What Types of Risky Contract Terms Concern Smart Architects and Engineers?

Written By Jeremy S. Baker –

When negotiating contracts, architects and engineers face a variety of risky contract terms – but a few kinds of clauses stand out as being particularly risky and prone to misuse.

Uninsurable Contract Terms

First, it is common for project owners to ask architects and engineers to accept contract risk management terms outside the protection of their professional liability insurance. For example, owners might ask their designers to warrant or guarantee certain outcomes, or to defend the owners from claims. These risky contract terms can be a mistake for everyone involved, including the owners themselves.

Most of the money in a construction project runs through the contractor; they buy the materials and labor, the concrete and steel, etc. By contrast, a comparatively small percent of the total project cost runs through the design firm. It is uncommon, therefore, for architecture or engineering firms to have large sums of cash on-hand to satisfy claims.

Often, if a costly design defect occurs, the only source of recovery available to owners is the designer’s professional liability insurance. That insurance exists, in part, to pay claims. It protects project owners and other claimants. Therefore, owners may not want to give away the protection of that insurance coverage by insisting their designers accept uninsurable contract terms. Owners who do so might prevail on claims against architects and engineers, but recover no money.

Designers who are denied insurance coverage – on otherwise insurable claims, because they accepted uninsurable contract terms – could face an existential threat to their businesses. It is imperative for architects and engineers to evaluate contract terms to determine if they are being asked to step outside the protection of their professional liability insurance.

Design Team Coordination Requirements

Another very common type of contractual risk is rooted in design team coordination. While it is appropriate for the lead architect or engineer to accept a certain level of obligation for coordinating the design of the overall project, often liability for design team coordination can be set out in vague contractual terms. This creates a risk that creative attorneys will blame the lead designer for the mistakes of others; for failing to properly “coordinate” their work.

Few design professionals consider this risk when they vaguely agree to coordinate the design. When they think about coordination, many designers envision running meetings and facilitating communications between the owner, contractors, and other design team members – NOT the risk of being blamed for the design errors of others. This risk is acute when the project owner directly contracts with some members of the design team, including design-build MEP/FP contractors.

So what can architects and engineers do to minimize this risk? They can avoid vague contract terms about their obligations to coordinate the designs produced by others. Architects and engineers can clearly and thoroughly define what they will do—and will not do—by way of such coordination. Stating what they will not do in coordinating the overall design is particularly important.

Accessibility Requirements

We all know that design professionals must comply with a variety of federal, state, and local statutes, rules, and codes that require certain public and commercial buildings to be designed so they are readily accessible to, and usable by, persons with disabilities. These requirements have important and worthy aims for our society, but they can create unique liability exposures for design professionals. Legislation aimed at achieving these ends – including Title III of the Americans with Disabilities Act and the Fair Housing Act, and their state and local equivalents – can create acute risks to design professionals. Architects and engineers should understand that this risk depends, in part, on the accessibility-related terms in their contracts with project owners.

Unlike the standard of care, would acknowledges that no set of plans and specifications is entirely free of errors and omissions, accessibility design requirements can sometimes be strictly enforced. Regardless of the designer’s good intentions for best efforts, if a design does not comply with the technical aspects of these accessibility requirements, the architect or engineer can face liability exposure. The difference between compliance and noncompliance, while often complex and debatable, can literally be a question of inches (or less). A certain amount of risk is inherent in these statutes and the regulations that implement them; and arguably, correctly so.

Designers can compound that risk by allowing the project owners who employ them to transfer, or attempt to transfer, extra accessibility-related risk to the designer by contract. Sometimes, the extra accessibility risks designers accept by contract can take them outside the protection of their professional liability insurance. Designers should therefore be intentional regarding the contact terms they accept about compliance with accessibility-related laws and regulations.

There is no avoiding risky contract terms, for architects and engineers, but risk can be managed if the contract clauses are thoughtfully and fairly written.

For more information of interest to architects and engineers, click here!

This publication is prepared for the general information of friends of Baker Law Group LLC in Illinois. It is not legal advice for you, or legal advice regarding any specific matter. Jeremy S. Baker is licensed to practice law only in Illinois. Under rules applicable to the professional conduct of attorneys in various jurisdictions, it may be considered attorney advertising material. Prior results do not guarantee a similar outcome.

When negotiating contracts, architects and engineers face a variety of legal risks – but a few risky contract terms stand out in particular.

Nobody involved in projects – owners and developers, in particular – should want their design professionals to be without a net. Professional liability insurance writes checks to them, owners and developers, in the event of a legitimate design malpractice claim.

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Jeremy S. Baker is an experienced Chicago-based attorney who provides transactional, dispute resolution, and general counsel services to the design and construction industry. He uses creative project structuring and intelligent contracts, plus dispute avoidance and early cost-efficient claim resolution techniques, to help his clients complete challenging projects.

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