What Are Critical Elements of a Design Consultant’s Contract? (Part 1 of 3)

27 April 2017 / By John Manning
Litigation Support

The most critical element of a Design Consultant’s Contract is Legal Counsel. If the Owner does not have Legal Counsel, the Owner’s Representative should propose Legal Counsel to assist in the development of agreements for the Designer. Legal Counsel, with experience in construction, should be hired to assist in the development of all agreements. If neither the Owner, nor the Owner’s Representative, has leads to qualified Legal Council, an excellent resource to search is: The American Bar Association; Construction Industry Specialty; http://www.americanbar.org/groups/construction_industry.html

There is always debate about whether Legal Council should take a standard AIA Contract and tailor it to the Owner/Project’s needs or develop a standalone contract for the Owner. First, the key group of documents used in most design and construction projects is the AIA (American Institute of Architects) family of documents. Those can be found at https://www.aiacontracts.org/. However, customization of those documents can be done by purchasing a license from the AIA. It is strongly recommended that this only be done by an Attorney experienced in Construction Law.

As an Owner’s Representative, you should understand the needs and requirements of the Owner and assist Legal Counsel in adjusting the AIA form of contract or in developing a tailored contract that fits the needs of the Owner. In either case, most contracts will follow the standard format set forth by the AIA contracts. Owners often develop customized contracts because the AIA suite of contracts denotes that final decisions are set by the Architect. Many Owners want final decisions to be set either by themselves or their Owner’s Representatives. In my experience, all design decisions need to rest with the Architect while many other issues can rest with the Owner/Owner’s Representative (e.g. approval of change orders, direction to proceed on a change, etc.)

The following highlights important points that should be addressed by any contract for the Designer. These points are usually included within the Standard AIA Documents, however, it is important that they are reviewed and included in a standalone contract.

/ Scope

  1. A description of the Work to be performed by Consultant and any deliverables to be provided under the Agreement should be described in a Project Description and Scope of Services that should be attached to the Agreement in an Exhibit.
  2. The Work to be performed by Consultant shall not commence until Owner issues a Notice to Proceed.
  3. In addition, Owner may, from time to time and at its discretion, add to or deduct from the Work by issuing a directive to Consultant describing the nature and scope of the change in the Work (the “Scope Change”).  Unless the directive indicates that it is for a quote only, Consultant will immediately proceed with the performance of the Scope Change.  Within the time allotted in the directive, Consultant will respond in writing with what it believes to be an appropriate dollar amount to add to or subtract from the Compensation by reason of the Scope Change.  A reasonable fee for these Scope Changes or a reasonable credit for any reduced scope will be established for the change.  Consultant shall use the agreed-upon fee schedule as outlined in Exhibit “C” of this Agreement for all Scope Changes.  If the parties agree upon the amount of the addition or deduction, a written change order (“Change Order”) to the Agreement will be signed.  If the parties cannot agree, the parties will endeavor to resolve their disagreement with regard to the amount due for the change in the Work.  The amount agreed to by the parties for the Scope Change will be paid within Owner’s normal invoice process as provided for in the Compensation section of this Agreement.  Any Scope Change undertaken by Consultant will remain within the scope of this Agreement and will be governed by the terms and conditions of this Agreement, as amended by the Change Order.
  4. If, at any time during the performance of the Work, Consultant believes that Owner has increased the Scope of Work, Consultant will provide written notice to Owner that Consultant may seek additional remuneration or time to perform the Work under this Agreement.  The notice to be given under this Section must be given in writing and within seven (7) calendar days following the event which gives rise to Consultant’s claim.  Consultant’s failure to make timely notification to Owner will serve, at Owner’s option, as a basis for denying the claim.

/ Compensation

  1. There should be a Compensation schedule attached to the Agreement.
  2. The Owner must be able to notify Consultant in a timely manner if Owner disputes Consultant’s assessment of the amount of the Work or costs associated with that portion of the Work reflected in any invoice.  Owner will work with Consultant or its representative in a good faith effort to resolve any dispute on that invoice.  If Owner and Consultant cannot resolve the dispute before payment on the invoice is due, Owner will timely pay the undisputed portion of the invoice.  Absent a written acknowledgment to the contrary, neither Owner nor Consultant will waive any claims each may have with regard to the disputed portions of any Compensation by making or accepting payment of less than the amount invoiced.
  3. Owner must have the ability to withhold in whole or part of any payment to Consultant in event of, and until completion or correction of the following occurrences: (i) failure or refusal of Consultant to perform or comply with any term, condition, provision or obligation of this Agreement; (ii) defective Drawings and/or Specifications or the failure of same to comply with Applicable Laws; (iii) claims or liens filed by sub-consultants; (iv) failure to perform design services, review Submittals, provide site visits, certificates, or any other required services hereunder within the time periods specified in this Agreement or in compliance with approved Schedules; or (v) failure to respond to Owner’s or Contractor’s requests for interpretation of Construction Documents produced by the Consultant or its sub-consultants.  When the aforementioned conditions are corrected or completed to Owner’s satisfaction, payment shall be made for amounts withheld due to Consultant or sub-consultant.
  4. Owner’s payments to Consultant for services as set forth under this Agreement must not constitute an Owner’s waiver of any claims for damages resulting from Consultant’s failure to perform such services.

There are many other typical clauses that a competent Attorney skilled in Construction Law will understand are required. As the Owner’s Representative, it is incumbent upon you to help your Client find experienced legal counsel to develop the right form of agreement for the Project.

The next installment of this series on the “Critical Elements of a Design Contract” will cover the topics of:  Schedule, Representatives, Books & Records, Termination and Confidentiality & Promotion.

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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