What Are Critical Elements of a Design Consultant’s Contract? (Part 3 of 3)

21 June 2018 / By John Manning
contract

In Parts 1 and 2 of “What are Critical Elements of a Design Consultant’s Contract”, important points were made regarding hiring Legal Counsel as well as notations about the importance of having a strong contract with the Design Professional, regardless of if AIA Documents are used/customized or a custom contract is created. While the choice of using AIA contracts vs. custom contracts should be carefully reviewed by the Owner and their qualified construction Legal Counsel, it is imperative that key issues be addressed within any form of the contract.

The “Ownership of Deliverables” is a crucial aspect of a Design Contract that, if not carefully crafted, can lead to litigation issues for the Owner. It is important that the “Ownership of Deliverables” is outlined to ensure that the Owner does, in fact, own the designs should any conflicts arise between the Design Consultant and Owner. Conversely, another point that should be outlined in a Design Contract is the Force Majeure clause (a clause that allows for a contract to be extended/terminated due to circumstances beyond the control of the parties involved, such as a hurricane, war, acts of governmental action, and prohibits or impedes a party from performing their respective obligations under the contract). When addressing the Force Majeure clause, certain points should be outlined, such as the length of disruption that would cause this clause to come into effect. The Owner should discuss this clause in detail with qualified construction Legal Counsel when developing the verbiage for this clause.

Ownership of Deliverables
1. The Contract must detail who owns the deliverables (i.e. For purposes of this Agreement, “Intellectual Property” means all calculations, computer programs, software, concepts, designs, drawings, ideas, inventions, models, molds, musical compositions, original artwork, plans, reports, scripts, sound or special effects, source codes, specifications, sketches, treatments, and any intangible work product and tangible deliverables developed or provided by Consultant (and any of Consultant’s sub-consultants of any tier or employees) as part of the Work to be performed under this Agreement including without limitation, any Intellectual Property which is or may become subject to a copyright. Owner owns all of the rights in and to all of the results and proceeds of the Work performed by the Consultant, developed pursuant to this Agreement, including any Intellectual Property resulting from the Work, to use in any medium whether now existing or developed in the future, throughout the universe in perpetuity. To the extent the Work performed under this Agreement produces or includes copyrightable materials or designs, these deliverables are “works for hire” for Owner under all applicable copyright laws (including the United States Copyright Act of 1976) with Owner as the author, creator, or inventor upon creation of these materials. Owner will own all rights pertaining to this Intellectual Property as “works for hire” and Owner shall have the right to obtain in its name or in the name of its designee(s) all copyrights and copyright renewals and any other protections in connection with the protection of these copyrights. To the extent that this Intellectual Property does not constitute “works for hire” then Consultant expressly assigns to Owner all rights and ownership in and to the Intellectual Property to use in any medium whether now existing or developed in the future, throughout the universe in perpetuity. Consultant acknowledges that Owner is the motivating force and factor for this Agreement, and for purposes of Intellectual Property, has the exclusive right to these Intellectual Property deliverables produced by Consultant under this Agreement.)

Insurance and Indemnification
1. The Contract must detail the insurance requirements including but not limited Professional Errors and Omissions (E&O), General Liability, Workers Compensation and Auto Liability. There is a lot of discussion about how much E&O to carry. I have seen Owners require as little as $1M to upwards of $50M. In my opinion, a good rule of thumb should be 10% of anticipated project value.
2. The Contract must detail how the Design consultant shall indemnify the Owner.

Suspension of Work
1. The Contract must detail that the Owner has the right to suspend work and how the Design Firm shall be compensated if work is suspended.

Notice
1. The Contract must also detail how and who written notice shall be provided under the terms of the Contract (i.e. Any written notice required or provided for under the terms of this Agreement will be given and considered to have been served either by hand-delivery; mailed by certified, registered or express mail; forwarded by a nationally recognized overnight courier service or facsimiled with a follow-up hard copy and will be deemed effective upon receipt at the party’s place of business as follows or to such other address as either party may direct by written notice given to the other).

Dispute Resolution
1. The Contract should detail how disputes will be handled (i.e. With regard to any material disputes between Owner and Consultant, the parties agree to work together in good faith to resolve all disputes promptly. Either party may demand in writing that each party’s management representatives meet at such place as Owner may designate to resolve the dispute. Upon receipt of this demand, each party will promptly comply and will negotiate in good faith to resolve the dispute. If the parties do not resolve the dispute within fourteen (14) days of the date of the first meeting between the management representatives, Owner and Consultant agree to mediate the dispute with a mutually agreed upon mediator. If the parties cannot agree upon the selection of a mediator, the mediator will be chosen from the list of certified mediators maintained by the court having jurisdiction over this Agreement. The parties agree to share the cost of any independent mediator engaged to assist the parties in resolving their differences and in the event the claim, dispute or other issue is not resolved through mediation, either party may institute litigation to resolve the issues. If litigation is initiated, the parties to the Agreement agree that venue and jurisdiction of any litigation between them will be vested solely in a court of competent jurisdiction sitting in Orange County, Florida. THE PARTIES EXPRESSLY AGREE TO WAIVE TRIAL BY JURY IN ANY SUCH LEGAL PROCEEDING (if permitted by the applicable law).

Representations
1. The Contract should detail that the Design Professional represents to the Owner that it has the requisite professional experience and skill to perform the Work required to be performed under this Agreement; that it will comply with all applicable federal, state, county and city laws, statutes, regulations, codes, ordinances and orders and with those of any other governing bodies having jurisdiction over the Project, that it will perform the Work to be performed in accordance with generally accepted professional standards and in an expeditious and economical manner consistent with the best interests of Owner; and that it has sufficient capital assets and is adequately financed to meet all financial obligations it may be required to incur in the performance of the Work under this Agreement.

Force Majeure
1. The Contract should also address Force Majeure issues.

Final Certification
1. The Contract should also address Final Certification of the Project by the Design Consultant.

Design Responsibilities
1. The Contract should also provide an overview of the Design Responsibilities the Design Professional will undertake in this Contract.

Conflicts of Interest
1. The Contract should require that by signing the Contract that neither the Consultant, their employees nor their sub consultants have a Conflict of Interest with the Owner.

About The Author

John Manning

John Manning is the Principal and CEO of KMI International with more than 30 years of global experience in project management of the design and construction processes on resort hotels, parking structures, infrastructure, area development and mixed use. He is a CCM (Certified Construction Manager), PE (Professional Engineer) and a LEED Accredited Professional while serving on the national board of CMAA. He has worked as a project manager for large Owners and Construction Management Firms on projects ranging up to $3 Billion. Mr. Manning also testifies as a forensic expert in state and federal courts.

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