PPP Notes - Contracts and Agreements

(These notes are compiled from AHPP)

AGREEMENTS WITH CLIENTS

 

• Normally, architects think of the contract as the primary legal document that records the promises that parties make to each other for specific purposes.
• A contract delineates services and compensation for those services. 
• A contract also allocates risk, helps the parties cope with change, and helps provide a method of resolving disputes.
• The agreement should reflect how architects are able to serve a wide array of client types and provide an equally wide range of services.
• An OWNER-ARCHITECT AGREEMENT must clearly allocate responsibility between the owner, architect and a host of design and construction specialists. 
• CONTRACTS are a wonderful way to communicate.  They can make explicit what might otherwise be unsaid.
• CONTRACTS also allocate rights and rewards, responsibilities and risk, aiding architects in managing their exposure to legal liability and business risks.
• Through CONTRACTS, architects can anticipate and prepare for future possibilities.
• Finally, CONTRACTS are useful as a means of resolving disputes.
• PROPOSAL VS. CONTRACT AGREEMENTS
• Early in most owner-architect relationships, architects are asked to prepare a proposal to provide professional services.
• Sometimes architects are asked to propose their services, other times, they are asked to propose compensation.
• Services and compensation should be based on a set of assumptions, what the architect will and will not do, what the owner will and will not do, the timing of services and payments, legal terms and conditions, and a host of other factors, implicit and explicit.
• Two important questions to ask:
• Are the assumptions (for scope, program, site, budget and schedule) clearly defined?
• Are these assumptions clearly understood?
• PROPOSALS AS OFFERS
• A proposal is the architect’s “offer,” giving the owner the power to accept it and establish a basis for business terms.
• The owner may either accept or ask for modifications.
• It is effective to say that your proposal contemplates the use of the terms and conditions “as in the current edition of AIA Document B141.”
• For instance, many clients assume that programming is part of the architect’s basic services (which isn’t the case).  By referring to B141 in the proposal, the architect has an objective basis for saying that programming services are not intended to be covered by basic compensation.
• ORAL AGREEMENTS AND LETTERS OF INTENT
• Many times the formal agreement does not seem quite ready for signature when the owner wants the architect to begin performing services.
• Performing work without WRITTEN AGREEMENTS can be quite risky.
• If this is the case, and work is performed without signatures, the architect may be deemed a “volunteer” to whom no compensation is granted.
• May turn out that the carefully allocated risk between parties is ignored, to the architect’s detriment.
• ORAL AGREEMENTS are valid, in general.  This isn’t the problem with oral agreements.  The problem is remembering what was agreed upon.  Or if there was an agreement.
• Assuming that one is unwilling or unable to withhold services until a formal written agreement is signed, an INTERIM AGREEMENT may be used.
• An interim agreement would state that you begin to perform services on the basis outlined in your proposal pending execution of the formal written agreement.
• Once the architect is performing services, the owner is likely to feel no urgency to sign a formal agreement.
• WHAT TYPE OF AGREEMENT MAKES SENSE?
• Architects are generally faced with three types of owner-architect agreements:
• The first is an owner-generated contract.  Public agencies, large institutions, or major commercial clients that have repeated and ongoing building programs will create these agreements.
• The second general source of owner-architect agreements will be from professional organizations other than the American Institute of Architects.
• The third source, and most often used agreement form, is one provided by the AIA.
• CHARACTERISTICS OF THE OWNER:
• Less Experienced Clients:
• Unrealistic expectations of architects.
• Require a lot of education during contract negotiations.
• Use the contract to communicate with these clients.
• Underfunded Owners:
• Require special attention during contract negotiations.
• May not want more development than they can afford.
• Important to develop a budget at the outset of the project.
• Owners Represented by Boards:
• Deserve special attention.
• School boards, church building committees, and condominium boards – as well as groups using public monies or funds – operate under “sunshine laws.”  Their constituents scrutinize everything they do.
• It is important and helpful if the architect can insist that the owner designate a representative to deal with the architect.  This is typically the board or committee chair.
• Litigious Clients:
• Pose special problems.
• Check with the local design community if you have any suspicions about the litigious nature of the client.
• Consult with a lawyer or check into court records.
• Make sure owners see you, the architect, as the provider of professional services and not just the provider of a product.
• A Program Manager:
• Typically hired by the owners who find themselves either without the experience or without the staff to manage a building program.
• The project managers, who may also be architects, do not fully replace the owner, but they can help the owner make decisions.
• CHARACTERISTICS OF THE PROJECT:
• Litigation history:
• Published claims data show that condominium projects, schools, and hospitals are involved in relatively large amounts of litigation.
• Committee clients often undertake these projects, and the owners are often not the users.
• Architect should recognize that the official client and the actual user may have different requirements, and that it is usually impossible to respond to two voices at once.
• Jurisdictional factors:
• Different states place different requirements on agreements for professional services.
• Architects must be licensed to practice architecture in the jurisdiction in which the project is located.
• It’s important to verify that you are properly licensed to practice where the project is located.  If you are not properly licensed, you may be subject to professional discipline, and frequently the law will deny you the right to use the courts of that state to collect fees.
• Design and construction characteristics:
• When experimental design or construction techniques or unusual site conditions are to be part of the project, contracts should be flexible enough to reflect the possibility of design changes and a longer-than-normal design period.
• On the construction side, such conditions may increase construction problems, change order requests, delays and construction costs.
• Use the contract to inform the owner of what to expect and to record the allocation of risks between owner and architect (as well as owner and contractor).
• Budgets and schedules:
• Perhaps the most unrealistic owner expectations are those related to budgets and schedules.
• Owners often confuse the construction budget with the project budget.  There are many costs associated with a project and construction is only one of them.
• Owners should be informed about this and provide for other foreseeable costs, such as legal and accounting fees, cost of the land, surveys and geotechnical studies, financing charges and costs of tests during construction, as well as FF&E.
• Architects should also be realistic with the owners about scheduling requirements.
• Consider making schedules part of the contracts.  If you do, do so in a way that recognizes which elements you, the architect, can control.
• SELECTING THE DELIVERY SYSTEM:
• The architect is the first, or one of the first, members of the eventual design-and-construction team to talk with the owner.
• As a result, architects have substantial influence on the selection of the project delivery method.
• Architects typically will suggest to the owner alternative methods for the owner to procure construction services and establish the basis for compensation for the cost of the work to the selected contractor.
• UNDERSTANDING THE RISK:
• Two primary sources of risk and liability are:
• 1. Poor communication with the owner
• 2. Negligence in the performance of those professional services being provided.
• Well-written contracts that include comprehensive descriptions of the services the architects will provide and the responsibilities of the owner are valuable risk-allocation devices.
• If the owner or anyone else claims the architect has been negligent, one element that must be proven is that the architect owed some duty to that person.
• The owner-architect agreement is a principal source of the duties of an architect on any specific project.  If there is no duty, there can be no negligence.
• Two examples of risk allocation in an agreement:
• 1. Some owners take the extreme position of asking architects “guarantee” their work.  Since architects have neither a legal nor a professional obligation to do work, accepting such language is unwise at best, and generally uninsurable.
• 2. Some architects, on the other hand, take a position at the other extreme, asking their clients to hold them harmless from any liability claim that may arise.  A client may, and should reject this request (for he/she requires some legal protection as well).
• Experienced owner and architects understand what is meant by the level, or degree, of PERFORMANCE architects are obliged to meet.  This degree of performance defines the level of written documentation and drawing documentation needed to communicate project requirements to others, particularly subcontractors.
• INDEMNIFICATION PROVISIONS:
• Construction disputes are usually multi-party disputes.
• In the early stages, it is often not clear to disinterested parties whether, or to what extent, design defects, construction defects, or operation and maintenance defects have caused the problem.
• Therefore, all principals involved – owner, architect, and contractor – are typically brought into any resulting claim or lawsuit. 
• Even without judgment against the architect, significant expense and effort may be incurred.
• In response, many architects have asked owners to indemnify and hold them harmless in cases where a third party has filed a claim in which the allegations are based on something other than sole negligence of the architect.
• INTELLECTUAL PROPERTY:
• Some owners will attempt to treat drawings and specifications as products that are complete in and of themselves.
• They may try to reuse those documents for other projects in other locations and circumstances – none of which was anticipated by the architect.
• Because this practice happens time and again, many architects make sure in their contracts that owners agree to hold them harmless when the documents are misused or used in unauthorized ways.
• DEVELOPING THE AGREEMENT
• Once these pre-contract issues have been resolved, it is possible to finalize the owner-architect agreement.
• STANDARD FORMS OF AGREEMENT:
• The AIA produces a series of standard owner-architect agreement forms. 
• The AIA publishes its standard documents in an electronic format. 
• All changes made that are additions to the AIA text are shown underlined; all deletions are crossed out.
• AIA Document B-141-1997, Owner-Architect Agreement, is the most commonly used agreement for published by the AIA.
• AIA Document B-151, Owner-Architect Agreement (Construction Projects of Limited Scope), is useful for less complex projects.
• Two key points:
• 1. The limited scope is not so much related to dollar value as to the complexity of the project and the relationships between design and construction team members.
• 2. Even uncomplicated projects can have major problems with significant liability exposure.  Make sure terms and conditions of the limited scope agreement form are appropriate for the project.
• B-141:
• Provides a comprehensive agreement between owner and architect that can be used for a wide variety of project types, client types, and delivery methods.
• A multi-part document which acts more than a single standard, allowing the core agreement between owner and architect to be adapted to a larger variety of owners and projects.
• The document has four key features:
• Initial Information:
• Two pages are provided to describe the initial information for a proposed project.
• Changes in services:
• B-141 makes the contract function as an adaptable document even after it has been signed.  This allows changes in services, which often arises as a project moves from design through construction.
• Division of responsibilities:
• In Article 2.8.3 of B-141 provides a simple matrix listing a series of expanded services.  The architect identifies those expanded services, commenting on whether he/she is responsible for them.  If he/she is, the description of that service is described in an appendix to B-141.
• Designing to the owner’s budget for the cost of work:
• According to Article 2.1.7.5, it is the architect’s obligation to match the design with the owner’s budget for the cost of the work.  If he/she does not come within the owner’s agreed-upon budget, the architect shall redesign at his or her own cost.
• Dealing with Changes:
• It is expected that both the architect and owner will modify the standard form of agreement, deleting clauses that are inapplicable or undesirable and adding clauses to reflect particular concerns.
• COPING WITH NONSTANDARD AGREEMENT FORMS:
• Some owners draft their own agreement forms. 
• They may be extensive modifications of the AIA documents.
• Caveats to architects:
• Be sure you understand the services to be performed, the duties being created, and the compensation being offered.
• If the proposed agreement includes provisions that appear to redefine your liabilities, suggest exclusions from coverage under your liability insurance, or require indemnification from the owner (be held harmless).
• Don’t be afraid to modify AIA documents to use in the situation, but have your attorney review the proposed agreement.
• Be sure these documents are coordinated with the requirements of other project agreements (for example, architect-consultant and owner-contractor agreements).
• MODIFYING THE AGREEMENT AFTER SIGNING
• Change is the only constant that may be relied upon as a project moves from inception to occupancy.
• Initial definition of project scope, program site, schedule, and budget may change as time passes and as design gives shape and substance to the project.
• Regulatory and financing review may require design changes.
• The processes of bidding and negotiating may suggest or require substitutions.
• Anyway one looks at it, design changes are inevitable, therefore, it is important to think of the owner-architect agreement – and all of the project agreements –as having some flexibility.
• With this in mind, architects should recognize the importance of recording changes as they occur.