A common mistake that many owner/developer (Owner) clients make when beginning a new construction/development project is executing an engineer’s, architect’s, or other designer’s (Consultant’s) proposal instead of using a fair Consultant Agreement form. While it is undeniably necessary to retain Consultants and other professionals, such as surveyors and environmental or geotechnical engineers, either during pre-acquisition due diligence and/or early in the process of developing a property, executing a Consultant’s oftentimes one-sided and unfair proposal form can result in the Owner’s waiver of many important protections, rights, and claims. This legal update discusses common problems with executing a Consultant’s proposal and the recommended process for retaining Consultants.
A Consultant’s proposal should contain a detailed narrative description of the Consultant’s scope of services, fees, and performance schedule. The proposal should also memorialize any agreed-upon project-specific details that the Owner articulated. However, most Consultants tack on one-sided “terms and conditions”, either in fine print after the project-specific provisions or in an appendix following the proposal’s signature page. These terms and conditions typically limit both the Consultant’s liability and an Owner’s right to assert claims against the Consultant for improper performance.
Some of the more onerous “terms and conditions” often contained within proposals include:
- Language requiring the Owner to indemnify the Consultant and hold the Consultant harmless in the event a claim arises from the Consultant’s services;
- Unfair and inappropriate limitations of the Consultant’s liability that cap the Consultant’s liability at the lower of the Consultant’s fee or an even lower limit (even though much higher insurance coverage limits would be available to cover potential claims);
- Improper or incorrect limitations on the services that will be provided;
- Inappropriate insurance coverages and/or coverage limits;
- Waivers of claims and damages;
- Excessive fees and markups; and
- Unfair and unrealistic payment terms.
When engaging a Consultant, an Owner should never sign a Consultant’s form proposal. Instead, the Owner should utilize an Owner-Consultant agreement form that fairly addresses the following critical concepts to protect the Owner:
- A requirement that the Consultant maintain proper insurance coverages with sufficient limits through the expiration of the period in which a claim may be brought;
- An indemnity in favor of the Owner for the Consultant’s negligence in performing its services;
- No claim waivers;
- The ability for the Owner to assign the agreement and any claims arising thereunder;
- Payment provisions that allow the Owner and Owner’s Lender to review and approve payment before payment becomes due;
- Language requiring that all project-related disputes be consolidated into a single arbitration proceeding; and
- No limitation of the Consultant’s liability at any amounts less than the Consultant’s insurance coverage limits.
Morris, Manning & Martin’s Construction Law Practice is experienced in drafting and negotiating fair and appropriate contracts to retain Consultants, and coordinating those agreements will all other project-related design and construction contracts. If you need any assistance in the process of retaining Consultants for your development projects, please contact Bruce Smith, chair of MMM’s Construction Law Practice, Vianney Lopez, or JD Howard.