warranty to the Owner
the Courts can find you liable for breach of contract even though you rendered services that conformed in
all respects to your professional standard of care. A commitment to issue a certification may be deemed
a guarantee or warranty as to what is certified, i.e., that the Contractor performed per plans and
specifications or that the site conditions are as observed by others and as stated by the Design
Professional.

Consider this: Explain to the Owner that your Scope of Services is limited. To the extent that you are
observing construction work, you are doing so on a periodic or occasional observation basis and you are
looking for general conformance to the overall design proposal. You can bet the Owner does not want to
pay you to have full-time inspectors on the site every day observing every detail of the execution of the
project. You can also bet you are not being paid nearly enough to supervise the Contractor. Moreover,
you can only realistically observe whether the Contractor is in general conformance with the plans and
specifications. Don't suggest or state that you are doing more. It is not possible to determine whether the
Contractor has satisfied all the details of the plans and specifications.

A clause explaining this is as follows:

Design Professional’s Opinion: The Design Professional will provide a written report stating
whether, in its opinion, based upon site visits, the construction work complies generally with the
design concept.

For similar reasons, if you are being asked to certify that the project complies with all laws, regulations
and ordinances, a clause stating general conformity with the design concept and the contract documents
and the following clause may be appropriate:

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Certification: We hereby certify that the undersigned is a licensed _______. To the best of our
knowledge, information and belief, the _________ (building, facility, project) was constructed in
general conformance with the design concept of the contract documents.

The approach used by EJCDC is to include contract language limiting the amount of reliance an Owner
can put on the certification. This is done in EJCDC Document E-500 (2002) at Exhibit E, titled "Notice of
Acceptability of Work" rather than a "certification." It states that the Engineer has determined the
Contractor's work to be acceptable, "expressly subject to the provisions of the related Contract
Documents, the Agreement between the Owner and Engineer for Professional Services dated _____,
_____, and the terms and conditions set forth on the reverse side of this Notice." The terms and
conditions on the reverse side include the following:

1. This Notice is given with the skill and care ordinarily used by members of the engineering
profession practicing under similar conditions at the same time and in the same locality.

2. This Notice reflects and is an expression of the professional judgment of Engineer.

3. This Notice is given as to the best of Engineer's knowledge, information, and belief as of the
date hereof.

4. This Notice is based entirely on and expressly limited by the scope of services Engineer has
been employed by Owner to perform or furnish during construction of the Project (including
observation of the Contractor's work) under Engineer's Agreement with Owner and under the
Construction Contract referred to on the front side of this Notice, and applies only to facts that
are within Engineer's knowledge or could reasonably have been ascertained by Engineer as a
result of carrying out the responsibilities specifically assigned to Engineer under such Agreement
and Construction Contract.

5. This Notice is not a guarantee or warranty of Contractor's performance under the Construction
Contract referred to on the front side of this Notice, nor an assumption of responsibility for any
failure of Contractor to furnish and perform the Work thereunder in accordance with the Contract
Documents.

Certifications are generally in the nature of a warranty or guarantee about certain facts at the time the
certification is made. Insurability concerns may make it advisable to define what you intend by providing
a certification. For example, consider trying to add language to the certification stating that it is based on
your professional opinion and is true to the best of your knowledge, information, and opinion, but you are
not warranting or guaranteeing the opinion to be accurate. You may also try to write at the bottom of the
certification form a definition of the term "certify" so that the certification becomes more reasonable. An
example is as follows:

"Certify" shall mean a statement of professional opinion of conditions whose true properties
cannot be known with certainty, despite appropriate professional evaluation, at the time of
making such certification.

AIA Document B141 (1997), at 1.3.7.8. addresses this issue in the following way:

If the Owner requests the Architect to execute certificates, the proposed language of such
certificates shall be submitted to the Architect for review at least 14 days prior to the requested
dates of execution. The Architect shall not be required to execute certificates that would require
knowledge, services or responsibilities beyond the scope of this Agreement.
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Similarly, the language of EJCDC Document E-500 (2002) at 6.01.G addresses this issue and adds a
prohibition against the Owner pressuring the Engineer to sign a certificate as a condition of resolving any
dispute:

Engineer shall not be required to sign any documents, no matter by whom requested, that would
result in the Engineer having to certify, guarantee or warrant the existence of conditions whose
existence the Engineer cannot ascertain. Owner agrees not to make resolution of any dispute with
the Engineer or payment of any amount due to the Engineer in any way contingent upon the
Engineer signing any such documents.

This is a concise way of establishing the contractual basis for declining to execute a certificate given to
you by the Owner (or a lending institution) at the conclusion of the project requiring you to certify to
details of the Contractor's work, since that requires both knowledge and service beyond the scope of the
contract. It may enable you to negotiate with the Owner over the exact wording to be used in an opinion
or "certification" when the time comes for executing one.

Like the AIA language cited above, certain states have addressed the question of certifications by statute
and have lessened the pitfalls of signing a “certification.” Local counsel should be consulted to ascertain
if such a statute is applicable to your practice and projects on which you are engaged. For example, the
California Business and Professional Code contains a provision that makes a certification by a registered
professional engineer in the practice of professional engineering or land surveying a statement of
professional opinion and not a warranty. See Cal Bus & Prof Code section 6735.5 (1999) The code
provides: "The use of the word "certify" or "certification" by a registered professional engineer in the
practice of professional engineering or land surveying constitutes an expression of professional opinion
regarding those facts or findings which are the subject of the certification, and does not constitute a
warranty or guarantee, either express or implied."

If a statutory or judicial precedent to make your certification an expression of professional opinion rather
than a warranty does not exist, it may be advisable for State professional associations to seek a
legislative solution to help protect the profession from warranty claims arising from certification letters.

A related issue concerns certificates for payment of the Contractor. These are typically executed
throughout the construction of the project by the construction manager or Owner's project representative
(either an architect or engineer). It is important that the language contained in these certifications not
somehow create a warranty by the Design Professional that the Contractor has performed all the work
that is being certified for payment in strict accordance with the plans and specifications. An example of a
payment certification clause in a contract that manages the Design Professional’s risk is as follows:

Payment Certification The issuance of a Certificate for Payment shall constitute a representation
by Design Professional to Owner, based on Design Professional’s observations at the site as
provided by this Agreement, the data comprising Contractor's or Subcontractor's Application for
Payment and the information obtained from Contractor, that the Work has progressed to the point
indicated; that, to the best of the Design Professional’s knowledge, information, and belief, the
quality of the Work is in accordance with the Contract Documents (subject to an evaluation of the
Work conformity with the Contract Documents upon substantial completion, to the results of any
subsequent tests required by or performed under the Contract Documents, to minor deviations
from the Contract Documents correctable prior to completion, and to any specific qualifications
stated in the Certificate for Payment); and that Contractor is entitled to payment in the amount
certified upon delivery of the appropriate lien waivers. However, the issuance of a Certificate for

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Payment shall not be a representation that Design Professional has made any examination to
ascertain how and for what purpose Contractor has used the moneys paid on account of its
contract. The Certificate is a recommendation to Owner to pay the indicated amounts but does
not obligate the Owner to pay. Neither the issuance of the Certificate nor the payment by Owner
shall relieve Contractor of its obligations to perform Work in accordance with the Contract
Documents.

See also:
Changed Conditions
Compliance with Law
Environmental Conditions and Services
Inspection
Insurance
Rejection of Work
Scope of Services
Standard of Care
Warranties and Guarantees

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Changed Conditions
Issue: The Design Professional’s Scope of Services is typically based on some underlying assumptions
concerning the site conditions to be encountered. If a Design Professional has relied upon a geotechnical
report finding solid rock 10 feet below the surface, its foundation design will be much different, for
example, than it would be if the geotechnical report indicated clay to a depth of 25 feet. Redesign efforts
may be required when site conditions materially differ from those represented by the Owner. Will the
Design Professional be compensated for the additional design services required, or will the Owner assert
that all such services are within the original Scope of Services, and the Design Professional assumes the
risk of site conditions?

A related issue concerns the Design Professional’s potential responsibility to the Contractor, where the
Owner denies the Contractor an equitable adjustment for conditions differing from those represented by
the contract. If the Owner-Contractor contract is ambiguous with regard to site conditions and
responsibility for site conditions, and the Design Professional assisted in the drafting of that contract,
what liability does the Design Professional have?

Some Owners have begun taking this a step further and include language in their contracts requiring the
Design Professional to certify that it has learned everything about the site prior to submitting its proposal
and that there will, therefore, be no "changed conditions" and no entitlement to equitable adjustment. This
may result in the Design Professional providing redesign services at no charge, to accommodate the
changed conditions. An example of one such unfortunate clause is as follows:

"Design Professional shall prepare and submit a certified statement to the Owner stating that
Design Professional has visited the Site, has made a thorough visual inspection of the Site,
paying particular attention to clear dimensions and the adequacy of building systems and has
reviewed and verified and is satisfied that all existing drawings and related data furnished by the
Owner are accurate with regard to the existing conditions of the Project, and the code analysis
study prepared by Owners' consultant, and with regard to any other features that present unusual
conditions that could adversely affect the design and construction cost of the Project."

Providing for equitable adjustment in the event of differing site conditions is vitally important as it
concerns environmental conditions — and particularly on environmental remediation consulting services.
Review carefully, therefore, an Owner-generated contract written by a Potentially Responsible Party
(PRP) group that includes a clause such as the following:

Design Professional represents and warrants that it is familiar with the geological and environmental
conditions at the Site and off-Site property and has been granted the right to conduct, and has conducted,
all investigations it deems appropriate to determine that it can fulfill the requirements of this Agreement.
Notwithstanding any other provision of this Agreement, Design Professional assumes the risk of all
conditions, as specified in this Contract, that may affect Design Professional’s ability to perform the
Services and will, regardless of such conditions, or the expense or difficulty of performing the Services or
the negligence, if any, of Owner, with respect to same, fully complete the Services for the stated contract
price without further recourse to Owner or Beneficiaries. Information on the Site and local conditions at
the Site and off-Site property furnished by Owner or Beneficiaries is not guaranteed by Owner or
Beneficiaries to be accurate, and is furnished only for the convenience of Design Professional.

By the time you finish reading the clause, your head might be spinning given the breathtaking scope of
the potential liability transfer. One reading of the clause might conclude that the Design Professional has
created an unconditional warranty and contractual liability for site conditions and damages not caused by
its negligence. Even if the data and information given to the Design Professional by the Owner are

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incorrect, the Design Professional has no recourse. The Owner expressly disavowed reliance upon that
data. Design Professional has warranted that it knows all about the site conditions and will assume any
risk associated with whatever conditions actually arise. This leaves no room for a change order request
based on the discovery of differing site conditions.

Consider this: It has long been a basic premise of fixed-price construction contracting that when a
Contractor encounters a "differing site condition" (DSC), it will be compensated by an equitable
adjustment to the contract (time and money where appropriate). "Type 1" conditions are those that differ
materially from what was represented by the Contract Documents. "Type 2" conditions are those that
differ materially from what a Contractor could have reasonably foreseen for the location where the work
was performed. Most DSC claims are of a Type 1 nature. This often results in a debate as to whether site
condition information was made a part of the contract. Such information is sometimes specifically
excluded from the contract by language stating that it is being provided for general information purposes
only, may not be relied upon and is not to be deemed a part of the Contract Documents.

For most construction work, the Owner is generally well-served by including a differing site condition
clause in the construction contract to permit an equitable adjustment where appropriate. This will
eliminate smart bidders increasing their bids to cover unknown contingencies. Overall, this is considered
more cost-effective for Owners. It is for this reason that federal government contracts, most federally
assisted contracts, and standard form contracts of the AIA, AGC, DBIA, and EJCDC compensate
Contractors for differing site conditions. You should educate the Owner on this contract principle.
Similarly, the Owner needs to be educated as to why it is appropriate to compensate the Design
Professional for the extra services performed on account of differing site conditions encountered on the
project.

The construction contract should be drafted to clearly state whether the site information is made a part of
the contract or is excluded from it. Including it as part of the contract may be advisable in order to avoid
unnecessary duplication of investigation work with its extra costs and to avoid disputes concerning
entitlement to an equitable adjustment for what would otherwise be deemed differing site conditions. The
contract should also clearly state what, if any, risk the Contractor is required to take concerning site
conditions.

The Design Professional contract should make clear in the Scope of Services or elsewhere in the
Agreement for Professional Services that the Design Professional will be compensated for extra services
related to differing site conditions or have the right to terminate the contract. A sample clause is as
follows:

Changed Conditions

Owner and Design Professional agree that the discovery of unanticipated or changed conditions
may require a renegotiation of the Scope of Services or a termination of Services. Owner shall rely
on Design Professional’s judgment as to the continued adequacy of this Agreement in light of
discoveries that were not anticipated or known. If Design Professional determines that
renegotiation is necessary, Design Professional and Owner shall in good faith enter into
renegotiation of this Agreement to permit Design Professional to continue to meet Owner’s
needs. If renegotiated terms cannot be agreed to, Owner agrees that Design Professional has the
right to terminate this Agreement. If the Agreement is terminated, Owner shall pay Design
Professional for all services conducted and expenses incurred up to and including the date of
termination plus reasonable termination costs.

Another clause that spells out the consequences of encountering unforeseen conditions and sets forth
the options for dealing with the situation is as follows:
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Unforeseen Conditions or Occurrences

It is possible that unforeseen conditions or occurrences may be encountered at the Property

which could substantially alter the necessary Services or the risk involved in completing Design
Professional’s Services. If this occurs, Design Professional will promptly notify and consult with
Owner, but will act based on Design Professional’s reasonable judgment where risk to Design
Professional’s personnel is involved. Possible actions could include:
(a) Complete the original Scope of Services in accordance with the procedures originally
intended, if practicable in Design Professional’s reasonable judgment;

(b) Agree with Owner to modify the Scope of Services and the estimate of changes and costs to
include study of the unforeseen conditions or occurrences, with such revision and cost
adjustment agreed to in writing; or

(c) In the event that Owner and Design Professional cannot reasonably agree to the actions to be
taken, terminate the Services effective on the date specified by the Design Professional in writing.

Environmental conditions may also constitute differing site conditions. In order to protect against
performing uncompensated additional services, additional services for which you are not qualified or
licensed to assume additional risk related to the performance of environmental remediation related
services, you may include a clause such as the following in the contract:

Discovery of Hazardous Substances (Non-Environmental Project)

Hazardous substances may exist at a site where there is no reason to believe

they should or could be present. Design Professional and Owner agree that the discovery of
unanticipated hazardous substances constitutes a changed condition and would require the
renegotiation of the Scope of Services or termination of the Services. Design Professional and
Owner also agree that the discovery of unanticipated hazardous substances may make it
necessary to take immediate measures to protect health and safety. Design Professional agrees
to notify Owner as soon as practicable should unanticipated hazardous substances or suspected
hazardous substances be encountered. Owner encourages Design Professional to take any and
all measures that, in Design Professional’s opinion, are justified to preserve and protect the
health and safety of Design Professional’s personnel and the public. Owner agrees to
compensate Design Professional for the additional cost of such protective measures. In addition,
Owner waives any claim against Design Professional and agrees to defend, indemnify, and hold
Design Professional harmless from any claim or injury or loss arising from Design Professional’s
discovery of unanticipated hazardous substances.

Another way to deal with this issue is along the lines presented by AIA Document B141 (1997) at 1.3.7.6
which provides:

Unless otherwise provided in this Agreement, the Architect and Architect's consultants shall have
no responsibility for the discovery, presence, handling, removal or disposal of or exposure of
persons to hazardous materials in any form at the Project site.

EJCDC Document E-500 (2002) at 6.09 provides in pertinent part:

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D. It is acknowledged by both parties that Engineer's scope of services does not include any
services related to Constituents of Concern. If Engineer or any other party encounters an
undisclosed Constituent of Concern, or if investigative or remedial action, or other professional
services, are necessary with respect to disclosed or undisclosed Constituents of Concern, then
Engineer may, at its option and without liability for consequential or any other damages, suspend
performance of services on the portion of the Project affected thereby until Owner: (1) retains
appropriate specialist consultant(s) or contractor(s) to identify and, as appropriate, abate,
remediate, or remove the Constituents of Concern; and (2) warrants that the Site is in full
compliance with applicable Laws and Regulations.

E. If the presence at the Site of undisclosed Constituents of Concern adversely affects the
performance of Engineer's services under this Agreement, then the Engineer shall have the option
of (1) accepting an equitable adjustment in its compensation or in the time of completion, or both;
or (2) terminating this Agreement for cause on 30 days notice.

F. Owner acknowledges that Engineer is performing professional services for Owner and that
Engineer is not and shall not be required to become an "arranger," "operator," "generator," or
"transporter," of hazardous substances, as defined in the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA), as amended, which are or may be
encountered at or near the Site in connection with Engineer's activities under this Agreement.

For purposes of this discussion, "constituent of concern" can be thought of as any hazardous material,
contaminant or other pollutant that requires reporting or remediation of some sort.

See also:
Certification
Changes
Compliance with Law
Cost Estimates
Environmental Conditions and Services
Information Provided by Others
Scope of Services
Underground Utilities

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Changes
Issue: Because changes may be made to the size and scope or design features of a project, the Design
Professional’s contract should address what authority the Owner will have for making changes and what
mechanism there will be for authorizing the changes and paying the Design Professional for them. In the
Scope of Services clause, the contract should clearly specify the extent of the services.

If, however, the Changes clause of a contract is written so broadly that the Owner can unilaterally add
services to the Design Professional's Scope of Services, the Design Professional may not be adequately
protected against project changes it deems unacceptable or for which Design Professional should be
paid. Special consideration should be given to what changes environmental conditions may engender.

If the construction contract permits the Owner to direct any change of any magnitude, and the Scope of
Services clause in the Design Professional’s contract is broadly worded to allow the scope to creep into
additional areas, the Design Professional may find that the Owner expects the Design Professional’s
scope to increase commensurate with the increase in the Contractor's work. An example of an
unfortunate clause permitting such changes at the unilateral discretion of the Owner is as follows:

Changes and claims: Owner may, at any time, by written notice, make changes in the Services to be
provided, including changes in specifications and/or drawings, omit or add work, changes in the
schedule, etc. Should the changes made increase or decrease the cost of the Agreement, an equitable
adjustment shall be made in accordance with the time and material proposal, including a detailed cost
breakdown.

The above Changes clause, while providing for an equitable adjustment, fails to give the Design
Professional any say in whether it will perform the Additional Services. Other Owners take this a step
further and include language in their contracts requiring the Design Professional to certify that it has
learned everything about the site prior to submitting its proposal, and there will, therefore, be no "changed
conditions" and no entitlement to equitable adjustment. By agreeing to this, you could be required to
perform redesign services at no charge, to accommodate the changed conditions. An example of one
such unfortunate clause is as follows:

Design Professional shall prepare and submit a certified statement to Owner stating that Design
Professional has visited the Project Site, has made a thorough visual inspection of the Site, paying
particular attention to clear dimensions and the adequacy of building systems, and has reviewed and
verified and is satisfied that all existing drawings and related data furnished by the Owner are accurate
with regard to the existing conditions of the Project, and the code analysis study prepared by Design
Professional, and with regard to any other features that present unusual conditions that could adversely
affect the design and construction cost of the Project.

This provision is far reaching and few Design Professionals would find they have the ability to perform to
this type of standard.

Consider this: Change of Services (or Additional Services) is treated in a checklist fashion in AIA
Document B141 (1997) at 1.3.3.2:

If any of the following circumstances affect the Architect’s services for the Project, the Architect
shall be entitled to an appropriate adjustment in the Architect’s schedule and compensation:

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.1 change in the instructions or approvals given by the Owner that necessitate revisions in
Instruments of Service;
.2 enactment or revision of codes, laws or regulations or official interpretations which
necessitate changes to previously prepared Instruments of Service;
.3 decisions of the Owner not rendered in a timely manner;
.4 significant change in the Project including, but not limited to, size, quality, complexity, the
Owner’s schedule or budget, or procurement method;
.5 failure of performance on the part of the Owner or the Owner’s consultants or contractors;
.6 preparation for and attendance at a public hearing, a dispute resolution proceeding or a legal
proceeding except where the Architect is party thereto;
.7 change in the information contained in Article 1.1 (Initial Information)

In the clause providing for changes, you should consider limiting the Owner’s ability to make changes to
those which are within the "general scope" of the original services. For concerns such as hazardous
wastes or other contaminants or pollutants that might be discovered at the site, you should include in the
changes clause, or under a Changed Conditions clause, a provision stating that you are not responsible
for addressing environmental conditions and will not be required to increase your services to address
contaminants that may be discovered at the site. Whether to increase your scope to include services
needed to address wastes and contamination discovered at the project site should be your decision to
make and should not be left solely to the Owner to decide. The clause below permits changes within the
general scope only and addresses what happens if contaminants are discovered.

Changes

1. General.

Owner, within the general scope of the Agreement may, at any time, by written notice to Design
Professional, issue additional instruction, require additional services, or direct the omissions of
services covered by this Agreement. In such event, there will be made an equitable adjustment in
price and/or time of performance, but any claim for such an adjustment must be made within 30
days of the receipt of said written notice.

2. Environmental.

Owner and Design Professional agree that the discovery of unanticipated hazardous substances
or conditions constitutes a changed condition, which may require a renegotiation of the Scope of
Services or termination of services. Owner shall rely on Design Professional’s judgment as to the
continued adequacy of this Agreement in light of discoveries that were not anticipated or known.
If Design Professional determines that renegotiation is necessary, Design Professional and
Owner shall in good faith enter into renegotiation of this Agreement to permit Design Professional
to continue to meet Owner’s needs. If renegotiated terms cannot be agreed to, Owner agrees that
Design Professional has the right to terminate this Agreement. If the Agreement is terminated,
Owner shall pay Design Professional for all services performed and expenses incurred up to and
including the date of termination, plus reasonable termination costs.

For a comprehensive clause stating that hazardous environmental conditions are beyond the Scope of
Services, see EJCDC Document E-500 (2002) at 6.09, as quoted in the Environmental Conditions and
Services section of this Guide.

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 See also:
Changed Conditions
Claims Assistance for the Owner
Compliance with Law
Cost Estimates
Environmental Conditions and Services
Information Provided by Others
Owner’s Responsibilities
Scope of Services

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Claims Assistance for the Owner
Issue: Design Professionals are often called upon by the Owner to help defend against a Contractor
claim or a third party claim. When that happens, the Design Professional may spend a good deal of time
and effort in preparing documentation and testimony to assist the Owner. It is possible that you will be
called to be a witness by a party that is adverse to the Owner. Again, you could spend time and effort in
preparing depositions and trial testimony or in responding to subpoenas to produce documents. Some
Owners expect you to participate in such proceedings at your own cost and do not recognize that this is
beyond the Scope of Services of your contract.

Consider this: Explain that in order to best protect the Owner’s interest, and assist in the defense of any
claim, you need to be compensated for your time and expense of responding to subpoenas, and
appearing as a witness at a deposition or trial. In addition, however, if the Contractor appears to be the
litigious type and begins early in the project to set up for a large claim, you may be able to identify this
based on your experience with this Contractor. You may believe it to be in the Owner’s best interest (as
well as your own) to respond in significant detail to all the positioning correspondence and Requests for
Information (RFIs) that the Contractor is sending you.

This "defensive practice of design" can be a very time-consuming responsibility, and it may even require
the assistance of counsel working behind the scenes to assist you in crafting appropriate responses to
protect the Owner and yourself against eventual claims. It may be appropriate in such a situation to
explain to the Owner that you anticipate that there will eventually be a large claim by the Contractor, and
it is essential to plan for it, and begin preparing the defense against it now rather than later. To
accomplish this, you will need to negotiate with the Owner to add this professional service as an
"Additional Service" to the Agreement, to be paid under a separate line item. An example of a clause that
accomplishes much of what is here discussed is as follows:

Claims filed by Owner's Contractor

If claims are filed by the Contractor relating to work performed by Design Professional’s
personnel, and additional information or assistance from the Design Professional’s personnel is
required in order to evaluate or defend against such claims, Design Professional agrees to make
its personnel available for consultation with the Owner's construction contract administration and
legal staff and for testimony, if necessary, at depositions and at trial or arbitration proceedings.

Design Professional’s personnel that the Owner considers essential in defending against
Contractor claims will be made available on reasonable notice from the Owner. Consultation or
testimony will be reimbursed at then current rates, including travel costs, for the dispute
resolution services of Design Professional’s personnel.

Services of the Design Professional’s personnel in connection with any Contractor's claims will
be performed pursuant to a written supplement, if necessary, extending this Agreement for a
sufficient term and with necessary cost reimbursement to finally resolve the claims.

Experience demonstrates that the Design Professional is generally well-advised to attempt to form a
united front with the Owner against any Contractor claim once the Contractor has initiated a claim
proceeding against the Owner. Although some Contractors will sue the Design Professional directly, this
is not permitted under the law of many states. Even where it is permitted, many Contractors prefer to
simplify their litigation by suing only the party with whom they have a contract rather than attempting to
prove a separate cause of action against the Design Professional. Owners may be tempted to blame the
Design Professional for the claim. Instead of working with the Design Professional to demonstrate that
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the claim lacks merit, Owners may instead seek damages from the Design Professional for the Contractor
claim. This often works to the advantage of the Contractor, since it creates a divided front and the old
theory of "divide and conquer" still has much merit.

You should communicate with the Owner when a claim or litigation is filed by the Contractor, and
consider a joint defense agreement to defend against the claim as a united team. By working in close
cooperation with the Owner, it may be less likely that the Owner will turn against you. By working with the
Owner, it is also more likely that the Contractor claim will be resolved more quickly and with less cost to
you and the Owner.

Expert Witness testimony is sometimes expected from the Owner. In order to clarify what role you will
play as an expert witness and when you will do so, you may use a clause like the following:

Witness Fees

A. Design Professional’s employees shall not be retained as expert witnesses, except by separate
written agreement.

B. Owner agrees to pay Design Professional pursuant to Design Professional’s then current
schedule of hourly labor billing rates for time spent by any employee of Design Professional
responding to any subpoena or other document of testimony request by any party in any dispute,
as a witness or to assemble and produce documents resulting from Design Professional’s
services under this Agreement.

See also:
Changes
Dispute Resolution
Scope of Services

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Compliance with Law
Issue: Contracts often include a clause stating that the Design Professional shall comply with all laws,
regulations, codes and ordinances. Although such a clause may seem reasonable at first blush, it can
create an absolute warranty and guarantee that your services will conform with laws, regulations and
ordinances that you reasonably believed did not apply to the services being rendered.

An example of such an Owner-generated clause is as follows:

"Regardless of where services are to be performed, Design Professional warrants that it shall at
all times comply with any and all applicable foreign, federal, state, and local government laws,
ordinances, statutes, standards, rules, regulations, and guidances, including but not limited to
those relating to working hours, working conditions, health and safety, and the environment."

Consider a situation in which you evaluate the meaning and application of a particular regulation to your
services for a project and based on your interpretation of that regulation, you create designs and perform
other professional services that a regulatory agency concludes fail to meet the regulatory requirements.
You disagree with the regulator, but the Owner is, nevertheless, required to pay fines, penalties and
damages to the government and re-perform the work consistent with the interpretation that the regulators
give to the regulations. If you committed to comply with all the laws and regulations you could be liable to
the Owner for breach of contract, warranty or guarantee. Such liability is excluded from coverage by most
professional liability policies.

Another issue related to compliance with law is whether the Owner or the Design Professional should pay
for increased costs of performance necessitated by changes in laws and regulations that occurred after
the contract was executed. Unless this is clarified in the contract, the Owner might assert that you are not
entitled to any additional compensation for changing your services to comply with newly changed laws
and regulations. Some Owners even make it clear that they intend for the Design Professional, without
additional compensation, to make any changes necessitated by laws and regulations that change after
the services begin. An example of such an unfortunate clause is as follows:

The Design Professional shall not be compensated for changes in the design necessitated by the
enactment or revision of codes, laws, or regulations subsequent to the execution of the Agreement. The
Design Professional shall provide input to the Owner regarding adjustments to the Project Budget or
Construction Cost to reflect the impact of such changes.

Consider this: The nature of rendering professional services requires you to exercise your professional
judgment concerning the reasonable interpretation and application of law and regulations to the services
being performed. Exercising reasonable care to comply with such laws and regulations is all an Owner
should realistically expect of you. No Owner really expects to pay you to have a battery of lawyers look
over every decision you make interpreting and applying laws and regulations. Owners also understand
that government employees can be unreasonable in their interpretation and application of their own
regulations. Many of them have been subjected to this difficulty. A more reasonable clause is:

Compliance with Law

Design Professional and Owner will use reasonable care to comply with applicable laws in effect
at the time the services are performed hereunder, which to the best of their knowledge,
information and belief, apply to their respective obligations under this Agreement.

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By making compliance a mutual requirement, it may be easier to negotiate the reasonable care standard
into it. The tactic here is to explain to the Owner that just as the Owner expects you to comply with the
law, you are confident that the Owner likewise expects to comply with the law. It is hard for an Owner to
disagree with that. You can then explain that the revised clause is fair because it imposes a
reasonableness standard on the Owner as well as the Design Professional.
Where laws change after the services have begun, it is only reasonable that you should be paid for any
increased costs you incur as a result of revising your services to comply with the changes. The following
clause addresses payment for increased costs to comply with newly effective regulations (but not
specifically changes in interpretation by enforcement officials):

Owner shall pay for any reasonable charges on written change orders from Design Professional
for services, modifications, or additions required on the part of Design Professional to comply
with laws or regulations that become effective after the execution of the Agreement.

In conclusion, the Design Professional should be expected to use reasonable care in identifying various
laws, regulations, codes and the like, and then, based upon the Design Professional’s interpretation,
apply them to the project at hand. When Owners understand the problem facing the Design Professional,
they will often agree to redraft the compliance with laws section. A sample clause follows:

In performing professional services, Design Professional shall exercise due care in the
identification and application of applicable codes, laws, regulations, and standards. Changes in
laws and regulations or the application thereof after the execution of this Agreement that were not
known or reasonably foreseeable affecting the cost or time of performance may be the subject of
a change order.

See also:
Accessibility
Certification
Changed Conditions
Changes
Cost Estimates
Disposal of Waste Materials
Environmental Conditions and Services
Insurance
Owner’s Responsibilities
Standard of Care
Warranties and Guarantees

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Confidentiality
Issue: Beware of a contract clause strictly prohibiting you from reporting information that you learn in the
process of performing services. Certain information concerning environmental conditions may be required
to be reported pursuant to various federal or state laws and regulations. Information pertaining to public
health and safety may be required to be reported pursuant to ethical obligations or government
investigations or local Code of Ethics. Some of these obligations may be incorporated into state licensing
laws for Design Professionals. Other information may need to be shared with subconsultants,
employees, legal or accounting professionals or lenders in order to efficiently conduct your professional
services. Finally, you may find it necessary to reveal information during litigation to defend against third-
party suits.

If you have agreed to contract language barring you from divulging or releasing any information without
the consent of the Owner, you may find yourself in the position of having to breach the contract in order to
comply with good business, legal or ethical requirements. Many States, for example, require that when a
Design Professional working on a site learns of a release of contaminants (such as an underground
petroleum tank leak), the Design Professional must report it to the State within a specified period of time
(such as 24 to 48 hours). If this is an independent duty of the Design Professional, it cannot be avoided
by deferring to the Owner to submit the report to the State.

There may be times when an Owner will not want the governing authorities to know of an environmental
release and will, therefore, choose not to report the release on its own. Owners may even threaten you
with suit for breach of contract in the event that you independently report such information.

If you fail to comply with State reporting requirements, you may be subjected to fines and penalties. You
may also be subject to sanction under professional licensing statutes.

A confidentiality clause found in Owner contracts may appear to permit adequate disclosure, but on
further evaluation it will be seen to be lacking in breadth. An example is as follows:

"Confidentiality. Design Professional covenants that: (a) Design Professional (i) shall maintain, as
Owner's confidential property, (ii) shall not use for Design Professional’s own benefit, and (iii)
shall not disclose, in whole or in part, to any third party (other than under subparagraph (b)
(below) any information, materials or experience regarding Owner, its operation, its personnel or
its activities, including, but not limited to general or specific aspects of the work provided
hereunder (the "Information"); (b) The duty of secrecy in subparagraph (a) shall not apply to
information: (1) disclosed in a patent, copyright, or otherwise contained in the pubic domain
through no fault of the Design Professional; (2) obtained by Design Professional in writing from a
third party lawfully in possession of it and under no secrecy obligation as to it; and (3) which was
in Design Professional’s knowledge and possession prior to commencement of the consultation
services (a) as a matter of right, (b) without restriction as to use or disclosure, and (c) not
acquired by Design Professional, either directly or indirectly, from Owner."

It is clear that this clause does not authorize the Design Professional to disclose information, such as
environmental information, that it learns while performing its services, which information the Design
Professional may be required to report to a governing agency pursuant to a code of ethics, law or
regulation. It also appears to prohibit the Design Professional from responding to litigation, subpoenas,
discovery requests, government investigations and the like.

Consider this: If you encounter overly strict confidentiality language, explain to the Owner that it must be
revised to permit you to report information in certain circumstances. Demonstrate that this is in the best

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interests of the Owner as well as the Design Professional. Moreover, it is critical that the Owner
understand that the law may create an independent legal obligation for you to report information. The
interests of the Owner may be protected by including a requirement that before you report information, to
the extent legally permissible, you will first notify the Owner and afford the Owner an opportunity to submit
the report. In the case of subpoenas or court orders demanding the information, you will be affording the
Owner an opportunity to oppose the subpoenas and orders by giving the Owner prior notice of your intent
to release information.

AIA Document B141 (1997) at 1.2.3.4 treats confidentiality as follows:

The Architect shall maintain the confidentiality of information specifically designated as

confidential by the Owner, unless withholding such information would violate the law, create the
risk of significant harm to the public or prevent the Architect from establishing a claim or defense
in an adjudicatory proceeding. The Architect shall require of the Architect’s consultants similar
agreements to maintain the confidentiality of information specifically designated as confidential
by the Owner.

Rather than permitting the confidentiality requirement to apply to "all" information furnished by the Owner,
or to some unspecified information, require the Owner to physically mark the specific documents
considered to be confidential. Rather than placing an eternal ban on releasing confidential information,
negotiate some reasonably short expiration time on the confidentiality obligation.

Even if strict language is included in the contract, it might be voided if a court determines that
enforcement of the language would be contrary to law or public policy. If there is a fight over the
enforceability of the contract language, the Owner and Design Professional will both incur legal
expenses, and the fight may so sour their relationship that neither will choose to do business with the
other again. Consider the merits of the following clause:

Confidentiality

Design Professional and Owner shall hold confidential all business or technical information
obtained from the other or its affiliates under this Agreement for a period of five (5) years after
obtaining such information, and during that period shall not disclose such information without
the other's consent except to the extent required for (1) performance of services under this
Agreement; (2) compliance with professional standards of conduct for preservation of the public
safety, health and welfare; (3) compliance with any law, regulation, ordinance, subpoena, court
order or governmental request; or (4) protection of the disclosing party against claims or
liabilities arising from performance of services under this Agreement. In the event disclosure may
be required for any of the foregoing reasons, the disclosing party will, except where immediate
notification is required by law or regulation or is, in the judgment of Design Professional’s
counsel required to limit Design Professional’s liability, notify the other party in advance of
disclosure. The parties' obligations hereunder shall not apply to information in the public domain
or information lawfully acquired on a non-confidential basis from others.

It appears that some Owners have been adopting language somewhat similar to that set forth above, with
the apparent intent of creating the appearance of addressing the Design Professional’s independent
obligation to report, but with the actual result of tying the Design Professional’s hands. This appears to be
accomplished by stating that the Design Professional may only disclose information when "it is required to
do so by subpoena or court order." The language fails to state that the Design Professional may disclose
information if, in the opinion of the Design Professional or its counsel, the law, regulations or codes of
ethics require disclosure. Stating merely that the Design Professional may disclose when required to do

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so by a court puts the cart before the horse. How can there be a subpoena or court order to disclose what
only the Design Professional has discovered? Do not agree to this kind of narrow language. Insist that
you be permitted to disclose when, in your professional opinion, you are required to do so by
investigatory demand, discovery, standards of ethics, laws, or regulations.

In the post Sarbanes Oxley Act of 2002 world, it is possible that you may be compelled to disclose
confidential information and not doing so may subject you to penalties. A clause similar to the following is
worthy of consideration:

In the event that you or anyone to whom you transmit Confidential Information pursuant to this
Agreement become legally required to divulge Confidential Information by virtue of an
independent legal obligation or at the direction of a governmental agency or regulatory body, or
pursuant to deposition, interrogatory, request for information or documents, subpoena, civil
investigative demand or similar process you shall to the extent legally permissible, so notify
Owner as soon as practically feasible of such requirement so that Owner may, at its own cost
and expense, intercede to protect its interest in the Confidential Information. In the event that a
protective order or other remedy is not obtained, or if Owner waives compliance with the
confidentiality and nondisclosure provisions of this Agreement, you may furnish only that portion
of the Confidential Information which you are advised by your counsel is legally required to be
disclosed without penalty under this Agreement.

See also:
Advertising

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Consequential Damages
Consequential damages are damages that occur because of or as a consequence of your professional
services. Economic losses, lost rents, extra expense, loss of production, fines, penalties and
consequences of a loss of use of property are examples of consequential damages. Consequential
damages are usually best addressed in a specific waiver of consequential damages clause in the
contract. A mutual waiver of consequential damages may also appear in the indemnification clause. A
consequential damages waiver might also go into the Limitation of Liability clause in the event you are
able to include such a clause in your contract. Many Owners are willing to mutually waive consequential
damages.

Consider this: A waiver of consequential damages clause may provide:

In no event shall either party be liable to the other for any indirect, incidental, or consequential
damages of any kind or nature.

Or this:

Design Professional shall not be liable to Owner for any indirect or consequential damages
whatsoever, whether such liability arises in breach of contract or warranty, tort, including
negligence, strict or statutory liability, or any other cause of action.

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Copyrights
Issue: Copyright law protects the work product of a Design Professional, including plans, drawings, and
even the building design. Consequently, if you own the copyright, no one else can reproduce your work,
use it to make derivative works, or otherwise take advantage of your copyrighted work without your
consent. A Design Professional needs to protect its copyrighted interest against Owners who use
contract language (generally in the Ownership of Documents clause) entitling the Owner to the copyright.
If you give away your copyright to the Owner, you may forfeit your basis for payment for derivative work
that the Owner creates using your original work product. And just as important, you might give up your
right to reuse your work product for developing designs for future clients and projects. Owners have been
known to sue the Design Professional for designing a building for someone else that looks too much like
the one designed for the Owner.

Consider this: Explain to the Owner that your fee structure for the project is based on the understanding
that the design work product remains your property. You will own the copyright. The Owner should further
understand the increased risks you may have if you give up your copyright and ownership of the Contract
Documents and the design, thereby permitting revisions, modifications and additions by the Owner that
could affect the integrity of the design. For several example clauses (both good and bad) see the
"Ownership of Documents" Section.

A clause in the AIA Document B141 (1997) at 1.3.2.1 addresses the ownership of documents issue as
follows:

Drawings, specifications and other documents, including those in electronic form, prepared by
the Architect and the Architect’s consultants are Instruments of Service for use solely with
respect to this Project. The Architect and the Architect’s consultants shall be deemed the authors
and owners of their respective Instruments of Service and shall retain all common law, statutory
and other reserved rights, including copyrights.

EJCDC Document E-500 (2002) at 6.03.A provides as follows:

All Documents are instruments of service in respect to this Project, and Engineer shall retain an
ownership and property interest therein (including the copyright and right of reuse at the
discretion of the Engineer) whether or not the Project is completed.

See also:
Ownership of Documents

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Cost Estimates
Issue: Owners sometimes think that when a Design Professional estimates the project costs of either its
own consulting fees, or the costs of completing the construction of the project, the Design Professional is
guaranteeing its services will be performed for the initial estimate and that the construction will be
completed for the estimated construction costs. This expectation on the part of the Owner has led to
many lawsuits where the costs did not come in on project budget established by the Owner. More than
anything, this is caused by a genuine breakdown in communication. Managing expectations about cost
estimates is an important risk management tool especially when construction costs are increasing
significantly year after year.

Some Owners are establishing a "Fixed Limit of Construction Cost" and requiring the Design Professional
to provide a budget estimate for how it will complete its services and meet the fixed limit of construction
cost. Any revisions to plans or changes that have to be made in order to keep the project within the
required budget then become the responsibility of the Design Professional. An example of such an
unfortunate clause is the following:

"The Design Professional shall not be reimbursed for changes in the design necessitated by the
enactment or revision of codes, laws, or regulations subsequent to the execution of the
Agreement. The Design Professional shall provide input to the Owner regarding adjustments to
the Project Budget or Construction Cost to reflect the impact of such changes. . . . The Design
Professional shall not be reimbursed for clarifications of Contract Documents . . . and preparing
Change Orders and Construction Change Directives resulting from Design Professional’s own
errors, omissions, or conditions uncovered at the Site which require interpretation by the Design
Professional, including, but not limited to existing hazardous material conditions . . . or for
revisions required to meet the Fixed Limit of Construction Cost established for actual construction
of the Project.
***
The Design Professional shall provide Owner with a Project Budget estimate. . . . If agreement on
any of the Project budget estimates cannot be reached between Design Professional and Owner,
Design Professional, with the assistance of Owner, shall redesign the Project as necessary to
meet the Owner's Project budget requirements at no additional cost to Owner.
***
In the event that the lowest responsive bid exceeds the Fixed Limit of Construction Cost, the
Design Professional, if directed by Owner, shall redesign the Project with the assistance of the
Construction Manager in order to bring the Project within budget. Design Professional shall not
be entitled to additional compensation for this redesign or any services required for the re-bidding
of the Project. The Design Professional shall be responsible for any and all costs incurred by the
Owner which are attributable to the redesign or re-bidding of the Project."

The above clause could be included under several of the discussions in this Guide. It impacts the
Standard of Care — making the Design Professional responsible for costs exceeding the budget
regardless of whether caused by the negligence of the Design Professional. It could also be discussed
under Compliance with Laws. It is ironic that an Owner should understand and anticipate that laws,
regulations and ordinances may change during a project, but expressly state that it will not pay the
Design Professional for any changes in the design necessitated by those changes which were beyond
the Design Professional’s control. It could also be discussed under the Changes and Changed Conditions
clauses. This Owner has expressly eliminated any equitable adjustment to compensate the Design
Professional for addressing environmental conditions discovered during the project.

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Another part of the above-quoted clause that is not set forth in this text stated that the Design
Professional visited the Project Site and knows and has verified all site conditions. The result of this
combination of onerous and unrealistic terms is that the Design Professional on this project will incur
substantially greater risk than is customary and much of that risk will be uninsurable.

Although the above-referenced language is a rather extreme example of risk-shifting, you should not
assume that it is a complete aberration. While Owners may not be so direct in their risk shifting terms and
conditions, you may be surprised to find that they have accomplished much through more subtle
language. As has been wisely observed, "The devil is in the details."

Consider this: The Design Professional should educate the Owner on the reasons that there can be no
cost guarantee and include contract language to state the same. On even the most basic project, the
costs can differ from what was anticipated by the Design Professional because of conditions and
situations beyond the Design Professional's control. If environmental remediation is part of the project,
the possibility for cost estimates to be exceeded is greater. By using the word "opinion" instead of
"estimate" it may be clearer that the Design Professional is exercising its professional judgment in
compliance with the professional's general standard of care. This establishes a legal defense that,
although the cost opinion proves to be incorrect, the Design Professional is not liable to the Owner since
it met the standard of care. To prove otherwise, the Owner would typically have to present expert
testimony to the contrary. Contract clauses should clearly state that the cost opinion is not a guarantee of
cost either as to the Design Professional’s fee or the ultimate construction costs to be paid to others. An
example is as follows:

Construction cost opinion

Design Professional shall prepare an opinion of the probable costs of construction. Design
Professional has no control, however, over (a) the cost of labor, material, or equipment; (b) the
means, methods and procedures of the Contractor's work; or (c) the competitive bidding. Design
Professional’s opinion of probable cost shall be based on its experience and qualifications and
represents its judgment as a Design Professional, but shall not be a guarantee that construction
costs will not vary from its opinions of probable cost.

If the Owner insists on greater assurance of the accuracy of the estimate, you might encourage the
Owner to obtain an independent cost estimate by another consulting firm. EJCDC Document E-500
(2002) at 5.01 "Opinions of Probable Construction Cost" provides language like that above and adds the
following conclusion:

If Owner wishes greater assurance as to probable Construction Cost, Owner shall employ an
independent cost estimator as provided in Exhibit B.

If you believe the Owner will not appreciate, or go along with, the terminology of "cost opinion," you might
consider a clause that uses the term "estimate" but qualifies it as only a professional opinion.

Design Professional's Estimate

Design Professional's estimate of probable Construction Cost is made on the basis of Design
Professional's experience and qualifications and shall be deemed to represent Design
Professional's opinion and judgment. Design Professional does not guarantee that proposals,
bids or actual facility cost will be the same as Design Professional's estimate of probable
Construction Cost.

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If the project on which you are providing professional services involves an environmental cleanup or
restoration of land, you may further distance yourself from warranting the accuracy of a cost opinion by
including language in the contract such as the following:

In soils, foundations, groundwater, and other geotechnical or geoscience investigations, actual

conditions may vary materially from those noted at test points or sample intervals. Because of
these inherent uncertainties, changed or unanticipated conditions may arise during subsequent
activities at the project site that could potentially affect project scope and cost and Design
Professional’s reports and opinions with respect to potential construction or cleanup costs,
therefore, shall not be deemed a guaranteed maximum price or cost of the project.

See also:
Changed Conditions
Changes
Compliance with Law
Insurance
Standard of Care
Warranties and Guarantees

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Delays
Issue: It is possible that the performance of a Design Professional’s services will be delayed due to, for
example, inability to obtain information, thereby requiring additional analytical or investigative work by the
Design Professional. There may also be delays caused by the Owner, a governmental agency, or even a
construction Contractor over whom the Design Professional has no control. When such delay occurs, you
may continue to provide services not described in the contract or suspend your services for a time.
Additional services or suspension of services may cause you to incur additional costs due to having
personnel on the project over a longer period. Some Owners not only fail to see why they should pay the
Design Professional additional compensation for the delay — they actually desire to seek costs and
damages from the Design Professional for such delays.

It seems that with the advent of design/build contracting, more project Owners are seeking to treat Design
Professionals like general Contractors—regardless of the professional nature of the services being
rendered. Even on standard design contracts, we are seeing more evidence of Owners attempting to
treat the Design Professional like a construction Contractor.

A "time is of the essence" clause can impose undue risk on the Design Professional. Such a clause
jeopardizes the Design Professional’s duty to perform within the standard of care and may result in a
liability for delay without fault.

Consider this: Avoid, to the extent possible, contract provisions holding you to a strict time deadline.
Delete language such as "time is of the essence." It is appropriate only to agree to complete your
services in a timely manner consistent with the exercise of due care. If the Owner insists on making "time
is of the essence" and holding you to a strict time deadline, consider including a Suspension, Timeliness
of Performance, Force Majeure or other clause that will excuse untimely performance that arises from
circumstances beyond your control.

Some Design Professionals address delays in a separate clause such as the following:

Delays

If Design Professional is delayed at any time in the progress of the services by any reason beyond
the Design Professional’s control, including any act or omission of the Owner, by any act or
omission of a Contractor, or by adverse weather or other conditions not reasonably anticipated,
the time for completion of the Services shall be extended for a time equal to the time of such
delay and an equitable adjustment in Design Professional’s fee shall be made as may be
reasonable under the circumstances.

Another way the delays issue may be handled is to include a clause stating that the Design Professional
will exercise diligence to complete its services on the schedule established for the project, as may be
consistent with the standard of care required for the services. An example is as follows:

Timeliness of Performance

Design Professional agrees to exercise diligence in the performance of its services consistent
with the agreed upon project schedule, subject, however, to the exercise of the generally
accepted standard of care for performance of such services.

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A similar concept is expressed in the following language:

Timeliness of Performance

Design Professional acknowledges that timely performance of services is an important element of

this Agreement and consistent with sound professional practices, Design Professional will exert
diligent efforts to comply with the schedule agreed to herein.

See also:
Information Provided by Others
Standard of Care
Suspension of Services
Termination
Timeliness of Performance

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Disposal of Waste Materials
Issue: If you are performing services at a site that has hazardous materials, pollutants, or other
contaminants on or under the site that need to be treated or disposed of off-site, you may be held strictly
liable, under various federal and state environmental laws, as an "operator of a hazardous waste facility,"
i.e., the project site where the waste is located or moved to. You could also be liable as "arranger" for the
transportation or disposal of hazardous wastes if you make independent decisions concerning the waste
disposal and treatment. Several litigated cases have held the Design Professional and Contractor to be
subject to strict liability under Superfund, merely for having advised the Owner on where to dispose of
wastes, or for having moved wastes around on a project site.

In some recent environmental remediation contracts, Owners have attempted to shift all risk of
environmental impairment onto the Design Professional or design/builder. An example of such adverse
risk shifting is as follows:

"Design Professional shall dispose of all waste materials at a site and by the means designated
at the sole discretion of Design Professional and in compliance with all local, state, and federal
laws governing the disposal of such waste material. In the event that either (i) the present means
of disposal or (ii) the present disposal site utilized by Design Professional in disposing of such
waste material becomes unavailable as a result of changes in laws or government regulations,
Design Professional shall be responsible for ascertaining and undertaking other means or finding
other sites for disposal and may seek from Owner an equitable adjustment in the fee or
Reimbursable Expenses through the "Changes" clause of this Agreement."

While the equitable adjustment language may be comforting at first, the transfer of waste disposal
obligations to you can be an enormous liability that in all likelihood does not appropriately belong to you in
light of the services provided and the fees charged. We have seen that some Owners, particularly
Potentially Responsible Parties (PRPs), are attempting to pass off to the Design Professional or
remediation contractors, all responsibility and risk for the wastes that are remediated and removed from
the Owner’s site.

Consider this: Assuming that you are not providing environmental remediation services for the Owner,
you should have nothing to do with decisions affecting hazardous materials, pollutants, wastes or other
contaminants found at or under the site. If hazardous materials, pollutants, wastes or other contaminants
are found, it should be the Owner’s responsibility to have them removed by someone else. An example of
a clause follows:

Waste Responsibility

It is understood and agreed that Design Professional is not, and has no responsibility as, a
handler, generator, operator, treater, storer, transporter, or disposer of or arranger for the
disposal of hazardous materials, pollutants, wastes or other contaminants found or identified at
or under the site and Design Professional shall not be responsible to undertake or arrange for the
handling, removal, treatment, storage, transportation, or disposal of hazardous or toxic
substances or constituents found or identified at a site unless otherwise expressly provided in
this Agreement.

Modifying the Scope of Services to address the environmental contamination at the site is one part of the
analysis. In addition, the Owner should take responsibility for making the final decisions concerning
waste handling and disposal. This should include having the Owner sign waste manifests. When Design

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Professionals are providing services on an environmental remediation project, they are generally advised
by their risk managers and legal counsel not to select a facility for off-site disposal of wastes, but rather to
offer the Owner several disposal site options to choose from. The theory is that the person who chooses
the site is liable for any future release of its contaminants from that site. An example clause addressing
this issue is as follows:

Title to Waste

For the purpose of this contract, Design Professional shall act as an advisor to Owner so that
Owner can arrange and coordinate removal and transport or treatment of used petroleum storage
tanks and associated contaminated materials or hazardous substances and constituents
("Waste") by Contractors or Subcontractors experienced and licensed in such removal, transport,
or treatment. At no time will Design Professional take title, constructive or express, to such
Waste. Possession and title to such Waste shall remain with the Owner or shall pass directly from
Owner to such Contractor or Subcontractor, or to the ultimate disposal facility.

Consider defining responsibilities in the contract as follows:

1. The Design Professional’s Scope of Services will be limited to obtaining publicly available information
concerning disposal sites from reputable third party providers in the business of providing this
information. This information will be presented by Design Professional to the Owner for the Owner’s
decision in making a direct contract with the transporter and/or Treatment, Storage and Disposal (TSD)
facility.

2. A statement can be included in the contract clearly explaining the intent of structuring the handling of
the waste as described in (1) above.

3. Obtain agreement from the Owner to indemnify you in the event that you are later classified as a
Potential Responsible Party (PRP) and a demand or claim is submitted against you by a third party or
governmental agency associated with your alleged responsibility as a PRP.

Another issue that should be considered is who will be responsible for the disposal of soil or waste
samples that are collected by the Design Professional. To the extent samples are used up during testing,
this may not become an issue. If, however, there will be sample material remaining after any tests are
completed, the contract should address how the material will be handled and who has responsibility for it.
An example of such a clause is as follows:

Disposal of Samples

a) Non-Hazardous Samples: At Owner’s written request, Design Professional will retain

preservable test specimens, or the residue therefrom, for thirty (30) days after submission of
Design Professional’s report, free of storage charges. Upon Owner’s written request, Design
Professional will use its best efforts to retain test specimens or samples for a longer period of
time, but only for a mutually acceptable storage charge and period of time. After the expiration of
the applicable retention period, Design Professional may dispose of all samples.

b) Hazardous or Potential Hazardous Samples: In the event that test samples contain toxic or
hazardous constituents as defined by applicable law or regulations, upon completion of any
testing and temporary storage by Design Professional, and per Owner’s stated preference, Design
Professional will either: (a) return such samples to Owner for disposal; or (b) use a manifest

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signed by Owner as generator and have such samples transported to a location selected by
Owner for proper final disposal; or (c) dispose of such samples at a properly licensed disposal
facility. Owner agrees to pay all costs, if any, associated with the storage, transport, and disposal
of such samples. Owner recognizes and agrees that Design Professional is acting on behalf of
Owner, and at no time does Design Professional assume title to said materials.

See also:
Compliance with Law
Environmental Conditions and Services
Indemnity
Owner’s Responsibilities
Scope of Services

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Dispute Resolution
Issue: When disputes arise concerning Design Professional services, the resulting dispute resolution
(litigation or arbitration) is generally complex and expensive.

This section of the Guide discusses alternative dispute resolution clauses in part.

Be aware that alternative dispute resolution clauses may create contractual liabilities which are
uninsured, or such clauses may waive rights of subrogation owed the insurer by the terms of the contract
creating a violation of policy conditions which may result in loss of insurance coverage for another
reason. Before agreeing to a dispute resolution clause, the Design Professional is well advised to seek
review from its insurer to determine insurability of the proposed clause.

Litigation. Litigation is time-consuming and may lead to unpredictable results. Judges and juries may not
be experienced with construction projects and may have difficulty understanding the merits of the highly
complex issues. In order to analyze and present a case, it is often necessary to spend many months
taking depositions and reviewing documents. If one party is not satisfied with the result, there may be an
appeal and the final resolution of the matter may be further delayed. The investment of time, energy and
money required for litigation, has fueled the emergence of alternative dispute resolution mechanisms.
One factor favoring litigation over other forms of dispute resolution is the requirement that the plaintiff
bear the burden of proof to persuade the fact-finder (e.g., the judge or the jury) that the Design
Professional performed negligently.

Arbitration. Instead of litigating disputes, the parties may agree by contract to submit all disputes to
binding arbitration pursuant to the Federal Arbitration Act or the rules of the American Arbitration
Association. Generally, arbitration is conducted by a panel of three arbitrators who issue a binding
decision. Often, each party can choose one arbitrator and the third would be selected by consensus of
the first two. The parties may also agree to have a single individual serve as an arbitrator. Although
arbitration can be conducted more quickly and less expensively than litigation in court, it may (and often
does) drag out for many months and include limited discovery. Arbitration is not a panacea and in some
cases disputes about how the arbitration will proceed become obstacles to even beginning the arbitration,
especially when the relationship of the parties has significantly deteriorated. The decision of the panel
generally is less than a paragraph long. It identifies which party gets what relief but it does not typically
contain any factual or legal explanation. This can be frustrating to one or both parties. Further, the parties
have only a limited right of appeal should they disagree with the award. Arbitration can be just as
frustrating, therefore, as litigation, with the parties losing control of the dispute to the lawyers and decision
makers.

Consider this: Because of the uncertainties with arbitration, some Design Professionals respond to
Owners who demand arbitration by proposing a clause to limit the applicability of arbitration to only
relatively smaller claims—such as those less than $500,000.

Alternative Dispute Resolution (ADR). Alternative Dispute Resolution (ADR) is the general term used
to encompass a host of different venues (such as mediation, dispute resolution boards, mini-trials, etc.)
for resolving disputes. The common thread of ADR is that a neutral third party outside of the judicial
system presides over the matter and helps to facilitate the parties reaching a mutually acceptable
agreement. ADR generally produces a non-binding result. Control over the dispute, consequently,
remains with the parties. ADR is not, however, typically used as a fact-finding and claim-asserting
expedition. It is more in the nature of a negotiation process.

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The parties must have assessed the merits and strengths of their case, as well as their opponent’s case,
prior to ADR—at least sufficiently to cause them to believe that there is something to negotiate over. For
example, in mediation, the parties must come to the table prepared and willing to compromise. If one of
the parties comes to the table believing that they will simply explain their position and the other side will
accept the explanation and retreat from their position, that party will probably be disappointed to learn
otherwise and will have wasted their time and money in having gone through the process.

A good third-party neutral should be able to :

1. Earn the respect of the parties (professors and retired judges are often used);

2. Listen to each party and help them to understand better the other party's position as well as the
weaknesses of their own position;

3. Assist the parties in finding common ground;

4. Deal directly with the principals of the parties without undue involvement by attorneys;

5. Be tough and persistent enough to keep the parties at the table until all settlement possibilities have
been fully explored and the matter is resolved, if amicable resolution is at all possible.

Non-binding ADR has proved to be successful for resolving disputes more quickly and less expensively
than either litigation or arbitration. It has the added benefit of resolving issues without an all-out legal war.
This more amicable manner of resolving issues may leave the parties better positioned to work together
on future projects. The benefits of mediation are significant enough that Zurich includes a credit of 50
percent (up to $20,000) against some of its policy’s deductible for those insureds that resolves a claim
through mediation that was first approved by the Company.

A sample contract clause is as follows:

Mediation

All disputes arising out of, or related to, this Agreement shall be submitted first to non-binding
mediation as a condition precedent to litigation. If any dispute submitted to mediation is not
successfully resolved, the matter may be resolved through litigation in any court of competent
jurisdiction.

You may substitute arbitration in lieu of litigation, in which case you should specify the use of the rules
and procedures like those of the American Arbitration Association just as you would in a standard
arbitration clause.

You may want to consider flowing alternate dispute resolution clauses down to your subconsultants (and
may want to insist that the owner similarly follow the provision to all other necessary parties including, but
not limited to the contractor) in order that all disputes (including subcontract disputes) will be submitted to
mediation. It bears mention that multiparty mediations can become procedurally and logistically
challenging, and the consent of the conditions of your insurance policy may require that the insurance
company give it prior consent before expenses are incurred on a mediation. Avoidance of piecemeal
dispute resolution and inconsistent results is an important risk management consideration. Work with
your counsel to craft a dispute resolution template that provides efficiency and consistency in results.

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Recovery of legal costs. One tool that may help persuade parties to try mediation before litigation is to
require the losing party to pay the other party's litigation costs. The American rule is that each party pays
its own legal fees regardless of who prevails. This can be changed by contract, however. A contract
provision requiring the losing party to pay the other party's legal fees may cause each party to think twice
before getting into litigation, and it should cause parties to be more willing to submit to mediation. You
should be aware, however, that should you lose your case and be required to pay the Owner’s legal fees,
these costs may not be covered by your professional liability policy as "damages." You may wish to
ponder whether a “loser pays” provision benefits the more economically advantaged party more often
than the less economically advantaged party. A sample clause addressing recovery of litigation costs is
as follows:

Recovery of Litigation Costs

In the event that legal action is brought by either party against the other in the Courts (including
action to enforce or interpret any aspect of this agreement), the prevailing party shall be
reimbursed by the other for the prevailing party's legal costs, in addition to whatever other
judgments or settlement sums, if any, may be due. Such legal costs shall include, but not be
limited to, reasonable attorney's fees, court costs, expert witness fees, and other documented
expenses, in addition to any other relief to which it may be entitled.

See also:
Claims Assistance for the Owner

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Environmental Conditions and Services
Environmental Conditions Waste materials, hazardous substances, and various contaminants (let's
call it "Pollution" for ease of reference) can be a problem when discovered on a project where not
anticipated. If you are providing design services for a renovation/remodeling job and encounter asbestos
ceilings, pipes, and flooring tiles, how might you limit your liability? What about an underground petroleum
storage tank or an electrical transformer containing PCBs? If you are designing a new facility or an
addition to an existing facility in a commercial or industrial area, waste materials or hazardous substances
might be discovered below ground, either during the design phase or when the Contractor begins
excavating. Is there liability for the Design Professional? Who is responsible for evaluating the materials
and determining what to do about them, as far as remediation, treatment, or disposal off-site? If the
Design Professional takes responsibility for site conditions or wastes, you may be subject to strict liability
under environmental laws, and subject to liability on other legal theories beyond which you are familiar
and for which there is liability beyond the scope of your insurance coverage. Addressing these issues in
a contract and allocating them appropriately and to the appropriate party may help bring clarity to a
difficult situation.

Consider this: Assuming that you are not specifically providing environmental remediation professional
services (and if you are your insurance program must be tailored to those circumstances), your contract
should carefully limit the Scope of Services to exclude such services. The Changes clause and Changed
Conditions clauses of the contract should bolster the position and specify what happens in the event
hazardous wastes are discovered at the project site. You should discuss with your counsel contract
language that allows you: (1) to terminate services if unexpected environmental conditions are
uncovered; (2) to demand that the owner appropriately remediate the hazardous conditions or pollutants;
(3) to receive compensation for any additional expenses you incur because of the Pollution; and (4) to be
indemnified and defended by the owner for any and all liabilities and expenses arising the pollution
conditions. Coverage for environmental matters in a practice policy will depend, in part, on how your
professional services are described in the policy and what exclusions are contained in the policy. Unless
you are sure your policy has coverage for environmental matters, you should consult with your insurance
professional before you become engaged in any environmental issues.

Moreover, if you know you are providing services on an environmental remediation project, you should
discuss with your counsel language to make it clear that you are not responsible for permits, disposal
decisions, signing of manifests, and third party reliance on site assessment reports.

Waste Materials and Hazardous Substances

It is understood and agreed that Design Professional is not, and has no responsibility as a
handler, generator, operator, treater, storer, transporter, or arranger for transport or disposal of
hazardous or toxic substances found or identified at the site, and that Design Professional shall
not be responsible to undertake or arrange for the handling, removal, treatment, storage,
transportation, or disposal of hazardous substances or constituents found or identified at a site.

To eliminate any question concerning what, if any, responsibility the Professional will have for hazardous
conditions that are discovered at the project, you might include a comprehensive clause similar to EJCDC
Document E-500 (2002) at 6.09 which provides:

Environmental Condition of Site

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A. Owner has disclosed to Engineer in writing the existence of all known and suspected
Asbestos, PCBs, Petroleum, Hazardous Waste, Radioactive Material, hazardous substances, and
other Constituents of Concern located at or near the Site, including type, quantity, and location.
B. Owner represents to Engineer that to the best of its knowledge no Constituents of Concern,
other than those disclosed in writing to Engineer, exist at the Site.

C. If Engineer encounters an undisclosed Constituent of Concern, then Engineer shall notify (1)
Owner and (2) appropriate governmental officials if Engineer reasonably concludes that doing so
is required by applicable Laws or regulations.

D. It is acknowledged by both parties that Engineer's scope of services does not include any
services related to Constituents of Concern. If Engineer or any other party encounters an
undisclosed Constituent of Concern, or if investigative or remedial action, or other professional
services, are necessary with respect to disclosed or undisclosed Constituents of Concern, then
Engineer may, at its option and without liability for consequential or any other damages, suspend
performance of services on the portion of the Project affected thereby until Owner: (1) retains
appropriate specialist consultant(s) or contractor(s) to identify and, as appropriate, abate,
remediate, or remove the Constituents of Concern; and (2) warrants that the Site is in full
compliance with applicable Laws and Regulations.

E. If the presence at the Site of undisclosed Constituents of Concern adversely affects the
performance of Engineer's services under this Agreement, then the Engineer shall have the option
of (1) accepting an equitable adjustment in its compensation or in the time of completion, or both;
or (2) terminating this Agreement for cause on 30 days notice.

F. Owner acknowledges that Engineer is performing professional services for Owner and that
Engineer is not and shall not be required to become an "arranger," "operator," "generator," or
"transporter," of hazardous substances, as defined in the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA), as amended, which are or may be
encountered at or near the Site in connection with Engineer's activities under this Agreement.

Owner's indemnification for environmental impairment As more fully discussed elsewhere in this
manual, indemnity clauses shift risk between the parties to a contract. An Owner may demand that you
indemnify the owner for damages related to environmental impairment or site conditions which is usually
not appropriate or fair. Discuss the matter with your counsel. One test for fairness is to evaluate the
relationship of the parties, who is best positioned to and reasonably should bear the burden of the
environmental impairment in light of the roles, economic resources and economic benefits of the parties
to the contact.

Consider this: Where you are performing services on a project that has potential environmental liability,
such as environmental remediation, you may consider using an indemnity clause that addresses
environmental impairment separately from ordinary damages. Several larger Owners have begun to
include reasonable indemnity language in their standard form environmental remediation contracts, as to
environmental damages arising out of pre-existing site conditions. A sample clause is as follows:

Release and Indemnification for Environmental and Non-Environmental Damages

With respect to "Environmental Impact Claims," to the fullest extent permitted by law, Owner
hereby releases and shall indemnify, defend and hold completely harmless Design Professional
and its subcontractors, consultants, agents, officers, directors, and employees from and against

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all claims, damages, losses and expenses, whether known or unknown, direct, indirect or
consequential, including but not limited to fees and charges of attorneys and court and arbitration

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costs, arising out of or resulting from the services or work of Design Professional or any claims
against Design Professional arising from the acts, omissions or work of others. To the fullest
extent permitted by law, such indemnification shall apply regardless of the negligence or strict
liability of Design Professional, provided, however, that said indemnification shall not apply to
claims, damages, losses or expenses which are finally determined to result solely from the Design
Professional’s negligence or willful misconduct.

"Environmental Impact Claim" means claims, suits, judgments, costs, losses, expenses whether
known or unknown (including attorneys' fees) which arise out of, are related to, or are based upon
the actual or threatened dispersal, discharge, escape, release or saturation of smoke, vapors,
soot, fumes, acids, alkalis, toxic chemicals, liquids, gases or any other material, irritant,
contaminant or pollutant in or into the atmosphere, or on, onto, upon, in or into the surface or
subsurface (a) soils, (b) water or water course, (c) objects, or (d) any tangible or intangible matter,
whether sudden or not.

Where there are pre-existing environmental conditions at a site on which the Design Professional will be
providing services, it may be advisable to obtain indemnification from the Owner to indemnify you against
claims arising out of a release of contaminants related to those pre-existing conditions. As indicated
above, it is becoming increasingly common for large Owners to agree to this. Such a clause is as follows:

Indemnification for Pre-existing Conditions.

Owner and Design Professional recognize and agree that Design Professional bears no
responsibility whatsoever for the creation, existence, removal, or dispersal of infectious,
hazardous, toxic or other dangerous substances ("Pre-existing Conditions") existing at Owner’s
work site. To the fullest extent permitted by law, Owner agrees to indemnify, defend and save
harmless the Design Professional from and against any and all liabilities, demands, claims,
penalties, damages, forfeitures, suits, and the costs and expenses arising from Pre-existing
Conditions including costs of defense, settlement and reasonable attorneys and expert fees and
expenses), except to the extent the Pre-existing Conditions result from the sole negligence or
willful misconduct of Design Professional.

A different version of indemnification addressing pre-existing conditions goes into greater detail by
naming specific environmental laws and theories of action against which the consultant will be
indemnified. It provides as follows:

Environmental Indemnity.
To the fullest extent permitted by law, Owner agrees to indemnify, defend, and hold harmless
Design Professional and Design Professional's subcontractors, consultants, agents, officers,
directors, and employees of any of them from and against all known or unknown claims,
damages, losses and expenses, including but not limited to attorney's and expert fees and
expenses, arising out from any release or threatened release of pollutants, hazardous substances
or hazardous wastes. Without limiting the generality of the foregoing, the above indemnification
extends to known or unknown claims arising from:

a) Owner’s violation or alleged violation of any federal, state, or local statute, regulation, or
ordinance relating to the disposal of toxic or hazardous substances or constituents;

b) Owner’s or Design Professional’s undertaking of or arrangement for the handling, removal,

treatment, storage, transportation or disposal of toxic or hazardous substances or constituents
found or identified at the site;

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c) Toxic or hazardous substances or constituents introduced at the site by Owner or third party
before, during, or after the completion of Design Professional's services;

d) Allegations that Design Professional is a generator, operator, treater, storer, transporter,

arranger for transportation, handler or disposer under the Resource Conservation and Recovery
Act (RCRA), Comprehensive Environmental Response Compensation and Liability Act (CERCLA)
or any other federal, state or local law, regulation or ordinance; and

e) Any third party suit or claim for damages against Design Professional alleging strict liability,
personal injury, bodily injury (including death) or property damage from exposure to or release of
toxic or hazardous substances or constituents at or from the project site before, during or after
completion of Design Professional’s services under this Agreement.

See also:
Certification
Changed Conditions
Changes
Compliance with Law
Consequential Damages
Disposal of Waste Materials
Indemnity
Independent Contractor Status
Information Provided by Others
Insurance
Limitation of Liability
Owner’s Responsibilities
Permits and Licenses
Scope of Services
Site Safety
Standard of Care
Third-party Claims
Timeliness of Performance
Underground Utilities
Warranties and Guarantees

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Governing Law and Jurisdiction
Issue: The interpretation, application, and enforceability of various contract clauses may depend upon
the location of the project, or domicile of the Design Professional or the Owner. If the contract is silent
about what law governs, the matter is generally decided based upon where the work is performed.
Parties may also argue that the law of the state where one or more parties are domiciled should apply. If
the contract is not specific about what law governs, the parties may end up spending a lot of time and
money arguing this issue if a claim and litigation later ensue. The outcome of various issues can be
directly related to which law controls. This is particularly true with regard to indemnification provisions and
limitation of liability provisions, the permissibility of which are determined by the governing state law.

Even if the contract specifies which state's law will govern, it is possible that the litigation can be filed in a
jurisdiction different from the jurisdiction whose law will govern. Consider this hypothetical: The Design
Professional is domiciled in New York. The contract was executed in New York and states that New York
law applies. The design services are performed in a CADD facility in New Jersey for the Owner that is
domiciled in New Jersey, and the construction project will be built in Pennsylvania. If the contract was
silent about what state had jurisdiction over a dispute, the Owner could sue the Design Professional in
New Jersey. That court would then be asked by the Design Professional to apply New York law as
provided for under the contract. If the contract had been silent concerning which state's law would be
applied, the New Jersey court would likely apply the law of its own state because it has the greatest
connection with the project.

Consider this: If the Design Professional wants a particular state's law applied, and wants disputes
litigated in that state as well, it could use a clause such as the following:

This Agreement shall be governed by, and interpreted pursuant to, the laws of the State of
___________ applicable to contracts made by parties domiciled in and to be wholly performed
within the State of ________________. Any action or proceeding arising from or pertaining to this
Agreement shall be brought in a state or federal court in the State of __________, and the parties
shall not challenge the law to be applied, the venue or jurisdiction.

Note there are limitations to this language and there must be some reasonable connection with the state
that is selected for governing law and jurisdiction. Otherwise, many courts will decline to accept
jurisdiction, regardless of what the contract says. The court that takes jurisdiction over the matter may
likewise decline to apply a foreign state's law if there is no adequate connection between the
performance of the work under the contract and that state.

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Indemnity
Issue: An indemnity clause allocates risk or shifts risk between the parties to the contract. It deserves as
much attention as any clause in the contract. The consequences of agreeing to broad indemnity making
you responsible for damages that are not caused by your own negligence can be devastating, particularly
since insurance may not cover you for such damages. Indemnification clauses are usually carefully
scrutinized by Courts and enforceability given the facts and legal circumstances presented and based on
specific local rulings and local law is a legal concern. For example, some jurisdictions will enforce an
indemnification clause and other jurisdictions may not. Some jurisdictions will enforce the clause as
written; others may enforce the clause as written only in some cases; and still others may not enforce the
clause at all because either in general or based on the facts of the case the clause is deemed to violate
the jurisdiction's law or public policy.

There are typically three parts to an indemnity clause. The indemnitor agrees to (1) indemnify, (2) defend,
and (3) hold harmless the Owner. By "indemnifying" the indemnitor agrees to reimburse the Owner for its
losses, after those losses have been determined by litigation, arbitration, or settlement. By "defending"
the Owner, the indemnitor agrees to pay for the Owner’s legal expenses as it defends the claim brought
by a third party. By "holding harmless" the Owner, the indemnitor agrees to protect the Owner against
harm from suits by third parties or the indemnitor.

Generally speaking, signing an indemnity whereby you agree to indemnify the Owner for anything other
than damages caused directly by your own negligent acts, errors, and omissions, creates a "contractual
liability" and you thereby assume liability that you would not have had, except because of the contractual
commitment. Design Professionals’ professional liability policies are designed to respond only to
damages caused by the negligence in the rendering of covered professional services by the insured
Design Professional. Exclusions in the policy generally exclude coverage for contractual liability in which
the Design Professional has assumed liability for which it would not have been liable at the common law
standard of negligence. In other words, you could end up paying the Owner damages pursuant to your
contract but receive no insurance coverage to assist you.

Consider this: Explain to the Owner that you do not have insurance for non-negligent acts, errors, and
omissions. The reason for this is that insurance is intended to protect you in the event you breach the
normal standard of care, i.e., you were negligent. Additionally, it is not reasonable to hold you responsible
for damages caused by someone else, unless that person is someone for whom you would otherwise be
legally responsible. Rather than forcing you to act as an insurer for someone else’s liabilities (including,
perhaps the Owner), the Owner can and should purchase its own insurance or obtain insurance from
other appropriate parties.

Try to negotiate an indemnity clause that allocates the risk to the parties in the best position to control
and manage the risk and that reflects the appropriate standard of care. The below sample clause limits
the Design Professional’s exposure to bodily injury and property damage to the extent caused by a
negligent act, error or omission in the performance of professional services by the Design Professional
(or anyone else for whom the Design Professional is legally responsible) and makes Owner responsible
for all liabilities caused by the Owner’s negligence (or anyone else's negligence for whom the Owner is
legally responsible). There are no defense obligations included in either party’s indemnification
obligation:

Design Professional agrees, to the fullest extent permitted by law, to indemnify and hold harmless
Owner from and against any liabilities, damages, and costs (including reasonable attorneys fees
and cost of defense) arising out of the death or bodily injury to any person or the destruction or
damage to any property, to the extent caused, during performance of professional services under
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this Agreement, by the negligent acts, errors, and omissions of the Design Professional or anyone
for whom Design Professional is legally responsible, [subject to the limitations set forth in the
Limitation of Liability article of this Agreement].

The Owner agrees, to the fullest extent permitted by law to indemnify and hold harmless the
Design Professional from any liabilities, damages, and costs (including reasonable attorneys fees
and cost of defense) to the extent caused by the negligent acts, errors or omissions of the Owner,
Owner’s contractors, consultants or anyone for whom Owner is legally responsible.

Note that if there is a limitation of liability clause in your contract, it is helpful to reference it in the
indemnity clause in order to expressly limit the extent of your indemnification responsibility. Be aware,
however, that it is possible under some circumstances and in some jurisdictions that a limitation of liability
clause would not be enforced.

Note also that the Design Professional’s indemnity is based only on damages arising out of bodily injury
and property damage, whereas there is no such limitation on the indemnification to be provided to the
Design Professional by the Owner.

Consider another clause:

Design Professional Indemnification of Owner

Design Professional agrees, to the fullest extent permitted by law, to indemnify and hold harmless Owner
from and against any liabilities, damages, and costs (including reasonable attorneys fees and cost of
defense) to the extent caused by the negligent acts, errors, and omissions of the Design Professional.

Note that this clause requires the Design Professional to indemnify the Owner only for liability resulting
from the Design Professional’s negligence. If multiple parties such as the Owner, Contractor, and you,
were all negligent and thereby contributed to the damages, you will only be required to indemnify the
Owner for your proportionate share of the liability based on the "extent" of your negligence. In addition,
this clause does not require the Design Professional to "defend" the Owner. The Owner’s defense cost
would, therefore, not become the responsibility of the Design Professional unless and until the Owner’s
liability to the third party is finalized and it is determined that the liability resulted from the negligence of
the Design Professional. The Owner could then look to the Design Professional for reimbursement of its
damages, including legal defense costs.

Contractor’s indemnification of the Design Professional should be advocated for in the contract between
the Design Professional and the Owner. Such indemnification by the Contractor of the Design
Professional is usually included in the industry standard Design Professional form contracts, but may be
omitted in the Owner drafted contracts. To the same extent that the Owner is indemnified by the
Contractor, the construction contract should name the Design Professional as an additional indemnitee.

See also:
Consequential Damages
Disposal of Waste Materials
Environmental Conditions and Services
Insurance
Limitation of Liability
Owner’s Responsibilities
Standard of Care
Subrogation Waiver
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Information Provided by Others
Issue: Information needed for the performance of the Design Professional’s services is often provided by
others, including the project Owner, geotechnical engineers, and other consultants retained by the
Owner. It may include information from as-built drawings of the building or facility on which you are
providing services. It is generally not possible for you to perform your own investigation or second guess
the information provided to you. Nor does the Owner expect to pay you to do so. It is important, however,
that the Owner give you all the information within its possession (or ability to obtain), so that you may
perform your services most appropriately. It is also important that you be able to rely on the information.

Some Owners fail to provide all the information they have or, if they provide it, they state that it is for your
general information only and that you are not entitled to rely upon it. By agreeing to language disclaiming
the reliability of site information and other information provided by the Owner, you may be forfeiting your
right to recover costs or damages resulting from your use of such information if the information turns out
to be wrong. An example of language from an environmental remediation services contract demonstrates
the extremes to which some Owners will go to put the burden on the Design Professional for all site
conditions and to disavow the reliability of any data or information provided by the Owner. In most cases,
this transfer of liability from Owner to Design Professional is not appropriate or fair because the Owner
has better and usually longer experience with the information and is not paying the Design Professional
enough to reasonably expect the Design Professional to “reinvent the wheel”. Unless the Design
Professional has the requisite skills and is being compensated for developing (or critically evaluating)
particular information, the risk that the information is incorrect or otherwise defective should be allocated
to the party that is best positioned to and who reasonably should bear the burden of providing complete
and accurate information worthy of reliance and that party is usually the Owner. Owner should also be
responsible for providing updated information so that the Design Professional’s reliance remains well
placed Consider this language:

"Design Professional represents and warrants that it is familiar with the geological and
environmental conditions at the Site and off-Site property, and has been granted the right to
conduct, and has conducted, all investigations it deems appropriate to determine that it can fulfill
the requirements of this Agreement. Notwithstanding any other provision of this Agreement,
Design Professional assumes the risk of all conditions, as specified in this Contract, that may
affect Design Professional’s ability to perform the Services and will, regardless of such
conditions, or the expense or difficulty of performing the Services or the negligence, if any, of
Owner, with respect to same, fully complete the Services for the stated contract price without
further recourse to Owner or Beneficiaries. Information on the Site and local conditions at the Site
and off-Site property furnished by Owner or Beneficiaries is not guaranteed by Owner or
Beneficiaries to be accurate, and is furnished only for the convenience of Design Professional."

Your head may be spinning as a result of the breathtaking scope of the above site conditions clause. By
the above clause, the Design Professional appears to have created an unconditional warranty. Even if the
data and information given to it by the Owner is incorrect, the Design Professional appears to have no
recourse. The Owner expressly disavowed reliance upon that data. Design Professional has warranted
that it knows all about the site conditions and will assume any risk associated with whatever conditions
actually arise. This leaves no room for a change order request based on the discovery of differing site
conditions.

Consider this: Include a clause in the contract that requires the Owner to provide you with all the
information and data it has concerning the site, the project, the existing buildings on the site and any
needs they have for what you are designing on the site. Include a statement in the clause that, as the
Owner obtains any additional information during your performance of services, it will promptly provide the

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information to you. Finally, include a statement that the Owner intends for you to rely upon the
information.
The following clause incorporates responsibilities of the Owner to provide information and specifically
entitles the Design Professional to rely upon that information:

Site Information Provided by Owner

Owner shall furnish and update as necessary an accurate legal description and a certified land
survey of the site; accurate locations, dimensions and complete data pertaining to existing
buildings and other improvements; and full information concerning available service and utility
lines both public and private, above and below grade, including inverts and depths.

Owner shall be responsible for determining the existence of, handling, removal, and disposition of
all hazardous and toxic materials such as, but not limited to, PCBs and asbestos, which may be
encountered in the Project, and shall make known to Design Professional any known potential or
possible health or safety hazard existing on or near the project site upon which services are to be
performed.

Design Professional shall be entitled to rely upon the accuracy and completeness of all such
information, surveys, data and reports provided by Owner and any deviations from the
information provided by owner and actual site conditions shall entitle the Design Professional to
an equitable adjustment or to cancel this contract.

If the contract is for the performance of environmental remediation services or if the property may have
environmental issues, you may also want to consider a specific, affirmative representation by the Owner
that it has given you all the information available. An example is as follows:

Owner represents, warrants, covenants and agrees that it has provided and will continue to
provide Design Professional all environmental information, studies, or lab analyses which may be
pertinent to the services to be performed under this Agreement.

See also:
Changed Conditions
Changes
Delays
Environmental Conditions and Services
Owner’s Responsibilities
Timeliness of Performance
Warranties and Guarantees

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Inspection
Issue: Design Professionals serving an Owner as an architect, engineer, or construction manager are
sometimes asked to sign contract language describing one aspect of their services as "inspection." The
term "inspection" may imply a greater responsibility on the part of the Design Professional than what is
usually intended by the Design Professional or can reasonably be provided for ordinary fees. The use of
the word “inspection" may make the Owner or a Court think that you are committing to police the project
and through your "inspection" ascertain all instances of the Contractor's personnel not complying with the
detailed plans and specifications or other Contract Documents. Some Owners may even state in the
contract that the purpose of the "inspection" is to ensure that problems are discovered and promptly
reported to the Owner.

Realistically, you cannot "inspect" or “ensure” all the work of a Contractor without having an "inspector"
look over the shoulder of every laborer of the Contractor. Of course, you don't have all these inspectors
overseeing the Contractor, you certainly are not going to be competitively priced if you are fully charging
for the required amount of oversight and there will naturally be times when the Contractor's people fail to
comply with the details of the Contract Documents without your knowledge. Applying the language
requiring you to "inspect" the work, the Owner may allege that you breached your contractual duty.
Compounding the liability potentially arising from an “inspection” term is the additional problem is that the
Contractor may also attempt to use the "inspection" language to affirmatively assert it is relieved of
redoing work you or the Owner later reject — if you have previously "inspected" it and let it go. Consider
this:

Design Professional shall make visits to the site to inspect the progress and quality of the executed work
of the Contractor and its Subcontractors, and to determine if such work is proceeding in accordance with
the Contract Documents.

Design Professional shall keep the Owner informed of the progress and quality of the work and shall
exercise the utmost care and diligence in discovering and promptly reporting to the Owner any defects or
deficiencies.

In the contract from which the above clause was borrowed, the Scope of Services clause was
inconsistent with, and not as comprehensive as, the services the Design Professional would be required
to perform in order to accomplish the inspection and reporting required by this clause. Other project
Owners use language similar to that above and add the following:

"Design Professional shall make certain that the Project is completed in accordance with the
Contract Documents and that construction costs and time delays are minimized to the fullest
extent practicable, consistent with the Owner's criteria for function and quality. . . . Design
Professional is responsible for maintaining adequate supervision over the design and also
adequate observation or inspection of the construction work in order to guard the Owner against
deficiencies in the design work and the work of the Contractors so that the Work is completed in
compliance with the Contract Documents."

Consider this: Explain to the Owner that for the reasons outlined above, it is not realistic to require you
to "inspect" and discover all defects in the Contractor's work. Naturally, you will exercise reasonable care
during your site visits to "observe" how the Contractor is performing, but that is all you can do. A sample
clause is as follows:

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Construction Observation

Design Professional shall, at reasonable intervals, provide an observer or representative to assist

the Owner in evaluating whether the work being performed is in general conformance with the
plans and specifications.

AIA Document B-141 (1997) at 2.6.2.1, addresses the issue squarely by explaining that the Design
Professional will not be on site every day but make site visits as appropriate to how the work is
progressing generally:

The Architect, as a representative of the Owner, shall visit the site at intervals appropriate to the
stage of the Contractor’s operations, or as otherwise agreed by the Owner and the Architect in
Article 2.8. (1) to become generally familiar with and to keep the Owner informed about the
progress and quality of the portion of the Work completed, (2) to endeavor to guard the Owner
against defects and deficiencies in the Work, and (3) to determine in general if the Work is being
performed in a manner indicating that the Work, when fully completed, will be in accordance with
the Contract Documents. However, the Architect shall not be required to make exhaustive or
continuous on-site inspections to check the quality or quantity of the Work. The Architect shall
neither have control over or charge of, nor be responsible for, the construction means, methods,
techniques, sequences or procedures, or for safety precautions and programs in connection with
the Work, since these are solely the Contractor’s rights and responsibilities under the Contract
Documents.

A similar provision is contained in EJCDC Document E-500 (2002) at Exhibit A1.05.A.7:

a. Make visits to the Site at intervals appropriate to the various stages of construction, as
Engineer deems necessary, to observe as an experienced and qualified design professional the
progress and quality of Contractor’s executed Work. Such visits and observations by Engineer,
and the Resident Project Representative, if any, are not intended to be exhaustive or to extend to
every aspect of Contractor’s Work in progress or to involve detailed inspections of Contractor’s
Work in progress beyond the responsibilities specifically assigned to Engineer in this Agreement
and the Contract Documents, but rather are to be limited to spot checking, selective sampling,
and similar methods of general observation of the Work based on Engineer’s exercise of
professional judgment as assisted by the Resident Project Representative, if any. Based on
information obtained during such visits and observations, Engineer will determine in general if
the Work is proceeding in accordance with the Contract Documents, and Engineer shall keep
Owner informed of the progress of the Work.

b. The purpose of Engineer’s visits to, and representation by the Resident Project
Representative, if any, at the Site, will be to enable Engineer to better carry out the duties and
responsibilities assigned to and undertaken by Engineer during the Construction Phase, and, in
addition, by the exercise of Engineer’s efforts as an experienced and qualified design
professional, to provide for Owner a greater degree of confidence that the completed Work will
conform in general to the Contract Documents and that Contractor has implemented and
maintained the integrity of the design concept of the completed Project as a functioning whole as
indicated in the Contract Documents. Engineer shall not, during such visits or as a result of such
observations of Contractor’s Work in progress, supervise, direct, or have control over
Contractor’s Work, nor shall Engineer have authority over or responsibility for the means,
methods, techniques, sequences, or procedures of construction selected or used by Contractor,
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safety precautions and programs incident to Contractor’s Work, nor for any failure of Contractor
to comply with laws and regulations applicable to Contractor’s furnishing and performing the
Work. Accordingly, Engineer neither guarantees the performance of any Contractor nor assumes
responsibility for any Contractor’s failure to furnish and perform the Work in accordance with the
Contract Documents.

On some projects and for some Owners, it may be required that the Design Professional provide an
"inspection report" or perform the services of "construction inspection." If so, you may still be able to limit
your risk by defining what is meant by the term "inspection." For example, the Owner may accept a
statement in the terms and conditions and/or on the "inspection report," or affixed as an attachment to the
inspection report, stating something to the following effect:

Inspection Defined

As used in this Agreement and on "inspection" reports and any certifications, the term
"inspection" shall mean the visual, non-intrusive, observation of the Contractor's construction
and materials used, performed for the purpose of enabling the Design Professional to give a
professional opinion as to the general conformance of the Contractor's work, equipment and
materials with the Contract Documents. Such "inspections" shall not be relied upon by any party
(including persons not a party to this Agreement) as constituting an approval and acceptance by
the Design Professional and shall not be deemed a release of any party from fulfilling the terms
and conditions of their contract with the Owner.

See also:
Certification
Rejection of Work
Scope of Services
Site Safety
Standard of Care
Warranties and Guarantees

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Insurance
Issue #1: Uninsurable Risks - Insurance coverage for the professional liability of a design firm is
designed to provide coverage for negligent acts, errors and omissions of the policyholder. These policies
do not cover liability arising out of breach of warranty or from contractual liability (such as indemnification
for damages not caused by the negligence in the Design Professional's rendering of covered professional
services), except to the extent that the Design Professional would have been liable at common law based
upon its negligence in the rendering of covered professional services.

Professional liability insurance companies expect their insureds to exercise prudent risk management,
particularly with regard to the language they agree to in their contracts. Certain risks the Owner may ask
you to agree to by contract are uninsurable. In other sections of this Guide, it is explained that if you incur
liability to the Owner because you agreed to indemnify the Owner for damages caused by the Owner,
some other party, or by your own acts and omissions which are not negligent, the insurance policy will not
apply to the damages.

There is also an exclusion in most professional liability policies for express warranties and guarantees.

Consider this: When you see a provision requiring a "warranty" or a "guarantee" you should immediately
flag it as a potential problem clause. Spotting these clauses is not always easy, however, because they
may be created by contract language that does not specifically refer to "warranties" and "guarantees." For
example, if you agree to be held to the "highest standard of care" instead of the "generally accepted
standard" you may have agreed to a hidden warranty that your services will be the best and will produce
a perfect result. If you are sued by the Owner for a "defective design," the insurance company will
generally be required to present an expert witness in your defense to prove that you honored the
generally practiced standard of care. Assuming this is proved, you may be found to be not liable on the
basis of negligence and yet liable for breach of your obligation to meet the "highest standard of care." If
this happens, you may incur uninsurable loss from a breach of contract.

Other clauses that may create warranties by their subtle (or not so subtle) language include clauses
pertaining to "compliance with law." It may not be realistic to expect you to identify, interpret, and apply
every conceivable law, regulation and ordinance in precisely the manner that the governing agency or
some other party believes it should be applied. In the event that the Owner incurs damages because of
your incorrect interpretation and application of a law or regulation, you need to be able to defend yourself
by presenting expert testimony to show that your interpretation was a reasonable one — even if it was
incorrect. This, once again, is the normal negligence standard. If your interpretation was negligent, your
professional policy may cover it. If, on the other hand, your interpretation was wrong, but not negligent,
and you have contractually obligated yourself to pay for the Owner’s damages, your policy may not cover
your loss.

A clause addressing "cost estimates" is yet another that creates a potential warranty situation. You
should be careful that you not agree to incur liability based solely on your cost estimate being incorrect.
Agreeing to be responsible for damages resulting from a negligently prepared cost estimate is as far as
you can safely go with this if you hope to have the loss insured. Assuming it to be within the scope of
"covered professional services and not otherwise excluded, your insurance can cover you for a
negligently prepared cost estimate. It will not cover you, however, for breaching a contractual
commitment to give a perfect cost estimate—in the absence of a demonstration that your cost estimate
was also negligent. Once again, you should agree only to exercise reasonable care in preparing the cost
estimates.

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Another clause that creates potentially uninsurable warranties is one that requires you to certify that the
Contractor completed all the work in conformance with the plans and specifications. It is important that
you not agree to such a certification. It can create a representation on which a third party might rely to its
detriment and thereby have a cause of action against you. It might also constitute a warranty-type
assurance to the Owner that the Contractor has completed the work in a satisfactory manner and this
may create liability for you in the event that it is later determined that the Contractor did not perform in
complete accordance with all the plans and specifications.

If you must give such a certification, state the facts and any qualifications or exceptions—noting in
particular if you were not on site for the entire period of construction.

Be careful what you agree to by way of an indemnification clause. If you agree to indemnify the Owner for
injuries and damages that are the result of anything other than your own negligence, there will likely be
no coverage under your professional liability policy for your loss. You might prevail in court by
demonstrating that you complied with the standard of care and were not, therefore, negligent, but you
could still have liability for those damages to the Owner based upon your contractual obligation.

A contractual liability exclusion in a professional liability policy may state that there is no coverage for
liability that you assume by contract that you would not have had at common law in the absence of the
contract language. In other words, if you were negligent, your insurance covers you and the contractual
liability is not an issue. If, however, you were not negligent, and the basis for the Owner’s recovery
against you is the contractual indemnification obligation, you have no coverage for that loss.

Issue #2: Naming Owner as Additional Insured - It seems that some Owners have been persuaded by
individuals unfamiliar with professional liability insurance that they should be named as additional
insureds under the professional liability policy. This is not done by insurance companies for professional
liability policies. Additional insured status is, however, provided on some Commercial General Liability
(CGL) policies. The rationale for the difference in the availability of additional insured status is that liability
of the insured under CGL policies, however, does not rest exclusively on negligence and it is possible for
the Owner to have CGL liability resulting from the Contractor's actions.

An Owner of a project is usually not a licensed Design Professional and is not likely to commit a negligent
design error for which it will need coverage under the professional liability policy. Moreover, the Owner is
the party that is most likely to have damages for which it desires to sue the Design Professional and
recover under the Design Professional’s professional liability policy. By being named as an additional
insured, the Owner's ability to recover damages from the Design Professional under the policy may
unintentionally be impaired due to insured vs. insured exclusions in the policy. Assuming that this is
resolved by removing such an exclusion, the Design Professional is placed in the position of losing part of
its available insurance limits by sharing the proceeds of the policy with the Owner, particularly with
respect to defense costs that the Owner might have in defending third-party claims.

Another challenge with having the Owner as an additional insured is that it creates potential remedies
against the Design Professional that the Owner would not otherwise have. For example, consider a
typical claim in which the Contractor alleges it is entitled to extra compensation as the result of changes it
had to make in its work due to (1) differing site conditions, (2) failure of the Owner to coordinate the work
between multiple prime Contractors, and (3) faulty plans and specifications. The Owner may very well
tender the claim to you, and demand that you and your insurance company provide the Owner's defense
to this Contractor claim. With Contractors submitting claims using the "kitchen sink" approach to
allegations, it is likely that you, as the Design Professional, will be implicated frequently in being the
cause, in whole or in part, for the Contractor's damages. You may end up defending the Owner against
every

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claim filed by a Contractor. Imagine the conflict that this could cause between you and the Contractor if
you are serving in the capacity of reviewing and approving change order requests. You might be inclined
to deny otherwise bona fide change orders for fear that the Owner will look to you under the insurance
policy for damages.

Consider this: Just say no to the Owner's request to be named as an additional insured on a
professional liability policy. In any event, you cannot accommodate an Owner with such a demand
without the prior consent of your insurance company. If the insurance company is willing to do this at all,
an extra premium will generally be required. In addition, a special endorsement and contract amendment
will need to be drafted to clarify the meaning of "additional insured" and what (limited) rights the
"additional insured" will have under the policy. It is important to limit the Owner's ability to recover under
the policy to damages caused by your actual negligence, and not merely alleged negligence. It is also
important to clarify that the policy will not cover legal costs of the insured that are incurred in prosecuting
a claim against the Design Professional. It may also be appropriate to clarify that costs incurred by the
Owner in defending against a claim will not be covered unless it is finally determined that the Design
Professional was negligent. With these clarifications by way of endorsement and contract language, the
Owner might be named as an "additional insured" without creating unmanageable new risks and liabilities
for the Design Professional. Even with these changes, however, you are sharing your practice policy
limits with an Owner and that sharing may reduce the effectiveness of your insurance program in doing
what you purchased it for, to protect you.

Issue #3: Waiver of Subrogation - If an insurance company pays for your loss pursuant to the
insurance policy, but determines that some other party was partly at fault for the loss, the company may
choose to sue that party to recover the costs it paid under the policy. This is called "subrogation." The
insurance company basically steps into the shoes of its insured for purposes of pursuing the other party
to recover the damages.

Some contracts require that the Design Professional (and its insurance company) agree to waive the right
of subrogation against the Owner or some other party or parties. For professional liability policies,
insurance companies frequently resist waiving the subrogation rights. To the extent that waiver of
subrogation is agreed to, the insurance company may only honor the waiver only if it was agreed to
between the Design Professional and the Owner by a written agreement executed prior to the incident
giving rise to the claim. It is also not uncommon for the insurance company to require that the insurance
company have prior knowledge of the waiver of subrogation and possibly an additional premium for this
exposure.

Consider this: Before agreeing to any waiver of subrogation, it is a good practice to understand why you
are being asked to give the waiver. You may be surprised by the answer or lack of answer you receive to
this important question. After you know what is driving the request for the change, decide whether it
seems fair to you and, if you decide to give the waiver, be prepared to explain the waiver and the
business reason supporting granting it to your broker and the underwriter. Your insurance program likely
has limitations on to the extent to which it recognizes a waiver of subrogation and having one pre-cleared
is better risk management practice.
See also:
Certification
Compliance with Law
Cost Estimates
Environmental Conditions
Indemnity
Standard of Care
Subrogation Waiver
Warranties and Guarantees
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Integrated Written Agreement
Issue: A written contract should be the final word concerning the intent of the parties to the contract.
Unfortunately, even the most carefully drafted agreement will not expressly address every possible
contingency. If there are "side bar," side letter or oral agreements that supplement the written contract, or
ambiguities in the contract, disputes may arise that require evidence outside of the contract document
itself concerning the actual intent of the parties in view of the extra-contractual matters or the ambiguities.
To determine which contract interpretation is correct, the court might permit what is called "parol
evidence" to be introduced at trial. This could include oral testimony plus documentation other than the
written contract.

Consider this: To avoid uncertainty and confusion concerning the rights and responsibilities of the
parties under a contract, the contract itself should state all material representations, terms, conditions,
and expectations as clearly as possible and ambiguities should be avoided. The intent of the parties
should be discernible from looking within the "four corners" of the contract. There is no such thing as an
artful ambiguity in a contract; ambiguities cause problems, period. Remember, if a dispute arises a third
party will be called upon to decide what the written contract says and the first place the third party will
look is the words themselves in the agreement to determine the intent of the parties. To eliminate the
possibility of either party attempting to bring in some other document or evidence that may change or
supplement the intent of the language of the contract, even without an ambiguity, in addition to careful
drafting of the contract itself, a well-drafted contract usually contains an integration clause. Consider the
following:

Integrated Written Agreement

This Agreement represents the entire and integrated agreement between the Owner and Design
Professional and supersedes all prior communications, negotiations, representations, quotations,
offers or agreements, either written or oral between the parties hereto, with respect to the subject
matter hereof, and no agreement or understanding varying or extending this Agreement shall be
binding upon either Party, other than by a written agreement signed by both the Owner and
Design Professional.

You should anticipate that there will be purchase orders, work assignments, work orders, task orders and
other types of written instruments directing work to be performed after a services contract has been
negotiated and put into place. Some of those written instruments issued by the Owner may have terms
and conditions differing from those agreed to in the basic contract. It may, therefore, be prudent to add an
additional sentence to the Integrated Written Agreement clause stating that the terms and conditions of
the Agreement control and govern over any subsequent form or document assigning work where the
language contained therein is inconsistent with the Agreement. An example is as follows:

The parties agree that the provisions of these terms and conditions of this Agreement shall
control over and govern as to any subsequent form or document signed by the Parties, such as
Owner Purchase Orders, Work Orders, etc. and that such documents may be issued by Owner to
Design Professional as a matter of convenience to the Parties without altering any of the terms or
provisions hereof.

The two clauses discussed in this section should usually be employed together.

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If a subsequent transaction evidenced in a form or document does contain specific contract terms
relevant to that transaction alone and the parties intend that provision shall only to apply to that one
transaction, the subsequent document should specifically state that it is intended to amend a specific
portion of the original agreement and be acknowledged and signed by both parties as such.
Amendments of a more general nature are better accomplished by a formal written amendment to the
original contract.

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Limitation of Liability
Issue: Through the use of a Limitation of Liability (LoL) clause, a Design Professional may reduce the
extent of its potential liability to the Owner for damages arising out of negligence, breach of contract, or
any other cause of action. Under the right circumstances and in the right jurisdiction, a properly drafted
LoL clause will be enforced. Counsel must be consulted to make sure the LoL clause is correctly drafted
and there are limitations on the effectiveness of any LoL clause. LoL clauses are different from waivers of
claims or liabilities and indemnifications which are other risk management tools discussed elsewhere in
this guide.

A LoL clause is only effective among the parties to the contract. Accordingly, liability to other parties who
are not parties to the contract cannot be addressed in a LoL Nonetheless, a LoL clause can be an
important consideration in contemporary contracting because Design Professionals are frequently called
upon to design unique and technologically innovative projects which are responsive to diverse
environments, technologies, and project locations. It is unrealistic to require Design Professionals to
assume all the risk for innovative and unique designs or other high risk projects when the Owner is the
primary beneficiary of the projects. It is, therefore, reasonable to ask the Owner to assume a larger
percentage of the risk for a project, particularly because Design Professional fees are often small in
comparison to an unlimited exposure to the Owner that the Design Professional might otherwise assume.
Including LoL clauses in contracts allows some predictability with respect to the Design Professional’s
potential liability to the Owner. If the Design Professional is not permitted to contractually limit and
quantify these risks as between parties to the contract, the cost of services, all other things being equal,
must be increased because of uncertain exposure to claims.

Consider this: Include a Limitation of Liability clause in your standard form contracts. If the Owner insists
on the use of its form contract, seek to negotiate a LoL clause into the Owner's contract. Design
Professionals who routinely seek a LoL clause in their contract are successful in obtaining them a large
percentage of the time. Other Design Professionals appear to rarely, if ever, obtain LoL clauses. This
typically turns out to be because the Design Professional is embarrassed to ask for the LoL clause, or
because the Design Professional assumes that an Owner would be offended to see such a clause
included in the Design Professional’s standard form contract. Based on the success of many firms at
getting these clauses into their contracts, and the further success in enforcing these in litigation, it is
wrong to assume you should not ask for and expect this clause.

A typical clause may look like the following from EJCDC Document E-500 (2002) at Exhibit I:

Limitation of Liability Engineer's Liability Limited to Amount of Engineer's Compensation.

To the fullest extent permitted by law, and notwithstanding any other provision of this Agreement,
the total liability, in the aggregate, of Engineer and Engineer's officers, directors, partners,
employees, agents, and Engineer's Consultants, and any of them, to the Owner and anyone
claiming by, through, or under Owner for any and all claims, losses, costs, or damages
whatsoever arising out of, resulting from or in any way related to the Project or the Agreement
from any cause or causes, including but not limited to the negligence, professional errors or
omissions, strict liability or breach of contract, or warranty express or implied of Engineer or
Engineer's officers, directors, partners, employees, agents, or Engineer's Consultants, or any of
them, shall not exceed the total compensation received by Engineer under this Agreement.

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Notice the language specifically identifies the various legal causes of action that are included in the
limitation and relates them to the project. There is a good reason for this formulation. Some cases have
held that if the LoL states that it applies to damages arising out of "negligence" and does not mention
"breach of contract" an Owner might sue for breach of contract and thereby avoid a significant benefit to
the Design Professional of the LoL altogether. Therefore when drafting a LoL clause with your counsel it
is advisable for risk management purposes to draft the clause so it is broad, specific and inclusive.

Another version of the above clause that is sometimes used will state that the LoL is either the Design
Professional’s compensation or a fixed dollar amount such as $50,000, whichever is greater. It is
important if you choose such an "either/or" that you make the limitation whichever is "greater" and not
"lesser." It is particularly the case when performing a small fee job that you should not state that the
limitation will be to a certain dollar amount or the contract fee, whichever is less. If the contract fee is too
small in comparison to the amount of the risk at stake, a Court may refuse to enforce it.

The enforceability of LoL clauses tends to be a state by state issue and local counsel should be consulted
about the best way to craft a LoL clause. A few Courts have recently upheld a clause which limited
liability to the fee earned.

EJCDC Document E-500 (2002) at Exhibit I provides a suggested format for limitation of liability that
presents three distinct alternatives for establishing the limitation, i.e., the Engineer's compensation,
proceeds from the insurance required by the contract, or a set dollar amount.

A few common themes for discussion with your counsel when considering an LoL clause include
the following:

1. If the contract will also include an indemnity clause, keep it separate from the LoL clause. This will
minimize the likelihood that a Court will void the LoL clause based upon the state's anti-indemnity statute,
if any, or for public policy reasons. You might reference the limitation of liability clause, however, in the
separate Indemnification clause. Review with your attorney what will and will not be enforceable in the
jurisdiction.

2. Clearly identify the LoL clause and the liability limit and provide a limit that is reasonably proportionate
to the risks. The liability limit should not be a de minimis sum. It could be linked to the liability insurance
requirements of the contract, to the total fee earned by the Design Professional firm, or some other
reasonable amount. (If you base it on insurance, do not refer to "insurance proceeds," since this could
expose your entire insurance program, which may be far in excess of the insurance required by the
contract. Be careful to base it on the amount of insurance required by the contract only.)

3. Do not bury the LoL clause in fine-print boilerplate language in the contract. It should be prominently
featured—at least equal to the other terms and conditions of the contract. Refer to the LoL clause in
subsequent task agreements or work orders or be sure that they specifically incorporate by reference all
terms and conditions (including LoL) of the contract.

4. Provide an opportunity, either in the clause or in another part of the contract, for the Owner to negotiate
a higher limit of liability, either for a predetermined sum or otherwise.

5. Provide a space for the Owner to initial the clause — demonstrating that it knew of the clause and
negotiated it.

6. Identify types of claims to which the clause applies, including for example negligence, breach of
contract, and breach of warranty.

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7. Include a separate clause in the contract stating that the LoL was mutually negotiated and that, but for
its inclusion, the fee would have been greater or that the Design Professional would not have entered into
the contract.

8. Include a clause stating that the Design Professional’s services are being provided only for the party in
privity with the Design Professional, and that the services are not for the benefit of any third parties and to
the extent that third party beneficiaries are found to exist by a Court, those parties are subject to the LoL.

Your counsel can advise you about whether it is necessary to do all or any of the above eight (8) items in
order to have an enforceable LoL clause, but the list highlights some of the issues you may encounter.
Find out from legal counsel what will work best in the jurisdiction.

An example of a clause that seeks to demonstrate that an arm's length negotiation occurred is the
following:

Professional Liability Limitation

Design Professional’s liability, and that of its officers, directors, employees, agents, and
subcontractors, arising out of breach of contract, breach of warranty, negligence or any other
cause of action, shall be limited to $50,000 or Design Professional’s fee, whichever is greater. In
consideration of $____, Design Professional agrees, at Owner’s request (which is hereby
indicated by initialing the blank space in the margin beside this clause), to increase the limit of
Desiign Professional's liability to $____. The additional charge for the higher liability limit is
because of the greater risk assumed by Design Professional and is not a charge for additional
professional liability insurance.

See also:
Consequential Damages
Environmental Conditions and Services
Indemnity
Warranties and Guarantees

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Owner’s Responsibilities
Issue: Some contracts go to great lengths concerning the Design Professional’s responsibilities, but are
silent concerning the corresponding responsibilities of the Owner. A contract between the Design
Professional and the Owner should set forth not only the responsibilities of the Design Professional, but
also the key responsibilities of the Owner as well. This will naturally include payment terms, termination
notices, site access, rights of way, permits, provision of information, indemnification and other terms.
Numerous other Owner responsibilities can also be included, particularly where environmental problems
may be encountered and it is appropriate that the Owner assume responsibility for existing
contamination, arranging treatment, transportation, and disposal of waste. It is important that you not
overlook an item that needs to be assigned to the responsibility of the Owner.

Consider this: The various responsibilities can be set out in appropriate paragraphs and articles
throughout the contract. Many of these have been presented as examples throughout this Risk
Management Guide. In addition to establishing specific Owner responsibilities, the contract should require
the Owner to promptly review Design Professional’s submittals and to provide a decision-maker to
address issues raised in the submittals. It may also be appropriate, particularly on environmental projects,
to require the Owner to designate an individual to interface with the regulator or governmental agency
involved in the project.

One useful way to help assure that key responsibilities will be identified with the Owner is to group them
into one single clause titled Owner’s Responsibilities. AIA Document B141 (1997) groups Owner
responsibilities in two Articles: 1.2.2 Owner and 2.2 Supporting Services:

1.2.2 Owner

1.2.2.1 Unless otherwise provided under this Agreement, the Owner shall provide full information
in a timely manner regarding requirements for and limitations on the Project. The Owner shall
furnish to the Architect, within 15 days after receipt of a written request, information necessary
and relevant for the Architect to evaluate, give notice of or enforce lien rights.

1.2.2.2 The Owner shall periodically update the budget for the Project, including that portion
allocated for the Cost of the Work. The Owner shall not significantly increase or decrease the
overall budget, the portion of the budget allocated for the Cost of the Work, or contingencies
included in the overall budget or a portion of the budget, without the agreement of the Architect to
a corresponding change in the Project scope and quality.

1.2.2.3 The Owner’s Designated Representative identified in Paragraph 1.1.3 shall be authorized
to act on the Owner’s behalf with respect to the Project. The Owner or the Owner’s Designated
Representative shall render decisions in a timely manner pertaining to the documents submitted
by the Architect in order to avoid unreasonable delay in the orderly and sequential progress of the
Architect’s services.

1.2.2.4 The Owner shall furnish the services of consultants other than those designated in
Paragraph 1.1.3 or authorize the Architect to furnish them as a Change in Services when such
services are requested by the Architect and are reasonably required by the scope of the Project.

1.2.2.5 Unless otherwise provided in this Agreement, the Owner shall furnish tests, inspections
and reports required by law or the Contract Documents, such as structural, mechanical, and
chemical tests, tests for air and water pollution, and tests for hazardous materials.

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1.2.2.6 The Owner shall furnish all legal, insurance and accounting services, including auditing
services, that may be reasonably necessary at any time for the Project to meet the Owner’s needs
and interests.

1.2.2.7 The Owner shall provide prompt written notice to the Architect if the Owner becomes
aware of any fault or defect in the Project, including any errors, omissions or inconsistencies in
the Architect’s Instruments of Service.

2.2 Supporting Services

2.2.1 Unless specifically designated in Paragraph 2.8.3, the services in this Article 2.2 shall be
provided by the Owner or the Owner’s consultants and contractors.

2.2.1.1 The Owner shall furnish a program setting forth the Owner’s objectives, schedule,
constraints and criteria, including space requirements and relationships, special equipment,
systems and site requirements.

2.2.1.2 The Owner shall furnish surveys to describe physical characteristics, legal limitations and
utility locations for the site of the Project, and a written legal description of the site. The surveys
and legal information shall include, as applicable, grades and lines of streets, alleys, pavements
and adjoining property and structures; adjacent drainage; rights-of-way, restrictions, easements,
encroachments, zoning, deed restrictions, boundaries and contours of the site; locations,
dimensions and necessary data with respect to existing buildings, other improvements and trees;
and information concerning available utility services and lines, both public and private, above and
below grade, including inverts and depths. All the information on the survey shall be referenced
to a Project benchmark.

2.2.1.3 The Owner shall furnish services of geotechnical engineers which may include but are not
limited to test borings, test pits, determinations of soil bearing values, percolation tests,
evaluations of hazardous materials, ground corrosion tests and resistivity tests, including
necessary operations for anticipating subsoil conditions, with reports and appropriate
recommendations.

See also:
Changes
Compliance with Law
Disposal of Waste Materials
Environmental Conditions and Services
Indemnity
Independent Contractor Status
Information Provided by Others
Payment
Permits and Licenses
Right of Entry
Suspension of Services
Timeliness of Performance
Underground Utilities

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Ownership of Documents
Issue: Documents such as plans, specifications, drawings, opinions, reports, calculations, etc. are all
generally considered Instruments of Service created by the Design Professional for the purpose of
carrying out professional design and other consulting services for the Owner. While is may seem an
academic distinction, the professional services necessary to design a project concept are what you
provide; the plans, specifications, drawings, opinions, reports, calculations etc. are merely expressions of
the concept and the papers containing those expressions are the instruments or vehicles that
communicate the services you provide. Plans, specifications, drawings, opinions, reports, calculations
etc. have historically been treated as the intellectual property of the Design Professional. Contracts such
as the AIA Document B141 (1997), and EJCDC Document E-500 (2002), make clear that these
documents belong to the Design Professional that created them. However, Owners are more frequently
demanding that the documents be deemed their property and be available for reuse by the Owner at will.
In some regards the transfer of ownership demanded by Owners puts form over substance, but it has the
very real result of giving away what, at law, is viewed as primarily as your intellectual property. In addition
to the liabilities that may flow from an unlimited transfer of the ownership of documents, protecting your
property rights provide strong reasons for resisting these Owner demands. An example of an unfortunate
Owner contract clause requiring transfer of ownership follows:

"All plans, drawings, tracings, specifications, programs, reports, models, mock-ups, designs,
calculations, schedules, technical information, data, CADD documents and other material
(collectively the "Documents") prepared, furnished, or obtained by Design Professional, or Design
Professional’s Consultants under or for the Project, shall be the property of the Owner whether
the Project is completed or not . . . . If this Agreement is terminated for any reason prior to Final
Completion of the entire Project, the Documents may be used by Owner and its agents,
employees, representatives and assigns, in whole or in part, or in modified form, for all purposes
they may deem advisable in connection with completion and maintenance of, and additions to,
the Project, without further employment of, or payment of any compensation to, Design
Professional…"

One of the problems with a clause like this is that you lose the ability to control the use of your work
product and the project itself. Even if the Owner uses some other firm to complete the project, using your
documents without changes or modifications, you are placed at greater risk, since you will not be on the
project and able to correct the inevitable design refinements that become necessary as construction work
progresses. When you are on a project, you can interpret the drawings and specifications and work out
with the Contractor and Owner how to resolve any refinements that necessitated by work in the field. You
lose this ability when the Owner utilizes your documents without your further input. The situation is even
worse if the Owner uses only partially completed documents or takes your documents and modifies them
for use on the project or some other project without your input and possibly without your knowledge. The
liability exposure from such reuse is almost certainly too great to permit. If the reuse issue is one you
intend to allow the Owner to have because of a business judgment on your part consider specific
disclaimers of liability on the reuse and defense, indemnity and hold harmless covenants from the Owner.

Consider this: State that the documents are the property of the Design Professionals and are not to be
used without authorization. An example clause is as follows:

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Instruments of Service

Drawings, specifications and other documents, prepared by the Design Professional and the
Design Professional's consultants are Instruments of Service for use solely with respect to this
Project. This includes documents in electronic form. The Design Professional and the Design
Professional’s consultants shall be deemed the authors and owners of their respective
Instruments of Service and shall retain all common law, statutory and other reserved rights,
including copyrights.

The Instruments of Service shall not be used by the Owner for future additions or alterations to
this Project or for other projects, without the prior written agreement by the Design Professional.
Any unauthorized use of the Instruments of Service shall be at the Owner's sole risk and without
liability to the Design Professional and the Design Professional's consultants.

As more Owners are demanding ownership and exclusive use of the Design Professional’s documents, it
may be necessary to use a clause giving the Owner exclusive use and ownership of the Design
Professional’s documents, providing certain conditions are met that will provide some protection against
unauthorized changes and inappropriate reuse, as in EJCDC Document E-500 (2002) at 6.03.E.

In the clause that follows, the Design Professional has set forth alternatives. It starts with alternative A,
but if the Owner insists that it own the documents, the Design Professional should seek alternative B,
giving the Owner ownership of the documents, provided the Owner agrees to indemnify the Design
Professional for damages arising out of their use.

Ownership of Documents Alternative A.

Plans and specifications, as instruments of professional service, are and shall remain the
property of the Design Professional, whether the project for which they are made is executed or
not. The Owner shall be permitted to retain copies, including reproducible copies, of plans and
specifications for information and reference in connection with the Owner's use and occupancy.
The plans and specifications shall not be used by the Owner on other projects, for additions to
this project, or for completion of this project by others except by agreement in writing and with
appropriate compensation to the Design Professional, provided Design Professional is not in
default under this Agreement.

Ownership of Documents Alternative B.

The Owner and Design Professional acknowledge that the Design Professional’s Plans and
Specifications are instruments of professional service. Nevertheless, the Plans and Specifications
prepared under this Agreement shall become the property of the Owner upon completion of the
Work. The Owner agrees to hold harmless, indemnify, and defend the Design Professional against
all damages, claims, and losses of any kind (including defense costs), arising out of any use of
the plans and specifications on any other project, for additions to this project, or for completion
of this project, without the written authorization of the Design Professional.

See also:
CADD and Electronic Media
Copyrights

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Payment
Issue: Getting paid timely and in full is one of the primary keys to success. A surprising number of
professional liability claims that are defended by insurance companies begin with the insured Design
Professional filing suit against the Owner for the balance of its fee. Generally speaking, the Owner has
some argument as to why it did not pay you and is quick to file a countersuit alleging that your negligence
caused the project to go over budget or in some way to be otherwise unsatisfactory. Many disputes likely
could be avoided if the Design Professional were more diligent in getting paid for services as the services
are performed, and not allowing the project to be completed with significant fees still outstanding. You
should also be wary of contracts that condition payment on a laundry list of conditions you must satisfy
before you will be paid, including "pay when paid" clauses. The more “hoops," the more likely that you
will be required, as a practical matter, to compromise your billings because some condition or the other
has not been met to the Owner’s satisfaction.

Consider this: Require the Owner to pay you promptly throughout the project and give yourself
significant contractual rights in the event of non-payment or late payment. Some Owners seem to
intentionally delay payment to the Design Professional as a way of saving themselves interest payments
to their lender on money they would otherwise be drawing down from a construction loan or from bonds.
Others have been known to stop paying close to the end of a project figuring the consultant will complete
the services anyway and argue over payment later. Later is likely too late because the Owner has
already received the services it required, and you have no bargaining position to force payment without
litigation. A contract clause such as the following could give you better bargaining clout:

Payment

Owner agrees to pay Design Professional’s invoice within 30 days of receipt. For any payment not
received within that time, Owner shall pay a service charge on the past due amount, including
interest at the prevailing legal rate [or ____%], and reasonable attorneys fees and expenses if
collected through an attorney or collection agency. No deductions shall be made from the Design
Professional’s compensation on account of liquidated damages or on account of costs of
changes in the Work, other than those for which the Design Professional has been finally
determined to be liable. Design Professional may suspend services after five days prior written
notice to Owner, where payment of any invoiced amount, not reasonably in dispute, is not
received by Design Professional within 60 days of receipt of its invoice by Owner.

Withholding of payment by the Owner on the basis that the Owner is dissatisfied with your services, or for
any reason believes it should be able to charge back to you the extra costs or expenses paid to a
Contractor on change orders, can be a major problem. The above clause helps reduce the problem by
providing a strong disincentive for withholding payment, unless the Owner has already obtained a
judgment against you for extra costs. Another challenge may be an Owner that desires to withhold
payment if it doesn't receive the loan or grant funds it needs for the project or if the project is not
constructed after it is designed. To avoid ambiguity concerning rights and responsibilities in this regard,
some Design Professionals include a clause specifically addressing the issue, such as the following:

Payments on invoices submitted by Design Professional for services performed shall not be
delayed, postponed or otherwise withheld pending completion or success of construction, or
receipt of funding from lending institutions, government grants or other sources. Invoices for
payment shall not be offset by any claims for withholding or deductions by Owner unless the
Design Professional agrees or has been finally determined liable for such amounts.

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Many jurisdictions provide for liens against the property on which the project is being built to secure a
Design Professional’s right to be paid for services rendered. Liens that are not paid allow the Design
Professional the right to foreclose on the property to obtain payment. These statutory and common law
lien rights are specific to the jurisdiction where the project is being constructed. These procedures are
highly technical and should be discussed with informed local counsel. Comforting as lien rights may be,
availing yourself of them is not without challenges, aggravation and expense. Getting paid promptly
should be a top priority and preserving your legitimate leverage points is an important tactic. This is, after
all, how you make your living.

See also:
Owner’s Responsibilities
Suspension of Services
Termination

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Permits and Licenses
Issue: Contracts generated by Owners may include a clause requiring the Design Professional to obtain
all permits, licenses, and approvals necessary for the project. While it is one thing for a Design
Professional to maintain or obtain permits and licenses needed for it to be registered as a professional, or
that are needed for it to legally perform the type of services anticipated by the contract. It is quite
another, however, for the Design Professional to agree to obtain all the permits and approvals that the
Owner or Contractor will need for doing the project. Some permits may simply be unobtainable for an ill
conceived project. What then is your liability to the Owner?

Knowing to what extent permits and approvals will be needed for the project and then going through the
process of obtaining them is often best be accomplished by the Owner. There are some permits and
approvals that bear so much risk of non issuance or unforeseen expense (environmental permits, for
example) that it is not appropriate for the Design Professional to undertake to obtain such permits at the
Design Professional's risk. There are other approvals that logically or legally can only be obtained in the
name of the Owner. Beware of the Owner that acknowledges this, but then tells you to use a law firm to
obtain permitting assistance and advice for the benefit of the Owner. The Owner should use its own
resources and attorneys for this purpose. An example of a brief clause that may create extraordinary risk
to the Design Professional is as follows:

"Design Professional shall obtain all required permits, licenses, agency approvals, and other
necessary documentation in order to provide and complete the services described in this
Agreement."

If you have agreed to obtain all necessary permits and approvals, you may be at the mercy of some
governmental agency that may delay issuing a required permit or approval well beyond your ability to
control or even manage. If this in turn delays the project, you may be liable to the Owner for the impact of
that delay if you have accepted responsibility for getting the permits. Ironically, this liability to the owner
for delay damages is the exact inverse of what should happen in the event that an agency delays or even
refuses to issue a permit. Under a proper model, the Design Professional should be compensated for the
delay and its impact to the Design Professional's services.

Consider this: You should agree only to obtain those permits typically required to be obtained and
maintained by Design Professionals. It is useful to specifically identify what, if any, these permits are in
the contract documents. In some cases, you may agree to assist the Owner in obtaining permits needed
by the Owner to design and construct the project (without undertaking responsibility for obtaining the
permits). An example follows:

Permits

Design Professional shall assist the Owner in connection with Owner’s responsibility for applying
for permits, licenses and approvals needed for the Project and in connection with filing
documents required for the approval of governmental authorities having jurisdiction over the
Project.

If the Owner insists that you accept contractual responsibility for obtaining permits needed by you to
perform your services, you could consider adding the following sentence to the above clause. What you
specify below becomes important. If you cannot reasonably obtain the required permit promptly enough
to maintain Owner's schedule expectations carefully consider why you are taking responsibility for it.

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Design Professional shall obtain only those permits and approvals typical to the performance of
its work which are the following: ________,____________ and ___________.

If the services will be on a project that involves environmental contamination or remediation, you might
clarify that the Owner is solely responsible for environmental permits and approvals by adding a clause to
the above language as follows:
Owner Responsibility for Permits

Design Professional shall obtain only those permits and approvals typical to the performance of
Design Professionals services which are the following: ________,____________ and ___________.
The Owner will be responsible for obtaining all environmental health and safety permits and
approvals that may be necessary for the timely completion of the Scope of Services under this
Agreement, including but not limited to, hazardous waste permits under RCRA, toxic substances
permits under the Toxic Substances Control Act, air emission permits under the Clean Air Act,
waste water discharge permits (NPDES) under the Clean Water Act, and any other permits that
may be required under environmental laws and regulations.

Another way to handle the issue is to specifically require that the Owner provide the needed reviews,
approvals, and permits that appear to be within its area or responsibility. Consider EJCDC Document E-
500 (2002) at Exhibit B2.01.H:

Owner shall at its expense . . . provide reviews, approvals, and permits from all governmental
authorities having jurisdiction to approve all phases of the Project designed or specified by
Engineer and such reviews, approvals, and consents from others as may be necessary for
completion of each phase of the Project.

Perhaps what the Owner is looking for is the assurance that you, as the Design Professional, are properly
licensed. You might offer a clause covering just that issue:

Licensing

Design Professional represents and warrants that, to the extent necessary or required by law,
Design Professional and all of Design Professional’s employees are currently certified and
licensed in compliance with all applicable federal, state, and other governmental and quasi-
governmental requirements, and will maintain such certification and licensing throughout the
performance of Services.

However, not that the above warranty is likely not insurable under a typical professional liability policy
because express warranties are usually excluded by professional liability insurance policies.
Nonetheless, most Design Professionals may be required to provide this or a substantially similar
warranty and should be able to do so without too much liability concern if the warranty is limited to facts
within the Design Professional’s control and about which the Design Professional can be comfortable
after an appropriate internal review. Local counsel should be consulted periodically about any new or
special licensing requirements that may apply to your practice.
See also:
Environmental Conditions and Services
Owner’s Responsibilities
Right of Entry
Scope of Services
Timeliness of Performance

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Rejection of Work
Issue: When the Design Professional has the authority by contract to reject work of the Contractor for
reasons such as non-conformance with the Contract Documents, additional liability is likely undertaken.
For example, the Owner or the Contractor might successfully argue that because of the Design
Professional's authority to reject work, the Design Professional was responsible for the catching and then
directing the correction of mistakes or poor workmanship of the Contractor. In addition, the Owner or the
Contractor may even be argue that the Design Professional with authority to reject work had a
responsibility to reject work not only because the work did not conform to the specifications, but also
when the work is being performed in an unsafe manner. This part of the discussion is closely related to
the liability discussion in the "Inspection" and "Certification" sections of this Risk Management Guide.

A Contractor whose non-conforming work was not rejected by a Design Professional with authority to do
so may try to assert that the Design Professional and the Owner are legally barred from subsequently
rejecting that work when it is later determined to be inadequate. The contractor may successfully argue
that the authority to reject work must mean that the Design Professional was required to "inspect" the
work to determine whether or not the reject it. The argument goes on to allege that because the Design
Professional "inspected" or had a duty to inspect the work and did not reject the work on a timely basis,
the Design Professional cannot later reject the work.

Further, it appears more routine for the Contractor’s employees injured on the job to recover workers
compensation from their employer and then sue the Design Professional and the project Owner. The
theory of liability in these action over claims is that the Design Professional had authority to reject work
and/or expressly or impliedly had authority to stop work at the project and knew or should have known of
the unsafe condition, and had responsibility for assuring the worker's safety or, in the alternative, that the
Design Professional designed an unsafe project to construct. In evaluating whether the Design
Professional had such responsibility, the Courts consider a number of factors, including what the contract
language says about the matter and what actions the Design Professional’s personnel took in the field
that might demonstrate that they exercised control over the Contractor's work on the project. A contract
clause giving the Design Professional unilateral authority to reject Contractor's work can create significant
potentially uninsurable liability for the Design Professional in this regard. A unfortunate clause might read
as follows:

"Design Professional shall be authorized to reject work that is not in compliance with the Contract
Documents, including plans and specifications, and if Contractor does not correct rejected work
promptly, Design Professional is authorized to stop the work."

Consider this: Make it clear in contract documents that you are not undertaking safety responsibility.
Perhaps a clause that acknowledges you may reject the Contractor's work, but you do not have a duty to
do so. In addition, you may consider language to eliminate unilateral authority to reject work and instead
create only the authority to recommend to the Owner the rejection of work that in your opinion is
nonconforming. By acting as an advisor to the Owner, it is more difficult for someone to argue that you
had some independent duty to stop the work (although the Owner will have rights against you if your
advice was not up to standard). While what the contract says about rejection of work, what actually
happens in the field is equally important. Train field personnel on the variety of responses to rejection
responsibility and then make sure field personnel know what the contract says for each project for which
they have responsibility. See also the “Site Safety” section for a discussion of the complexities involving
site safety responsibility. Sample language limiting your role to making recommendations to the Owner in
the rejection of work might read as follows:

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Rejection of Nonconforming Work

If, in the opinion of Design Professional, Contractor's work is not in general conformance with the
Contract Documents, including plans and specifications, Design Professional shall recommend to
Owner the rejection of such nonconforming work.

If you accept authority to reject the work instead of merely "recommending" to the Owner that the work be
rejected, you might consider a clause similar to the following:

The Design Professional shall have the authority, but not the duty, to reject Work which, in the
professional opinion of the Design Professional, does not generally conform to the Contract
Documents. Neither this authority, nor the decision to exercise or not exercise such authority,
shall give rise to a duty or responsibility of the Design Professional for site safety, construction
means, methods or techniques, create an express of implied duty or responsibility to the
Contractor, Subcontractors, or material and equipment suppliers.=

See also:
Certification
Inspection
Site Safety

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Right of Entry
Issue: Before you can perform services at a site you must have authorization to be on the site. If the
Owner holds title to the property in question, this is generally not an issue. If, however, the Owner is
retaining your services to investigate a property the Owner is considering purchasing, someone must take
responsibility for obtaining permission from the property owner of tenant for you to be on the site. This is
also the case if you are performing services on the Owner’s property and you need access to cross over
or investigate neighboring property in order to satisfy your Scope of Services.

Some Owner-generated contracts contain clauses putting the entire burden for obtaining access rights,
rights of way or easements on the Design Professional. An example of such an unfortunate clause is as
follows:

"Design Professional shall obtain all necessary easements, rights of way, rights of entry, permits
and licenses to enter the proposed site for the purpose of performing services under this
Agreement, including to conduct tests and collect data."

If you agree to this clause and there is a delay (or impossibility) in being granted access to the site to
allow timely completion of the services, it appears that you may be liable to the Owner for the delay and
impact costs. The irony with such a result is that the Owner is in a better position than you are to
negotiate and obtain the right of entry and is, therefore, the appropriate party to bear the risk on loss
because of being denied entry. It would, therefore, be more reasonable for the Owner to retain the liability
and to compensate you for the additional costs occasioned by the delay, than for you to compensate the
Owner.

Consider This: Instead of agreeing to take responsibility for obtaining the right of entry, explain to the
Owner that since the Owner has a better opportunity to negotiate for, and obtain the right of entry than do
you, the Owner should accept that responsibility in the contract. The contract clause might then provide:

Permits and Rights of Entry

Design Professional shall assist the Owner to obtain all necessary permits and licenses directly
related to services required under this Agreement. . . . Owner shall provide a reasonable right of
entry and any easements and all authorizations needed to enter upon property to perform
services required under this Agreement.

You may also want to establish that the Owner owes you a duty to obtain necessary rights of entry by
including a clause such as the following:

Owner will arrange for right-of-entry and access to the property for the purpose of performing
studies, tests and evaluations required to perform the agreed services. Owner represents that it
possesses necessary permits and licenses required for all of its and Design Professional's
activities at the site.

See also:
Owner’s Responsibilities
Permits and Licenses

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Scope of Services
Issue: One of the biggest causes for contention between parties to a contract is disagreement over what
was intended to be included in the Design Professional’s Scope of Services. It is of utmost importance in
any contract to carefully define the services that are included under the contract. The description of the
services to be provided and what will be paid for them are the essence of the business deal between the
Design Professional and the Owner. The description of services is generally set forth in "Scope of Work"
or "Scope of Services" section of the contract or a corresponding schedule to the contract. This part of
the contract details the specific services to be performed. Many a clause that is brief in words will create
ambiguous or exceptionally broad Design Professional responsibility. Agreeing to "provide all services
and permits necessary to complete the project," for example, can have significant liability consequences.
A Design Professional may be tempted at the beginning of a project, when everyone is anxious to get
going, to agree to such a clause, thinking that it is not that important. That thinking is not consistent with
good risk management.

Consider this: The description of services in the contract should describe the specific services ("Basic
Services") that will be provided by the Design Professional to meet the Owner’s project needs. Think
about and draft the language to clearly reflect, in detail, your assumptions and what you are actually
being paid to do. Remember a third party that does not know your shorthand or industry parlance may be
asked to judge how well you have performed so if certain things are being assumed or taken for granted
by you and you might be wrong about them, spell out your assumptions. It may provide a liability
inoculation if the failure of those assumptions turn out not to be what you thought. Are there tasks that
are beyond your skill set or comfort zone and should someone else be subcontracted to perform a sub-
specialty? It is best to write an objective description of the scope and to quantify the services where
possible—particularly if you are working around potential remediation services where the quantities and
contaminants may easily vary from what was initially anticipated by the parties. Services that might
reasonably be provided for the project, but which intend not to perform and which are to be excluded from
your Basic Services are usually addressed as "Additional Services" or “Changes in Services” that are to
be paid for by the Owner as separately provided for in the contract, if they are later, in fact, rendered by
the Design Professional. This bifurcation of Basic Services and Additional Services helps avoid confusion
over what is included in the services and helps resolve how services will be billed if they are later
requested. See, for example, the “Responsibility” matrix in AIA Document B141 (1997) at 2.8.3. If there
are certain services that you would not provide under any circumstances, these can be listed in the
contract as "Excluded Services." This might include certain environmental remediation design services,
for example, that might be required if contaminants are discovered at the project site.

A sample clause for scope of services is as follows, but the more detail you can provide in your contract
(here the Appendix), the better off you may be and, as with all contract terms, your counsel should be
engaged to help you structure scope of services clauses and appendices:

Scope of Services

1. Basic Services. Design Professional shall furnish the labor, material, equipment and services
("Services") set forth in Appendix ____ of this Agreement. The scope of services (and related
plans and specifications) may not be modified or amended, unless the changes are first agreed to
in writing by Owner and Design Professional. The parties shall adjust compensation to Design
Professional to reflect such changes in the Services.

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2. Additional Services. The general category "Additional Services," referred to in Article ___ may
include services generally similar to the Basic Services and arising due to changes in the scope
of the Project, including, but not limited to, changes in size, complexity, schedule or character of
the work, and also may include revisions to studies, reports, design documents, drawings or
specifications which have previously been approved by the Owner, or when such revisions are
due to causes beyond the control of the Design Professional. All changes in scope and revisions
shall require the written authorization of the Owner, and shall be agreed to by Design
Professional, prior to commencement of work, as provided in Article ____ of the Agreement.

3. Excluded Services. Without attempting to be a complete list or description of all services or

potential services that will be excluded from this Agreement and which will not be performed by
the Design Professional, the following services are specifically excluded from this Agreement:
[list here]. In addition, the Design Professional shall have no responsibility for discovering,
handling, removing or disposing of any hazardous materials, pollutants, contaminants or wastes.

Beware of the "Changes" clause of the contract, particularly as it applies to additional services. The
"Changes" is better written if it only authorizes the Owner to seek only such changes as are within the
general scope of the services expressly contemplated by the contract. If the "changes: clause gives the
Owner exceptionally broad authority, the Scope of Services clause may be rendered meaningless or
significantly less valuable. The Design Professional should be very careful to avoid clauses that permit
the Owner or Client to make unilateral changes to the Scope of Services, as such unilateral changes may
require extension of prices that may not have been loss generators at the time of contract inception but
are at the time of the expansion of the Scope of Services. Similarly, with such a clause, the Owner or
Client might attempt to extend the Scope of Services to include services that the Design Professional
considers ill advised from a professional standards perspective or which the Design Professional is not
properly trained or licensed to perform.

The Scope of Services should also carefully describe the location of the project, taking care to state any
part of the Owner's property that will not be included as part of the project site. The exclusion of certain
parts of a location may have particular importance if environmental assessment services is part of the
project.

In addition to geographic limitations, describe any specific areas of service that, although necessary for
the overall project, are not included in the Design Professional’s contract. For example, a HVAC
consultant might clarify that it is not responsible for designing or installing pipes or conduit beyond the
walls of the building. An environmental consultant that is providing services for the removal and
replacement of underground storage tanks can clarify that it is not responsible for other environmental
matters at the Owner’s facility such as PCBs, lead paint or asbestos that might be found at the location.

Assumptions concerning site conditions can also be set forth. This may be in a different clause of the
contract or even a separate table or attachment entitled Schedule of Assumptions. Assumptions can be
used to clarify the Scope of Services. Some contracts place the risk of changed conditions on the Design
Professional. If the field conditions differ from what was anticipated, this may have significant impact on
the services the Design Professional must perform or may prevent the Design Professional from fully
performing the contract. The possibility of site conditions beyond your area of expertise is a significant
reason to avoid a clause that requires you to perform all services necessary to successfully complete the
project. It could be interpreted as requiring you to keep revising and adding to your services (or staffing)
as necessary to cope with the actual field site conditions.

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If the actual conditions are different from the assumptions, a well drafted contract usually states that the
Design Professional is entitled to an equitable adjustment to the scope and price, as mutually agreed.

It may be necessary to include an excluded services disclaimer in the contract if the Owner has refused
important suggested services. An example of such a disclaimer clause is as follows:

Excluded Services—Disclaimer

Owner acknowledges that Design Professional has extensive additional services available.
Design Professional has recommend additional services to Owner, including:
__________________. Owner confirms its decision that additional services are not required or that
Owner has made arrangements to obtain additional services from other sources. Only those
services specified in the Scope of Services are within Design Professional’s engagement by
Owner under this Agreement.

Owner acknowledges that it is inequitable and unfair to expose Design Professional to liability for
the failure to perform additional services that Owner has instructed Design Professional not to
perform. Therefore, Owner waives any claim against Design Professional and shall defend,
indemnify and hold Design Professional completely harmless from Design Professional’s failure
to perform the rejected additional services.

See also:
Certification
Changed Conditions
Changes
Claims Assistance for the Owner
Disposal of Waste Materials
Environmental Conditions and Services
Inspection
Permits and Licenses
Site Safety
Underground Utilities

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Severability
Issue: If a contract contains a particular provision or clause that violates law or public policy, a Court may
find the clause to be unenforceable or, in some jurisdictions, might even find that the offending clause
causes the entire contract to become void. Both parties to a contract usually prefer that the balance of
the contract terms and conditions will remain in full force and effect, despite the unenforceability of one
clause. However, in certain circumstances, a party may decide that if one term is eliminated, they would
like the entire contract to become void. The following discussion focuses on circumstances where the
parties decide they would like the balance of the contract to remain in force when one or more terms are
deemed unenforceable. The circumstance where the parties would like the entire contract to be void
when one of more provisions are deemed unenforceable is beyond the scope of this discussion.

Consider this: Rather than losing the benefit of the entire contract, parties may include a clause known
as the "severability" clause, which specifies the intent of the parties to preserve the enforceable
provisions of the contract and for the Court to limit the non-enforcement of the contract to the offending
provision by "severing" the offending provision from the contract. An example of such a clause is as
follows:

Severability

If any of the terms or conditions of this Agreement are determined to be invalid or unenforceable,
in whole or in part, the remaining provisions hereof shall remain in full force and effect, and be
binding upon the parties hereto.

Although this clause serves the purpose of maintaining the enforceability of the balance of the contract, it
does not do anything to revise and make enforceable the offending clause to address the intent that the
parties had when they negotiated the contract. One way to handle this issue might be to add a sentence
to the end of the preceding language stating that the voided clause will be revised to get as close as
possible to the original intent without violating the law. This of course asks a Judge or someone else to
become a drafter after the fact and is potentially problematic and it can not be known if the Judge will
accede to the request or whether the Judge will get it "right" in the eyes of the parties even if the Judge
entertains the offer to recreate history. Consider the following:

Reformation of Severed Provisions

If any of the terms and conditions of this Agreement are determined to be invalid or
unenforceable, in whole or in part, and is severed from this Agreement, the remaining provisions
hereof shall remain in full force and effect, and be binding upon the parties hereto and the parties
agree to a reformation of this Agreement to replace any such invalid or unenforceable and
severed provision with a valid and enforceable provision that comes as close as possible to the
intention of the stricken provision.

Similar protection from losing the benefit of an entire provision can also be included directly in certain
clauses that receive close judicial scrutiny (like indemnity clauses and limitation of liability clauses). For
example, indemnity clauses and limitation of liability clauses often begin with the phrase, "to the fullest
extent permitted by law. . . ."

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Shop Drawings
Issue: Confusion surrounding the Design Professional's review of shop drawings created by Contractors
has been an ongoing cause of frustration to Design Professionals and Contractors and has led to many
claims and much litigation. Contractors have sometimes successfully argued that a Design
Professional’s review and approval of a shop drawing constitutes acceptance of whatever was contained
in that shop drawing. Under this theory, Contractors will sometimes submit drawings containing changes
to the design details set forth in the Contract Documents, with the hope that the Design Professional will
approve them, and thereby agree to what is, in essence, a change order. If the system or design details
contained in the shop drawings that are approved by the Design Professional fail to work as required by
the Contract Documents, the Contractor then may argue that it is excused from responsibility because the
Design Professional "approved" the changes contained in the shop drawings and is responsible for any
failure. Some Contractors may even assert that they relied upon the Design Professional’s expertise in
approving the details contained in the shop drawing. In response to this, Design Professionals have made
a serious effort to reduce the risk of reviewing a shop drawing. Many shop drawing review stamps do not
contain the word "approved." The closest thing to an approval in stamp language might be "reviewed —
no exceptions noted." It has been suggested that with all the clever ways Design Professionals have
devised to not say "approved," they should just use a stamp that reads: "Looked at; is what it is."
Perhaps the rhetoric about avoiding the term "approved" has gone too far. In any event, AIA Document
B-141 (1997) at 2.6.4.1 uses the word "approved" but spells out the limited purpose of the review:

The Architect shall review and approve or take other appropriate action upon the Contractor’s
submittals such as Shop Drawings, Product Data and Samples, but only for the limited purpose of
checking for conformance with information given and the design concept expressed in the
Contract Documents. The Architect’s actions shall be taken with such reasonable promptness as
to cause no delay in the Work or in the activities of the Owner, Contractor or separate contractors,
while allowing sufficient time in the Architect’s professional judgment to permit adequate review.
Review of such submittals is not conducted for the purpose of determining the accuracy and
completeness of other details such as dimensions and quantities, or for substantiating
instructions for installation or performance of equipment or systems, all of which remain the
responsibility of the Contractor as required by the Contract Documents. The Architect’s review
shall not constitute approval of safety precautions or, unless otherwise specifically stated by the
Architect, of any construction means, methods, techniques, sequences or procedures. The
Architect’s approval of a specific item shall not indicate approval of an assembly of which the
item is a component.

Whether or not avoiding the word "approved" is the key, what is vital is that the role and purpose of the
Design Professional performing the review and providing "approval" is defined. Some contracts put the
Design Professional in a bad position by using unfortunate language such as:

"Design Professional shall review and approve shop drawings. Design Professional’s review and
approval shall include a determination of whether the work complies with all applicable laws,
statutes, ordinances and codes, and a determination of whether the work, when completed, will
be in accordance with requirements of the Contract Documents."

The above language goes too far in what it requires the Design Professional to do and invites a broad
reading of the Design Professional's responsibility. For reasons discussed elsewhere in this Risk
Management Guide, the Design Professional’s role is not to warrant and guarantee that every aspect of
the Contractor's work complies with all laws and regulations. Moreover, it is not always possible at the
shop drawing review stage to determine that the Contractor's work, when complete, will meet the
requirements of the Contract Documents.
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Consider this: Common practice is to include a contract clause explaining your limited role and
responsibility with regard to the review of shop drawings. Moreover, the shop drawing stamp you use
should parallel the limited responsibility defined in the contract and notations on the drawing should set
forth who created the drawing, what it purports to show and what it does not show in your opinion. An
example of a clause that sets forth the scope of the review in a manner consistent with allocating
responsibility to the appropriate parties is the following:

Submittals

Design Professional shall receive submittals of others, including shop drawings, product data
and samples from Contractor, and shall promptly review and take other appropriate action on
them, but only shall review same for general conformity with the design concept of the Project
and the general intent of the Contract Documents. Shop drawings, samples, and other
submission reviews by Design Professional shall not include checking of specifics, dimensions
or openings for potential conflict. Design Professional, Owner, and Contractor shall develop a list
of the number and kind of anticipated submissions prior to the start of construction. Design
Professional’s review of a specific item shall not indicate approval of an assembly of which the
item is a component.

By your review of the shop drawing submittals, the Owner will naturally expect you to note some things
that are unacceptable and reject them accordingly. If inconsistencies are obvious from the drawings, and
you fail to notice this and reject the drawings, the Owner might look to you for its damages resulting from
construction that was based on the drawings that should have been rejected. To manage this risk, you
may establish procedures for handling shop drawing reviews. This may include limiting the number of
submittals provided as Basic Services, so that you may more effectively manage and staff the flow of
paperwork and effectively review what is most important.

A shop drawing review stamp might read as follows:

Review and approval of the within drawing are only for conformance with the general design
concept of the Project as generally expressed in the Contract Documents. Review and approval of
the within drawing are not conducted for the purpose of determining the accuracy and
completeness of details, like dimensions or quantities, or for substantiating instructions for the
installation or performance of equipment or systems, all of which remain the responsibility of the
Contractor as required by the Contract Documents. The Design Professional’s review and
approval shall not constitute approval of any construction means, methods, techniques,
sequences, or any safety precautions or procedures. The Design Professional’s approval of a
specific item shall not indicate approval of any assembly of which the item is a component.

See also
As-built drawings
CADD and Electronic Media
Rejection of Work
Scope of Services
Site Safety

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Site Safety
Issue: Safety is a concern on any construction project. Construction sites continue to be one of the most
dangerous worksites. Responsibility for overall site safety, however, generally belongs to the General
Contractor on the site, because that Contractor has direct responsibility for the work at the site and
Owner's typically require Contractors to take that risk by contract. In addition to the safety program that
the Contractor should have, each Subcontractor should be required to maintain a safety program for its
own employees as well. In recent years, construction workers have increasingly sought recovery for their
injuries from Design Professionals who have provided services at the project site. Two alternative
theories of Design Professional liability are usually presented: the design itself created the hazard leading
to injury or, more commonly it seems, the Design Professional's construction site services were such that
the Design Professional owed a duty to the injured party to protect the injured party from unsafe site
condition(s). Your local counsel can help you understand the law of site safety in the jurisdictions in
which you practice.

A Contractor's (or subcontractor's) injured workers often obtain whatever worker's compensation is
available through their own employer, and then seek to recover the balance of their alleged damages
from the Design Professional, arguing that the Design Professional, by virtue of its design or its contract,
or by virtue of the actions of its agents and employees in the field either actually or constructively, is
responsible for the injury.

In the damned if you do damned if you don't category are the arguments of injured workers that allege,
regardless of contract language to the contrary that the Design Professional knew of dangerous site
conditions and took various actions to correct the condition — such as communicating observations or
recommendations to the General Contractor — and that this activity by the Design Professional
demonstrates the Design Professional had the authority to control or actually did control the work and
safety at the jobsite. The case law in this area appears to be confusing and it is not simple or easy to
devise a foolproof strategy for the Design Professional to avoid legal liability for injuries of construction
workers. The specific circumstances, contract language and in-field behaviors are the facts that will be
carefully parsed to determine what if any liability applies.

Consider this: Your contract with the Owner should expressly state the limitations upon your role
concerning jobsite safety responsibility, but your in-field activities must mirror whatever limitations are
contained in the contract. Site safety in the one place you want to zealously avoid "scope creep." The
contract might include a provision stating that you are responsible for maintaining a safety program solely
for your employees, and the Contractor is responsible for overall site safety, including the safety of its
employees and all others on the site. The contract might also affirmatively state that you are not
responsible for the safety program and procedures of the Contractor or of the project site, and that to the
extent you observe Contractor's work, it is for the purpose of confirming general conformity with the
Contract Documents and specifically not for the purpose of reviewing the site's safety procedures,
monitoring site safety or correcting deficiencies in the Contractor's means, methods, or procedures for
handling site safety. You may also consider requiring the Owner to include a provision in its contract with
the Contractor that provides for indemnification of you by the Contractor for any claim arising out of
injuries or death of an employee of the Contractor.

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Consider the following:

Site Safety for Design Professional's Employees

Design Professional will maintain a safety program solely for its employees and Design
Professional's Subconsultant's employees and Design Professional specifically disclaims any
authority or responsibility for general jobsite safety and for the safety of persons who are not the
employees of Design Professional or Design Professional’s Subconsultant(s). It is understood
and agreed that the Design Professional will not be responsible for the job safety or site safety of
the project, and shall not be responsible for compliance with safety programs and related OSHA
regulations required to be followed by the Contractor or its employees, Subcontractors, and
agents. Jobsite safety shall be the sole responsibility of [Owner or] Contractor.

Because of the formulation of the last sentence, the above clause is best coordinated with other contract
language to assure that the Owner or General Contractor is assigned full responsibility for site safety.

In some instances a Design Professional may be acting as a project manager for an overall project, but
acting as a prime Contractor on one part of the same project. Such an arrangement may sound
unconventional, but as design/build contracting becomes more prevalent, it is possible that a Design
Professional could more frequently have such a dual role. In such a case, you might discuss with your
counsel the enforceability of a site safety clause that bifurcates the extent of your responsibility when
acting in your role as Design Professional versus acting in your role as a prime Contractor. In some
jurisdictions, such a bifurcation may amount to a fool's errand because the distinction between the roles
may be seen by the Courts as a distinction without a difference and the liability may not be capable of a
neat parsing or allocation.

Consider the following:

Site Safety

During such times that Design Professional is acting in its capacity as a professional consultant
on the Project, providing design services, site observation or monitoring services, or project
management or other consulting services, Owner agrees that, in accordance with generally
accepted construction practices, each Contractor or Subcontractor not retained by Design
Professional shall be solely and completely responsible for working conditions on the job site,
including safety of all persons and property during the performance of their work. This obligation
shall include providing any and all safety equipment or articles necessary for employee personal
protection and compliance with OSHA regulations. These requirements will apply continuously on
the job site and will not be limited to normal working hours. Any monitoring of the Contractor's or
any Subcontractor's procedures conducted by Design Professional in this role is not intended to
include review of the adequacy of the Contractor's or Subcontractor's safety measures in, on,
adjacent to, or near the construction site. When Design Professional is acting as a prime
Contractor on the project, Design Professional will be responsible for taking those precautions
reasonably required to provide its employees, agents and Subcontractors safe working
conditions.
See also:
Environmental Conditions
Inspection
Rejection of Work
Scope of Services

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Standard of Care
Issue: The common law standard of care for performance of professional services is generally defined as
the ordinary and reasonable care usually exercised by one in that profession, on the same type of project,
at the same time and in the same place, under similar circumstances and conditions. Perfect
performance is not required by the common law. As explained by one court: "As a general rule, [a]n
architect's efficiency in preparing plans and specifications is tested by the rule of ordinary and reasonable
skill usually exercised by one of that profession... [I]n the absence of a special agreement he does not
imply or guarantee a perfect plan or satisfactory result. Architects, doctors, engineers, attorneys and
others deal in somewhat inexact sciences and are continually called upon to exercise their skilled
judgment in order to anticipate and provide for random factors which are incapable of precise
measurement. The indeterminate nature of these factors makes it impossible for professional service
people to gauge them with complete accuracy in every instance." This normal standard establishes the
base line. Services that fail to conform to the standard, and thereby cause the Owner or the Client to
sustain damages, may be deemed negligent.

It is possible that you will make a mistake or error in your plans and specifications that causes the
Contractor to incur increased time and cost in revising or even removing and re-performing part of its
work. This may entitle the Contractor to a change order from the Owner. But unless the mistake resulted
from your "negligence" you will not be legally responsible to the Owner for the increased costs it paid to
the Contractor. You may, of course, as a matter of business judgment, decide it best to share in some of
the Owner’s increased costs or perform additional services at no charge to the Owner in order to help
rectify the situation and protect your business relationship. Providing such a remedy should be at your
sole discretion, however, and not be forced upon you by contract terms and conditions.

To determine whether your act, error, or omission was negligent, the Owner will generally have to present
an expert witness to give expert testimony to establish the applicable standard of care, and show how
you failed to conform to it. In your defense, the insurance company will generally present an expert
witness to establish what standard of care, in the expert's opinion, should have been applied, and how
you complied with that standard. Absent a contractual undertaking by you to a standard of care greater
than the ordinary standard of care, the Owner may not prevail against you unless the jury (or judge in the
event there is no jury) decides, based on the expert testimony, that you were negligent.

Owners are more commonly including language in their contracts requiring the Design Professional to
perform to a standard greater than the generally accepted standard. For example, one such clause
states:

Design Professional represents that its services will be performed in a manner consistent with the highest
standards of care, diligence and skill exercised by nationally recognized consulting firms for similar
services.

Several concerns with this clause are readily apparent, including:

(1) The "highest standard" is an unknown. Unlike the normal standard of care which can be determined
from reference to code books, customs in the practice, and your peers in the area for similar projects, you
may not know the "highest standard" until you get to court and a Design Professional from across the
county testifies to the greatest and best, cutting edge technology and state of the art being used 2,000
miles away for similar services. The "highest standard" is, therefore, a undefined term that presents
undefined risks that cannot easily be understood or adhered to.

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(2) The Owner who demands this standard of care probably does not expect you to actually practice any
higher standard, since that might entail an over-designed (and a more expensive) project — resulting in
additional costs for design and construction. In fact, the Owners that most often insist on this standard are
also the tightest on the budget and the most demanding and difficult to get along with on a project when
things don't go just the way they had hoped. They profess to expect the best possible service for the
lowest possible price.

(3) By agreeing to this "highest standard" you may subject yourself to liability for breach of contract even
though there was no negligence on your part. If, for example, the Owner has sued you for mistakes and
your expert witness shows that you were not negligent, you could prevail on the part of the Complaint that
alleges negligence, and yet lose on the part of the Complaint that is based on breach of contract. If you
prevail on the negligence count and lose on the breach of contract count, your professional liability policy
may not cover your loss because the loss may be excluded by the "contractual liability" exclusion of the
policy or by the "warranty" exclusion of the policy.

(4) Agreeing to the "highest standard" may also be viewed by some Owners and courts as constituting an
express warranty or guarantee regarding the results to be achieved by your services. Again, if viewed this
way the loss may be specifically excluded from coverage by the language of your professional liability
policy.

Consider this: Explain to the Owner that for the foregoing reasons it is not in the Owner’s best interest to
require anything other than the ordinary standard of care. Most Owners understand that Design
Professionals do not have substantial business assets, and that if there are damages to be recovered,
the Owner must look to an insurance company rather than the Design Professional. Since the language
of this clause most likely creates an uninsurable contractual liability, the Owner has arguably gained
nothing of substance by insisting on it. In fact, it might even so skew the legal basis for the Owner’s suit
that the insurance company would have no responsibility under the policy at all.

Additionally, there is a substantial case law addressing the issue of standard of care. In deciding liability
based on that standard, parties to the contract are probably better served by relying on precedents that
have been established.

A standard of care clause might provide:

Standard of Care

The Design Professional will perform its services using that degree of care and skill ordinarily
exercised under similar conditions by Design Professionals practicing in the same field at the
same time in the same or similar locality.

You might also add at the end of the standard of care clause a brief statement that the contract is not
intended to create any guarantees or warranties on the part of the Design Professional. An example is as
follows:

No warranty or guarantee, either express or implied, is made or intended by this Agreement.

In instances where the Owner has refused to delete the "highest standard" language after having been
engaged in the above discussion, some Owners have agreed to add a sentence to the end of their
"highest standard" clause stating:

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The performance standard is not intended to create a warranty, guarantee or a strict liability
standard, and it is expressly agreed that Design Professional is agreeing only that its services will
not be performed negligently or with willful or reckless misconduct.

Another area where standard of care issues may be raised concerns providing cost estimates,
recommendations, opinions, and decisions which, as a practical matter, are all made on the basis of the
Design Professional’s experience, qualifications and professional judgment. Avoid language suggesting
higher standards of care or warranties and guarantees that may be alleged to establish the standard of
care for the already tricky area of cost estimates because a higher standard of care may significantly alter
your legal liability to the Owner and create uninsurable risks.

In addition to managing the risks by using appropriate contract language, the Design Professional may
reduce the risk of being found in noncompliance with the standard of care by showing the following: (1)
you are knowledgeable and experienced in the subject area; (2) you are current on continuing education;
(3) your decisions are based on current data; (4) you have informed the Owner of risks and helped the
owner make knowledgeable decisions; (5) you considered and discussed the consequences of
recommendations with the owner; (6) you properly documented the file with calculations and design data;
and (7) you have peer reviews as necessary.

See also:
Accessibility
Certification
Compliance with Law
Cost Estimates
Delays
Environmental Conditions and Services
Indemnity
Inspection
Insurance
Timeliness of Performance
Underground Utilities
Warranties and Guarantees

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Survival
Issue: After the completion of work under your contract, or after termination of your contract with the
Owner, it is usually important that certain risk allocation aspects of the contract survive and continue to be
enforceable even though the contract itself has terminated. This may be generally understood by the
parties and Courts, but by stating it clearly in writing it is possible to avoid any uncertainty or ambiguity
concerning the intent of the parties.

Consider this: Include a survival clause in the contract identifying what aspects of the contract will
survive. Such a clause is as follows:

Survival

The conditions of this Agreement concerning indemnification, limitations of liability, record

keeping and reporting, disposal of material, and any other provisions allocating responsibility or
liability between the parties to this Agreement, shall survive the completion of the services under
this Agreement and any termination of this Agreement.

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Suspension of Services
Issue: If a Design Professional’s services on a project are suspended by the Owner or the Design
Professional for reasons beyond the control of either the Owner or the Design Professional or if a Design
Professional exercises its rights to suspend services because of nonperformance by the Owner and
services are resumed at a later date, the Design Professional generally should be compensated for the
additional costs the Design Professional incurred during or as a result of the delay. If the suspension is
very lengthy, as it can be if a governmental agency is slow in issuing a necessary permit or if a citizen's
group succeeds in having a court temporarily stop the project, the additional costs for the Design
Professional could be substantial. It is possible, for example, that the pay grades of key personnel for the
project will have increased by the time the services resume. These are examples of additional costs that
should be borne by the Owner. Unfortunately, many contracts fail to specifically address this situation and
how the Design Professional will be paid and some contracts turn the issue on its head and call for the
Design Professional to make payments to the Owner on account of the delay.

Consider this: Consider a clause that sets forth the responsibility of the Owner to pay you the additional
compensation incurred because of delays the performance of your services that are not within your
control. AIA Document B141 at 1.3.8 addresses the issue as follows:

1.3.8.1 If the Owner fails to make payments to the Architect in accordance with this Agreement,
such failure shall be considered substantial nonperformance and cause for termination or, at the
Architect’s option, cause for suspension of performance of services under this Agreement. If the
Architect elects to suspend services, prior to suspension of services, the Architect shall give
seven days’ written notice to the owner. In the event of a suspension of services, the Architect
shall have no liability to the Owner for delay or damage caused the Owner because of such
suspension of services. Before resuming services, the Architect shall be paid all sums due prior
to suspension and any expenses incurred in the interruption and resumption of the Architect’s
services. The Architect’s fees for the remaining services and the time schedules shall be
equitably adjusted.

1.3.8.2 If the Project is suspended by the Owner for more than 30 consecutive days, the Architect
shall be compensated for services performed prior to notice of such suspension. When the
Project is resumed, the Architect shall be compensated for expenses incurred in the interruption
and resumption of the Architect’s services. The Architect’s fees for the remaining services and
the time schedules shall be equitably adjusted.

See also:
Delays
Owner’s Responsibilities
Payment
Termination

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Termination
Issue: One of the more important provisions of a contract may be the provision addressing how the
contract is terminated and what rights and responsibilities flow from a decision to terminate the contract.
Typically when termination becomes an issue, the parties may not be getting along and relying on good
will to bring about a fair result may be misplaced. Contracts typically contain a provision permitting the
Owner to terminate the Design Professional’s services for (i) cause, and (ii) for any other reason at the
Owner’s convenience. Some of these provisions do not provide any requirement that the Owner give the
Design Professional prior notice of a perceived defect in the services or an opportunity to cure the defect
within a specified number of days prior to termination. Both termination for cause and termination for
convenience clauses often fail to provide for appropriate termination costs to the terminated Design
Professional. Although the clauses state that Design Professional will be paid for the services rendered
prior to the termination, they fail to provide for the extra costs the Design Professional may have in
closing down the services on the project and terminating any of its subconsultants.

Consider this: Termination provisions should be equitable and should be applied equally by both parties
to the contract. Just as the Owner should be entitled to terminate a Design Professional for cause, so
likewise, a Design Professional should be able to terminate the contract for cause — such as the failure
of the Owner to make timely payment of the Design Professional's invoices.

Some Design Professionals seek to include language permitting both the Owner and the Design
Professional to terminate the contract for convenience, upon some specified period of prior notice — such
as seven to ten days. This is deemed unacceptable to many Owners because it could leave them
stranded half way through a project and it could be quite difficult and expensive for an Owner to obtain
follow-on services after their Design Professional departs. For this reason, it may be more commercially
reasonable to provide a clause permitting the Owner to terminate you for cause or for convenience, but
allowing you to terminate the contract only for cause. An example clause providing for such rights is as
follows:

Termination for Cause.

This Agreement may be terminated by Owner for cause based on any of the following reasons: (i)
Design Professional’s negligence or misconduct that would make its continued association with
the Owner prejudicial to the best interests of the Owner; (ii) the filing of a petition in bankruptcy
by, against, or on behalf of the Design Professional; (iii) Design Professional’s uncured breach of
any material term or condition of this Agreement.

This Agreement may be terminated for cause by Design Professional if, after seven (7) days
written notice by Design Professional, Owner has not paid the amount due Design Professional
after thirty (30) days have elapsed since the original payment date established in this Agreement.

Termination for Owner’s Convenience

Owner may terminate this Agreement for its convenience without cause, upon fifteen (15) days
prior written notice to the Design Professional. In the event of termination for Owner’s
convenience, Owner will incur no liability to Design Professional by reason of such termination,
except that Design Professional shall be compensated for all Services performed prior to
termination date, together with reimbursable expenses then due or incurred and for all
Termination Expenses as defined below.

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Termination of this Agreement pursuant to this Article will not in any way: (a) compromise or
constitute a waiver of any right or remedy of either party at law or in equity, or (b) affect any
provision of this Agreement that will survive such termination pursuant to the Survival article of
this Agreement.

"Termination Expenses" shall mean compensation in addition to compensation for Basic and
Additional Services and shall include those expenses that are attributable to termination of this
Agreement for which Design Professional is not otherwise compensated, including reasonable
cancellation charges of Subconsultants.

You might want to consider adding greater detail to the requirements for termination expenses in the final
subparagraph above in order to avoid any potential ambiguity. Consider this:

Termination Expenses

In the event of termination for convenience by the Owner the Design Professional shall be entitled
to: (1) recover all reasonable costs and expenses incurred up to the date of termination, plus all
costs incurred to assemble and close project files and documents; (2) unavoidable down time in
the reassignment of project staff; (3) termination penalties/expenses related to third parties
retained by Design Professional in regard to its obligations under this contract; plus (4) a
termination amount of 15 percent of the remaining portion of the total compensation (or estimated
compensation) agreed to herein or by separate authorization to cover lost profits, damages, and
lost opportunity costs which cannot otherwise be accurately calculated.

See also:
Delays
Payment
Suspension of Services

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Third-party Claims
Issue: Claims by individuals or corporations against Design Professionals with whom they have no
contract are becoming more common. Construction Contractors, for example, sue project architects and
engineers, alleging that their design errors, delays in reviewing shop drawings, rejection of equipment,
interference with construction progress, and other issues have caused them to suffer damages from
delay or impact. Many states limit these suits based on a theory called the "economic loss doctrine." The
doctrine usually applies so that a party (such as a Contractor) who has no contract with a Design
Professional has no standing to sue for money damages. The suit must instead be filed by the Contractor
against its own Client, the Owner, who is legally responsible for its agent's (the Design Professional's)
acts and omissions.

Other parties that have been filing suits against Design Professionals include lending institutions that
have loaned construction money to a project Owner in reliance upon a consultant's report (or certification)
concerning site conditions, the completion of construction and the like. Property buyers who purchase
property in reliance upon site assessment reports (such as mechanical equipment reports, roof reports,
home inspection reports, and environmental site assessment reports) also have been suing the
professionals who prepared the reports for some other party, such as the property seller or some
previous buyer from whom the current purchaser/owner bought the property.

The risk management issue is that under various legal theories, the Design Professional may be found to
have liability to the individuals or entities that were not parties to the contract between the Design
Professional and the Owner. These "third-party" claims have become more than a nuisance. In some
cases they have resulted in significant damages being awarded against a Design Professional. Usually
the Design Professional has received no additional fees to compensate it for the increased risk
associated with another party benefiting from the Design Professional's services.

Consider this: Try to allocate risk of third party claims to the party who introduces the third party to fact
pattern. Subjecting yourself to third-party liability that you did not and reasonably should not have
originally contemplated is not, generally speaking, in your or the Owner’s best interest. In some
jurisdictions you may be shielded from such liability, but good risk management calls for a proactive
approach to limiting your exposure. Because of the greater risk for you, higher fees are justified for your
services to compensate you for the increased risk. Even though the Owner does not want to pay you
higher fees to compensate you for the increased risk, the Owner may want or need its lender to rely upon
your report. It may also intend for some future property purchaser to be able to review your instruments
of service. If so, the Owner should be presented with your need to include risk transfer language to limit
your liability to third parties before your work is shared with them. However, where there are no intended
third party beneficiaries, language such as the following may be used:

No Third-Party Rights

Nothing in this Agreement shall be construed to give any rights or benefits in this Agreement to
anyone other than Owner and Design Professional, and all duties and responsibilities undertaken
pursuant to this Agreement will be for the sole and exclusive benefit of Owner and Design
Professional, and not for the benefit of any other party. Owner agrees that it shall not disclose to
any third party any data, reports or other information furnished by Design Professional under this
Agreement without the prior written consent and subject to such reasonable conditions as the
Design Professional may require, and in the absence of such consent, Design Professional shall
have no liability to Owner or anyone else for claims arising from such disclosure.

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Some firms require a letter to be executed by any third party that will have access to the firm's work
product for any purpose. By doing this, they obtain the consent of the third party to be bound by risk
allocation and limitation clauses. Consider this:

Third Party Report Letter

Re: Report_____________________

Dear ______

Our Client, _____, has asked our firm to deliver to you a copy of the subject report. Prior to
delivering a copy to you, we must receive from you a signed original of this letter agreement, and
our fee of $______.

In consideration of our providing you with a copy of the report prepared for our Client, you
acknowledge and agree to the following:

1) the report was produced pursuant to an Agreement with our Client which contained
certain scope descriptions and risk allocation clauses, including indemnification,
limitation of liability, and time bars to litigation;
2) your access to the report is conditioned upon your acknowledgment of, and your
specific agreement to be separately bound by the same scope descriptions and risk
allocation clauses contained in the Agreement between us and our Client (copies
attached);
3) the report is limited to the facts and laws existing at the time of its preparation, and
that our firm is not responsible for changes in facts or law since the date of the report;
4) the report was intended for our Client's exclusive reliance and internal use, and is not
for general distribution or publication;
5) the services provided by us to our Client have been performed for Client and our
report may or may not be suitable for your purposes; and
6) any further distribution of the report without our prior written consent and subject to
such restrictions as we may reasonably require or any unauthorized use of the report
shall be at your and such recipient's sole risk and without liability to us.

If you desire the report to be updated, or for further services concerning the subject matter of the
report to be provided, we will entertain discussions for a further agreement with you subject to
our Client's consent to such an arrangement.

Please execute this letter in the place indicated and return an original to us.

Agreed and accepted:

__________

An even more comprehensive letter might include limitation of liability clause as between the receiving
party and the Design Professional. Consider this:

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You further agree to limit our liability to you arising from any cause of action whatsoever
including but not limited to negligent professional acts, errors, and omissions, breach of contract
or breach of warranty to an amount equal to our fee for providing you a copy of the report. This
limitation shall not apply to the extent prohibited by law.

Agreed and Accepted:

__________

Some firms also consider placing a "no third-party beneficiary" disclaimer statement at the top of every
report that is issued where concern related to third party reliance exists.

See also:
Limitation of Liability

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Time Bar to Legal Action
Issue: Litigation against a Design Professional generally must be filed within the period of time specified
in statutes of limitations or statutes of repose. If the actions are filed outside of those periods, the Design
Professional has a defense against those actions, but because the statutes are in the nature of a
defense, the statute of limitations and the statute of repose do not preclude the filing of the claim in the
first place.

Where an action is based on breach of contract, for example, a statute of limitations may require that it be
filed within a specified period such as two, four, or six years of the breach — depending upon the
applicable law. Where the action is based upon negligence, it may have to be filed within a shorter period,
such as two years from the date of an injury resulting from the negligent act, error, or omission. That
period may be extended significantly, however, because the time period might not begin to run until years
later, when the injured party learns (or reasonably should have learned) of the loss or injury. The time
limit applicable to filing an action may become further clouded when the claims mix some combination of
breach of contract and negligence. Moreover, in cases where fraud or misrepresentation are alleged,
there may be a dispute over whether the time period for filing suit run from the date of the
misrepresentation or from the date of the discovery of the misrepresentation or if the statute of limitations
defense is available at all.

Many states also have a statute of repose limiting the time in which a party may file suit against a Design
Professional that provided services for a construction project. The period generally begins to run from a
specified point in time, such as "substantial completion." The statute of repose may run for a specified
number of years, regardless of when a party first learns of its loss or injury. The time bar to claims under
statutes of repose is generally longer (say eight or nine years in some jurisdictions) than statutes of
limitations (say two or four years) in the same jurisdiction. Although statutes of repose may provide
greater certainty and broader scope than a statute of limitations in some instances, statutes of repose
may not provide the certainty desired regarding an owner who is in a unique position viz a viz the Design
Professional. Moreover, each jurisdiction has its own time period for filing suit and the time period may
vary or may not be available depending upon the nature of the claim.

Without greater certainty as to how long you can be sued by the Owner for work on a project, might you
require professional liability insurance indefinitely? Moreover, if you retire or leave the practice, how
much "tail" or extended discovery period coverage will you need to buy and at what cost?

Consider this: Rather than rely exclusively on statutes of limitations or statutes of repose, you may
consider establishing, by contract, a specific time frame limiting the time in which the Owner may bring
claims against you. You could agree to a mutual time frame barring either you or the Owner from bringing
claims beyond a certain time. The downside of a contractual provision is that it only applies to the parties
to the contract and not third parties. However, it is probably the case that most of a Design Professional's
exposure is to the project owner so a time bar to litigation contract provisions may go a long way in
reducing your most significant liabilities. An example of a clause limiting the time by which the Owner can
sue the Design Professional follows:

Time Bar to Litigation

Any actions by either party against the other party for any cause of action whatsoever whether
known or unknown, including but not limited to claims for breach of this Agreement, or for the
failure to perform in accordance with the applicable standard of care, howsoever stated, shall be
barred two (2) years from the time claimant knew or should have known of its claim, but in any
event, not later than four (4) years after substantial completion of Design Professional’s services.
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Timeliness of Performance
Issue: A Design Professional is sometimes required to perform its services under a contract making "time
of the essence." While seemingly an obvious truth in a practice where hourly rates form the basis for
payment a "time is of the essence" clause has an important legal meaning. The inclusion of a "time is of
the essence" usually makes deadlines absolutes and not just goals. Because failure to meet a deadline
thus becomes a technical breach (but perhaps not a material breach) of contract, agreeing to a "time is of
the essence" clause may have the unintended effect of putting timeliness ahead of the cautious exercise
of due professional care.

Consider this: One way this issue of timeliness of performance may be addressed is to include a clause
stating that the Design Professional will exercise diligence to complete its services on the schedule
established for the project, consistent with the standard of care required for the services. Consider this:

Timeliness of Performance

Design Professional agrees to exercise diligence in the performance of its services consistent
with the agreed upon project schedule, subject, however, to the exercise of the generally
accepted standard of care for performance of such services.

AIA Document B141 (1997) at 1.2.3.2 provides as follows:

The Architect’s services shall be performed as expeditiously as is consistent with professional

skill and care and the orderly progress of the Project. The Architect shall submit for the Owner’s
approval a schedule for the performance of the Architect’s services which initially shall be
consistent with the time periods established in Subparagraph 1.1.2.6 and which shall be adjusted,
if necessary, as the Project proceeds. This schedule shall include allowances for periods of time
required for the Owner’s review, for the performance of the Owner’s consultants, and for approval
of submissions by authorities having jurisdiction over the Project. Time limits established by this
schedule approved by the Owner shall not, except for reasonable cause, be exceeded by the
Architect or Owner.

See also:
Delays
Environmental Conditions and Services
Information Provided by Others
Owner’s Responsibilities
Permits and Licenses
Standard of Care

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Underground Utilities
Issue: Contractors are typically expected to locate underground utilities before commencing their work.
This expectation holds true even when the contractor has been provided basic information and drawings
from the Design Professional or Owner concerning the known or expected locations of utilities.
Additionally, many jurisdictions have "one call" laws that require a contractor to call before digging to
have underground utilities marked out by the utilities' owners. Nonetheless, in part because damages
flowing from disruption of utilities is so great, Owners occasionally include a clause in the Design
Professional’s contract concerning underground utilities that is based on language typical of the
Contractor's contract. Such language may require the Design Professional to assume all responsibility for
locating underground utilities and any damages resulting from its failure to locate them all correctly. The
liability transfers in the clauses often appear to apply regardless of whether the Design Professional
exercised the appropriate standard of care to locate the utilities. An example of an unfortunate owner
generated underground utility clause follows. Note the use of the word "operations" as a potential dead
give away of the origin of the language being a contractor's, not a design professional's contract:

"Design Professional shall locate all underground utilities and obstructions prior to the
commencement of intrusive operations at the project site, such as drilling or excavating, and shall
be responsible for damage to such utilities or structures caused by its operations, including data
collection, soil and ground water sampling, and any excavating."

Damages resulting from hitting an underground utility or other subsurface condition can be significant.
Not only may there be the direct damage of repairing or replacing the utility, but there may be
consequential, indirect damages such as loss of an Owner’s (or even major population center's)
electricity or telephone service. Businesses and restaurants could close down and lose profit for one or
more days.

Consider this: Unless you are directly involved in performing or supervising the performance of intrusive
field operations, your contract rationally should not suggest that you have any responsibility for
underground utilities. On the contrary, the Owner should be required to provide all information in its
possession concerning underground utilities to you and you should be expressly entitled to rely on that
information. Primary responsibility for locating underground utilities should ordinarily be assigned to the
Contractor doing the intrusive field operations. Even if you will be actively involved in such in intrusive
field operations, the contract should clearly state that you will be liable only for your negligence. The
contract should provide only that you exercise reasonable care with regard to the underground utilities,
including compliance with state "one call" laws. The contract should not impose any strict liability on you
in this regard. An example clause is as follows:

Underground Utilities

Owner shall advise and provide Design Professional with all information and data in its
possession concerning the type and location of underground utilities. Design Professional shall
be entitled to rely on the information provided being complete and accurate. The Owner-
Contractor Agreement shall make Contractor responsible for locating all underground utilities. To
the extent that Design Professional performs any services to locate underground services, it shall
use reasonable means to identify and locate underground utilities and structures, such as
complying with state "one call" laws, and shall exercise reasonable precautions to avoid damage
to the utilities.

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Special considerations-contaminated sites: If you are providing professional services regarding a site
that may be the subject of or remediation activities or institutional controls consider addressing the fact
that there may be conditions at the site that may be damaged or altered as a result of your services,
despite your exercising the reasonable standard of care. To limit contractual liability for damage to
underground facilities, Environmental Professionals might consider a clause such as:

Design Professional shall not be liable for services performed that result in injury or damage
arising out of damage to, or interference with, any underground structures or facilities which are
not expressly called to Design Professional’s attention in writing and correctly shown on the
plans furnished by Owner in connection with the Work. Owner recognizes that the use of
excavation, exploration and test equipment may unavoidably affect, alter, or damage the terrain
and affect subsurface, vegetation, buildings, structures and equipment in, at, or upon the site, and
Design Professional shall not be responsible for the same, except to the extent such damage or
loss results from Design Professional’s negligence.

See also:
Changed Conditions
Consequential Damages
Environmental Conditions and Services
Owner’s Responsibilities
Scope of Services
Standard of Care

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Waiver of Terms of Contract
Issue: If a party to a contract ignores the contract terms, and acquiesces to the other party's doing things
contrary to the stated terms and conditions, an argument can be made that the party that did not
complain has agreed by its actions to alter the terms of the contract, and is barred from subsequently
enforcing such terms.

Consider this: Set up an argument to defeat the possibility of inadvertently giving up the right to enforce
terms of a contract. Consider a clause stating that your failure to enforce a clause on one occasion does
not bar you from enforcing that same clause on future occasions. Owners sometimes draft these clauses
so that their waivers or failures to enforce to the letter of the agreement will not be considered a general
waiver or waiver of future breaches. They sometimes fail to reciprocate for the Design Professional. The
Owner’s failure to include the Design Professional in the waiver language could suggest that a waiver or
failure by the Design Professional to enforce all terms of the agreement is a broader waiver. The clause
should, therefore, be reciprocal.

An example of a no waiver clause follows:

No Waiver

No failure by either party at any time to give notice of any breach by the other party of, or to
require compliance with, any condition or provision of this Agreement will be deemed a waiver of
similar or dissimilar provisions or conditions at the same or any prior or subsequent time.

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Warranties and Guarantees
Issue: A Design Professional has a duty to perform its professional services in a manner consistent with
the standard of care that other Design Professionals would exercise on similar projects, in the same
location and time, under similar circumstances. If you agree to warrant that your services will produce an
error-free design or certain performance measurements, you may have liability under your contract based
on breach of warranty, even though you were not negligent in your performance of covered professional
services. Your professional liability insurance policy, however, is designed to cover only those damages
that arise out of your negligent performance of covered professional services and typically excludes
coverage for warranties and guarantees.

Consider a clause like the following that appears to create an express warranty:

"Design Professional warrants that the Services shall be performed in accordance with the terms of this
Contract; all applicable federal, state and local laws, ordinances, governmental rules and regulations; and
the highest standards of Design Professionals performing similar services; and that the project and the
Services shall be fit for the purposes intended by Owner. If, during performance of the Services, or within
one (1) year after completion of the Services, or termination of this Contract or the applicable Request for
Services, any portion of the Services or its performance fails to conform to the requirements of the
sentence above, Design Professional shall promptly correct, at Design Professional’s own expense, such
a nonconformance after receipt of a written notice from the Owner which shall be given within thirty (30)
days. With respect to such corrections, the requirements of the first sentence of this article shall continue
for an additional one (1) year period."

Some Owners have been including language in various clauses of the contract that, when read together,
also appear to create a warranty. In one contract, a city that was calling for the design of a bicycle trail in
its city park included the following language in its professional services contract:

Design Professional warrants that the final design will be sufficient and adequate to fulfill the
purposes of the Project.

Design Professional shall make visits to the site to inspect the progress and quality of the
executed work of the Contractor and Subcontractors, and to determine if such work is proceeding
in accordance with the Contract Documents.

Design Professional shall keep City informed of the progress and quality of the work. Design
Professional shall exercise the utmost care and diligence in discovering and promptly reporting to
City any defects or deficiencies.

Design Professional shall review and approve shop drawings. Design Professional’s review and
approval shall include a determination of whether the work complies with all applicable laws,
statutes, ordinances and codes and a determination of whether the work, when completed, will
be in accordance with requirements of Contract Documents.

Design Professional shall promptly correct any defective designs or specifications furnished by
Design Professional at no cost to City.

Design Professional shall indemnify City against any and all damages arising out of the
performance of the services or the completed project ... provided the damages are not caused by
the sole negligence of the City.

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This series of clauses was not located entirely under one subject heading of the contract. It was actually
found in six separate clauses over a text of seven pages. The first of the clauses rather clearly states that
the Design Professional is granting a warranty. Moreover, it is a warranty of "fitness for intended
purpose." This is a Uniform Commercial Code (UCC) type warranty for products, not services. One of the
last things that a Design Professional wants is for the Owner to successfully argue in Court that the
professional services were actually a "product" entitling the Owner to UCC type warranties or products
liability damages. The balance of the clauses appear to worsen the situation by using the term "inspect"
instead of "observe"; requiring "utmost care" instead of the normal standard of care; requiring a shop
drawing review that appears to go far beyond the standard scope and purpose of shop drawing reviews;
and finally requiring the Design Professional to correct all design mistakes at its cost regardless of
whether it was negligent, and to indemnify the City for all damages regardless of whether caused by the
Design Professional’s negligence.

Consider this: When you see a provision requiring a "warranty" or a "guarantee" you should
immediately flag it as a potential problem clause. Spotting these clauses is not always easy, however,
because they may be created by contract language that does not specifically refer to "warranties" and
"guarantees." For example, if you agree to be held to the "highest standard of care" instead of the
"generally accepted standard" you may have agreed to a hidden warranty that your services will be the
best and will produce a perfect result. If you are sued by the Owner for a "defective design," the
insurance company will generally be required to present an expert witness in your defense to prove that
you honored the generally practiced standard of care. Assuming this is proved, you may be found to be
not liable on the basis of negligence and yet liable for breach of your obligation to meet the "highest
standard of care." If this happens, you may incur uninsurable loss from a breach of contract.

Other clauses that may create warranties by their subtle (or not so subtle) language include clauses
pertaining to compliance with law. It may not be realistic to expect you to identify, interpret, and apply
every conceivable law, regulation and ordinance in precisely the manner that the governing agency or
some other party believes it should be applied. In the event that the Owner incurs damages because of
your incorrect interpretation and application of a law or regulation, you need to be able to defend yourself
by presenting expert testimony to show that your interpretation was a reasonable one — even if it was
incorrect. This, once again, is the normal negligence standard. If your interpretation was negligent, your
professional policy may cover it. If, on the other hand, your interpretation was wrong, but not negligent,
and you have contractually obligated yourself to pay for the Owner’s damages, your policy may not cover
your loss.

A clause addressing cost estimates is yet another that creates a potential warranty situation. You should
be careful that you not agree to incur liability based solely on your cost estimate being incorrect. Agreeing
to be responsible for damages resulting from a negligently prepared cost estimate is as far as you can
safely go with this if you hope to have the loss insured. Assuming it to be within the scope of "covered
professional services and not otherwise excluded, your insurance can cover you for a negligently
prepared cost estimate. It will not cover you, however, for breaching a contractual commitment to give a
perfect cost estimate—in the absence of a demonstration that your cost estimate was also negligent.
Once again, you should agree only to exercise reasonable care in preparing the cost estimates.

Another clause that creates potentially uninsurable warranties is one that requires you to certify that the
Contractor completed all the work in conformance with the plans and specifications. It is important that
you not agree to such a certification. It can create a representation on which a third party might rely to its
detriment and thereby have a cause of action against you. It might also constitute a warranty-type
assurance to the Owner that the Contractor has completed the work in a satisfactory manner and this
may create liability for you in the event that it is later determined that the Contractor did not perform in
complete accordance with all the plans and specifications.

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If you must give such a certification, state the facts and any qualifications or exceptions—noting in
particular if you were not on site for the entire period of construction.

Performance guarantees

On projects such as power generation facilities, it is not uncommon to find contract language requiring
performance guarantees concerning how much energy will be generated from the plant and how
efficiently it will operate. For wastewater treatment facilities, it is not uncommon to see performance
guarantees concerning how efficiently effluent will be handled and what percentage of water will remain in
the sludge that exits the plant. To protect against potentially unlimited liability for these type of
guarantees, the Design Professional should negotiate a reasonable limitation of liability provision that
caps any liquidated damages that might be assessed. Performance efficacy insurance products may not
be available to you and if they are, they may be too costly.

See also:
Accessibility
Certification
Compliance with Law
Cost Estimates
Environmental Conditions and Services
Information Provided by Others
Inspection
Insurance
Limitation of Liability
Standard of Care

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 Zurich
Environmental and Design Professional
One Liberty Plaza
New York, New York 10006
A1-14658-A (12/05) 04-1670

866-860-7292
www.zurichna.com/environmental

Coverages underwritten by member companies of Zurich in North America, including Zurich American Insurance Company.
Certain coverages not available in all states. Some coverages may be written on a nonadmitted basis through surplus lines brokers.
A/E Contracts – Risk Management Guide
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