Securing the Agreement with the Client is just the Beginning

An architect and/or architectural firm should keenly focus on negotiating and securing the best possible terms and conditions in an Owner-Architect Agreement.  Hopefully, you have developed standard terms and conditions to attach to your proposals (that may become agreements) and also developed a form of client agreement with key protective contract provisions.   Even if you have done the foregoing, we all know that it is often the Client’s form of agreement that is presented to you for execution.

You need to review the Client’s form for uninsurable language, provisions that raise or are outside the standard of care, address payment terms, schedules and deliverables.  Do you have a checklist?  Indemnity and Insurance are usually the biggest issues.   You should not agree to an upfront duty to defend, and indemnity should be limited to the extent of your negligence.  Insurance provisions must not exceed the coverages and limits you carry.  Remember that your client cannot be an Additional Insured under your professional liability policy.

There are clearly the dealbreakers and the dealmakers. Key dealmaker are provisions such as a limitation of liability, sole corporate remedy, mutual waiver of consequential damages, ownership and use of instruments of service, force majeure, no third-party beneficiaries, mutual indemnity, owner responsibilities, and additional services.

Low and behold, you’ve factored in the dealbreakers and dealmakers and reached an agreement with the client (the “Prime Agreement” and/or “Prime”).   However, that is just the beginning.

Too often, the architect puts all of its energy into the Prime, and little into its consultant agreements.   Key to your consultant agreements is tying them to the Prime.   Misaligned agreements are a common source of unintended liability for architects.  You are vicariously liable for your consultants.  There are often binding terms & conditions of the Prime that need to be passed along to the consultants.  Even if not required under the Prime, you do not want to assume more onerous terms than your consultants.  That is why you almost never want to sign one of your consultant’s agreements/proposals.  The consultant’s terms will likely be drafted heavily in the consultant’s favor, contain very low if any insurance coverage limits, contain a limitation of liability as low as Fifty Thousand Dollars ($50,000) and unrealistic payment terms.

If a consultant is at fault but does not have the insurance limits set forth in the Prime or otherwise to cover the liability, then the architect may have to make up the difference.  If a consultant falls behind the design schedule of the Prime but isn’t bound to the Prime, the architect is still liable.

Essentially, whether you develop your own forms or use an AIA C401 or similar industry agreement, the architect needs to flow down the terms and conditions of the Prime to the consultants.  Even if the Prime provides that consultants may carry lesser limits of insurance, you need to confirm those limits, and regularly receive update certificates for the duration required in the Prime.  You need to be able to use your consultants’ Instruments of Service on the same terms as the Prime.  You need the dispute resolution provisions to match the Prime.  You need to be paid by your client before paying your consultant.  Your consultants need to be bound to the deliverable schedules as required in the Prime.

The bottom line is that you must align your consultant agreements with the Prime and then continue to monitor compliance.