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Rli — DPLE 316 Contract Review for Design Professionals webinar (February 2022)
50 slides from Rli's conference presentation, Feb 23, 2022
Slide 1: Contract Review for Design Professionals
Contract Review for Design Professionals RLI Design Professionals DPLE 316 February 23, 2022
Slide 2: AIA Continuing Education Systems Registered Provider
RLI Design Professionals is a Registered Provider with The American Institute of Architects Continuing Education Systems. Credit earned on completion of this program will be reported to CES Records for AIA members. Certificates of Completion for non-AIA members are available on request. This program
Slide 3: Copyright Materials
Copyright Materials This presentation is protected by US and International Copyright laws. Reproduction, distribution, display and use of the presentation without written permission of the speakers is prohibited. © RLI Design Professionals ©: ConstructionRisk, LLC 2018 - 2022 3
Slide 4: Disclaimer
Disclaimer Nothing presented herein is a substitute for actual legal advice that can only be provided in the event that an attorney client relationship is formed and agreed to by both the attorney and the client. Furthermore, the presentation may involve hypothetical facts and is no substitute for l
Slide 5: Course Description
Course Description ✓ Importance of contracts ✓ Implications of exposures and court decisions ✓ Understand and negotiate
Slide 6: Learning Objectives
Learning Objectives Participants in this session will: UNDERSTAND THE IMPACT LEARN FROM COURT LEARN TO IDENTIFY AND LEARN NEGOTIATING IDEAS OF RISK ALLOCATION ON DECISIONS HOW REVISE KEY RISK FOR REVISING CONTRACTS INSURABILITY CONTRACTS ARE ALLOCATION CLAUSES INTERPRETED AND APPLIED
Slide 7: Some Key Clauses to Review
Some Key Clauses to Review • Standard of Care • Cost overruns/cost estimates • Indemnification • Compliance with laws • Limitation of Liability • Site visits/inspections • Waiver of Consequential • Certifications Damages • Payment provisions • Any warranties • Incorporation by reference • Time of th
Slide 8: Incorporation by Reference
Incorporation by Reference • Be sure to obtain and read the “prime agreement” that is incorporated. • Determine that the incorporated terms and conditions don’t create greater responsibility than the t’s and c’s in your subcontract. • At the end of the incorporation by reference sentence, insert the
Slide 9: Standard of Care (problem)
Standard of Care (problem) The following clause in an owner-generated contract requires greater than the generally accepted standard. - “DP represents that its services will be performed in a manner consistent with the highest standards of care, diligence and skill exercised by nationally recognized
Slide 10: Standard of Care (solution)
Standard of Care (solution) AIA B101-2017, Section 2.2 reads as follows: - “The Architect shall perform its services consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances. The Architect sha
Slide 11: Standard of Care (solution 2)
Standard of Care (solution 2) If the contract seems to contain language that might be interpreted as warranties and guarantees, consider adding a catch-all sentence to the “Standard of Care” section stating something like this: - “No warranty or guarantee, either express or implied, is made or inten
Slide 12: Designer Not Liable for Implied Warranty of Habitability of Condo
Designer Not Liable for Implied Warranty of Habitability of Condo • Condo association filed suit against designer of condo complex, alleging breach of implied warranty of habitability resulting in air and water infiltration. • Court held Designer not subject to liability – citing the principle that
Slide 13: Designers are Not “Workmen”
Designers are Not “Workmen” • Court rejected condo association's argument that DPs have an implied obligation to perform their tasks in a “workmanlike” manner. • Citing to Black's Law Dictionary, the court noted a “workman” is a person who is “employed in manual labor, skilled or unskilled." - “Thus
Slide 14: Engineer Can be Sued for Breach of Warranty of Professional Services
Engineer Can be Sued for Breach of Warranty of Professional Services • Pulte Homes sued A/E that performed engineering and testing services for it. After resolving defects asserted by the homeowner through arbitration proceedings, Pulte sued A/E to recover damages paid homeowner. • The theories of r
Slide 15: Certification (problem)
Certification (problem) Beware of language requiring certification of contractor’s compliance with all plans and specs. E.g., – “Upon completion of the construction, the DP shall certify that the work was completed in accordance with the plans, specifications, and drawings.”
Slide 16: Certification (AIA solution – knowledge within contract scope)
Certification (AIA solution – knowledge within contract scope) Set limits on signing certificates: – “The Architect shall not be required to execute certificates or consents that would require knowledge, services, or responsibilities beyond the scope of this Agreement.” AIA B101-2017, §10.4. – Inste
Slide 17: Compliance with Law
Compliance with Law Typical clause creates liability if non-compliance with law was not intentional or negligent. SOLUTION: Insert standard of care wording shown in red letters. – “DP shall exercise the Standard of Care to comply with all laws, ordinances and codes.” – “The DP shall indemnify and ho
Slide 18: Who is Indemnified?
Who is Indemnified? Don’t agree to indemnify agents and representatives • Prime contractor had to indemnify the Architect per indemnity clause requiring it to indemnify the Owner’s “representatives” against claims arising out of contractor’s work. • Court said Architect fell in category of “represen
Slide 19: Indemnification (problem 1)
Indemnification (problem 1) • Uninsurable “contractual liability” when DP agrees to indemnify for anything other than damages to the extent caused by DP’s negligence. – No professional coverage for specific terms of “indemnity” clauses. Only covered if liability would have existed at common law – in
Slide 20: Indemnification – Be sure the word “negligence” modifies everything
Indemnification – Be sure the word “negligence” modifies everything • Poor wording may shift risk to DP for damages not caused by its own negligence. E.g., – “DP shall indemnify the Client for all claims, damages and expenses arising out of acts, omissions, errors or negligence of the DP.” • The wor
Slide 21: Indemnification – Could Increase Standard of Care
Indemnification – Could Increase Standard of Care • Indemnification clauses that are not limited to negligence conflict with the normal Standard of Care. • DP might be held to a perfection standard by the indemnification provision so it is liable despite having met the standard of care, i.e., it was
Slide 22: Indemnification (the uninsurable Duty to Defend)
Indemnification (the uninsurable Duty to Defend) Don’t agree to defend an Indemnitee against Professional Liability claims. No common law duty requires a DP to defend its client against third party actions. – “Contractual liability exclusion” applies. Professional policy will not provide defense of
Slide 23: Revising the Duty to Defend
Revising the Duty to Defend Alternatives: (1) Delete the duty to defend entirely by striking out the word “defend” where it appears in the clause; . (2) Don’t delete the word “defend,” but add a parenthetical like this: “indemnify, defend (except against professional liability claims) and hold harml
Slide 24: Indemnification (problem of 1st party claims)
Indemnification (problem of 1st party claims) • Indemnity should only apply to damages arising out of third party tort claims against the client. • Some courts allow clients to use the clause to recover their own first party damages, losses and costs even where no 3rd party claim was made against th
Slide 25: New York: Indemnification for 1st Party Claims
New York: Indemnification for 1st Party Claims • Plaintiff can recover its own damages and losses even if no 3rd party claim; • Court stated: “It is a familiar principle that a cause of action for common-law indemnification must be based upon a defendant’s breach of duty to a third party.” • This ca
Slide 26: Indemnification Only for 3rd Party Claims
Indemnification Only for 3rd Party Claims • After contractor (Kr) was awarded GMP it subcontracted engineering firm to provide balance of design services. • Later, Kr claims A/E designs were flawed, and it had to make midstream corrections to comply with various code requirements, and thereby incurr
Slide 27: Indemnification Only for 3rd Party Claims – Cont’d
Indemnification Only for 3rd Party Claims – Cont’d The clause in Hensel Phelps: “indemnify, defend and hold … harmless” [the contractor] from any claim, judgment, lawsuit, damages, liability, and costs and expenses, including reasonable attorneys’ fees, as a result of, in connection with, or as a co
Slide 28: Engineer Required to Defend Client against Routine Contractor Claim
Engineer Required to Defend Client against Routine Contractor Claim Trial court held A/E owed its client, the town, a defense against a contractor suit that alleged that the plans and specifications prepared by the engineer and provided by the town to the contractor for bidding and construction were
Slide 29: Penta Corp. (2)
Penta Corp. (2) • Contractor claimed its construction met engineer’s plans and specs that called for a specific brand of disc filters for a wastewater treatment facility. • Upon receipt of the suit, the town sent the engineer a demand for a defense against the contractor’s suit pursuant to the terms
Slide 30: Indemnity Wording (Penta 3)
Indemnity Wording (Penta 3) “shall indemnify, exonerate, protect, defend (with counsel acceptable to the Town . . .), hold harmless and reimburse the Town . . . from and against any and all damages (including without limitation, bodily injury, illness or death or property damage), losses, liabilitie
Slide 31: Duty to Defend Applied to “ALL” Claims – Not Just Tort Claims (Penta 4)
Duty to Defend Applied to “ALL” Claims – Not Just Tort Claims (Penta 4) • The court noted that the duty to defend applies to “claims,” “litigation,” and “suits” that are “asserted against” the town and related to the engineer’s negligent contract performance. • Significantly, the court concluded, “T
Slide 32: “Arising Out Of” is Broad Term (Penta 5)
“Arising Out Of” is Broad Term (Penta 5) • A/E argued that language of the clause reading “but only to the extent arising from” served as a strict limitation on the engineer’s responsibility. • The court rejected that argument, stating, “The phrase ‘arising out of’ has been construed as a ‘very broa
Slide 33: Reasonable Indemnification Clause Example
Reasonable Indemnification Clause Example “Indemnification. Consultant shall indemnify, defend (except against professional liability claims) and hold harmless the Client, its officers, directors, and employees from and against third party tort claims, causes of action and demands (“Claims”) and the
Slide 34: Site Visits – Inspection (the problem)
Site Visits – Inspection (the problem) An example of a problematic clause is the following: – “DP 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 Contra
Slide 35: Site Visits (reasonable clause)
Site Visits (reasonable clause) • On the basis of the site visits, the Consultant shall keep the Owner reasonably informed about the progress and quality of the portion of the Work completed, and report to the Owner (1) known deviations from the Contract Documents and from the most recent constructi
Slide 36: Schedule (timeliness of performance)
Schedule (timeliness of performance) • Revise “time of the essence” clauses. They suggest absolute guarantee of completion by a specific date. – Consider revising to state: “Time is of utmost importance….” • AIA B101-2017, at §2.2, addresses time for performance as follows: – “The Architect shall pe
Slide 37: Cost Estimates Exceeded – (a reasonable clause)
Cost Estimates Exceeded – (a reasonable clause) • Notwithstanding any other term of this Agreement, if Consultant has any duty to design the Project within a Construction Budget, its duty shall be limited to responsibilities that are reasonably within its direct control, thereby excluding matters th
Slide 38: Ownership and Copyright
Ownership and Copyright (1) How to handle our own proprietary pre-existing documents. Client expressly acknowledges and agrees that the documents and data to be provided by Consultant under the Agreement may contain certain design details, features and concepts from Consultant’s own practice detail
Slide 39: Pay if Paid / Pay When Paid
Pay if Paid / Pay When Paid Payment from the Client can be an issue both when we are the Prime Consultant and when we are the subconsultant. - When we are the Prime Consultant, we want to make payment to our subconsultants contingent on receiving payment from our Client. The courts in different stat
Slide 40: Pay if Paid / Pay When Paid
Pay if Paid / Pay When Paid If we are a subconsultant and our contract has a pay-if-paid or pay-when-paid clause, we need to be able to suspend services if we are not being paid. Add a provision such as: If Consultant fails to receive payment within forty-five (45) days of submitting a properly form
Slide 41: Site Safety: Responsibility and Liability
Site Safety: Responsibility and Liability
Slide 42: Scaffolding Collapse: Engineer, Architect, Project Owner Not Liable for Injuries
Scaffolding Collapse: Engineer, Architect, Project Owner Not Liable for Injuries • Summary judgment for architect and an engineer, against employees of a contractor that were injured when scaffolding failed under the weight of a concrete slab that was being poured. • No basis for claim against firms
Slide 43: Engineer Had No Duty to Warn
Engineer Had No Duty to Warn • Court stated only limited circumstances where engineer has duty to warn employees of the contractor or subcontractor of hazardous conditions. • Engineer had one initial site visit and then a visit after the collapse. • Court considered factors to determine if superviso
Slide 44: Engineer Had No Duty to Warn - Continued
Engineer Had No Duty to Warn - Continued • Court said: “the scaffolding was a means to build the project's second-story floor”, and “nothing in the contract made the architect responsible for ensuring that the engineer’s scaffolding design was adequate.” • Court found no contractual duty to inspect
Slide 45: Dispute Resolution (prefer litigation)
Dispute Resolution (prefer litigation) • DP’s generally prefer litigation over arbitration. • The language with the AIA check-box in B101 - 8.2.4 states: – “If the Owner and Architect do not select a method of binding dispute resolution below, or do not subsequently agree in writing to a binding dis
Slide 46: Dispute Resolution (prevailing party attorney’s fees)
Dispute Resolution (prevailing party attorney’s fees) “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 othe
Slide 47: Define “Prevailing Party”
Define “Prevailing Party” “Prevailing party is the party who recovers greater than 67% of its total claims in the action or who is required to pay no more than 33% of the other party’s total claims in the action when considered in the totality of claims and counterclaims, if any. In claims for monet
Slide 48: Mutual Waiver of Consequential Damages
Mutual Waiver of Consequential Damages • Include Waiver of Consequential Damages Clause: • “Consultant and Client waive all consequential or special damages, including, but not limited to, loss of use, profits, revenue, business opportunity, or production, for claims, disputes, or other matters aris
Slide 49: Limitation of Liability (good example)
Limitation of Liability (good example) “Limitation of Liability: To the fullest extent permitted by law, the total liability, in the aggregate, of DP, DP’s officers, directors, partners, employees, agents, and subconsultants, to Client, and anyone claiming by, through, or under Client for any claims
Slide 50: Thank you for your time – Questions?
Thank you for your time – Questions? This concludes The American Institute of Architects Continuing Education Systems Program Re: Insurance Programs Re: Course Content Ellen Wechsler, Operations J. Kent Holland, Esq. Representative 7726 Bridle Path LN Ellen.Wechsler@rlicorp.com McLean, VA 22102 703-
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