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Negotiating Contracts A contract is defined as a legally enforceable agreement that stipulates the obligations of one party to another. A well‐written professional services contract summarizes a meticulous understanding of the duties and responsibilities of each party in connection with the project, leaving as little as possible open to interpretation. On the occasion of a problem with a project, the contract establishes the responsibilities and obligations of both parties. This is why an equitably‐written contract is important, and what makes it a critical risk management tool. Every firm should take careful consideration in determining what makes or breaks a deal. There are definitive contract clauses that are so important to the defense of your firm that they must be contained in each contract you negotiate, else you consider walking away from the project if it is not included. Such contract clauses include: Attorney’ Fees Limitation of Liability Condominiums When dealing with a client‐developed contract in particular, the contract language negotiation becomes even more important. It should come as no surprise to design professionals that client‐developed agreements typically are prepared in the interest of protecting the client. Efforts on these contracts will be made to transfer as much of the risk as legally possible from the client onto the design professional. And although this may be legal, most often the transfer of risk is not insurable. This leaves the design professional with uninsured risk for which there could be personal liablity. There is an abundance of material available to guide design professionals in making the best possible risk management decisions for their companies, but ultimately the design professional needs to determine for oneself what is acceptable and what is not for their firm, and negotiate contracts on that basis. Construction Observation Scope of Services Ownership of Documents Delays Jobsite Safety Fast Track Projects A client‐written provision that is so onerous, you find yourself insisting it must be removed from the contract is easily a deal breaker. When a client declines the request to remove or modify such a clause, the design firm must take a hard look at whether or not the risk they are taking on is worth pursuing the project. One clause that would likely be a candidate as a deal breaker is Liquidated Damages. Or a Warranty provision that requires the design firm to provide a guarantee for a technical result of condition.

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Page 1: Negotiating Contracts doc v4 - Hall & Company · included. Such contract clauses include: • • • Attorney’ Fees Limitation of Liability Condominiums When dealing with a client‐developed

Negotiating Contracts 

A contract is defined as a legally enforceable agreement that stipulates the obligations of one party to another. A well‐written professional services contract summarizes a meticulous understanding of the duties and responsibilities of each party in connection with the project, leaving as little as possible open to interpretation. On the occasion of a problem with a project, the contract establishes the responsibilities and obligations of both parties. This is why an equitably‐written contract is important, and what makes it a critical risk management tool. 

Every firm should take careful consideration in determining what makes or breaks a deal. There are definitive contract clauses that are so important to the defense of your firm that they must be contained in each contract you negotiate, else you consider walking away from the project if it is not included. Such contract clauses include: 

• • • 

Attorney’ Fees Limitation of Liability Condominiums 

When dealing with a client‐developed contract in particular, the contract language negotiation becomes even more important. It should come as no surprise to design professionals that client‐developed agreements typically are prepared in the interest of protecting the client. Efforts on these contracts will be made to transfer as much of the risk as legally possible from the client onto the design professional. And although this may be legal, most often the transfer of risk is not insurable. This leaves the design professional with uninsured risk for which there could be personal liablity. There is an abundance of material available to guide design professionals in making the best possible risk management decisions for their companies, but ultimately the design professional needs to determine for oneself what 

is acceptable and what is not for their firm, and negotiate contracts on that basis. 

• • • 

Construction Observation Scope of Services Ownership of Documents 

• • • 

Delays Jobsite Safety Fast Track Projects 

A client‐written provision that is so onerous, you find yourself insisting it must be removed from the contract is easily a deal breaker. When a client declines the request to remove or modify such a clause, the design firm must take a hard look atwhether or not the risk they are taking on is worth pursuing the project. One clause that would likely be a candidate as a deal breaker is Liquidated Damages. Or a Warranty provision that requires the design firm to provide a guarantee for a technical result of condition. 

 

Page 2: Negotiating Contracts doc v4 - Hall & Company · included. Such contract clauses include: • • • Attorney’ Fees Limitation of Liability Condominiums When dealing with a client‐developed

There are several clauses that may be viewed as both a deal maker or a deal breaker. For example, a poorly‐worded Indemnification Clause that is not limited to the firm’s negligent acts is a deal breaker. Yet, a well‐worded Indemnity may be very acceptable. It all comes down to the specific language used in the contract clause. The following are such clauses that can go either way depending on how they are worded: 

• • 

Assignment Indemnities 

• • 

Certifications Insurance 

• • 

Guarantees or Warranties Opinion of Probable Construction Cost 

It is important to note, that just because there is a section of the contract that may be uninsurable, it does not automatically make the entire contract uninsurable. Professional liability coverage remains in force for liability arising out of the design professional’s negligent acts, errors or omissions in connection with their professional services. It does help to have an understanding of what is deemed acceptable and what is not before you begin the negotiations with your client. A design professional should always know what their “Go – No Go” position is on every issue. 

For example, if you find yourself having to shrink the scope of services to meet the client’s project budget, your risk is increased. You may be able to offset your increased risk by negotiating certain requirements in the contract’s terms and conditions, presuming that the scope of services is not diminished to such a degree that it creates a concern over safety. If the client is unable to consent to such protective provisions in the contract’s terms and conditions, another factor to consider is charging a higher fee for the increased risk. Be straightforward and reasonable in reviewing these matters with the client. Most clients, who are cognizant of your concerns and who want to engage your services on their project, will try to work with you to put together a contract that is fair and reasonable. Sincerity and fairness very often establishes the groundwork upon which favorable business rapports are built. 

As a final note, contract negotiation is personal in nature. We have some design firm clients that never read their contracts and will sign any contract that is presented to them. Then we have other clients that are quite thorough about reviewing every detail in their agreements, being certain to avoid contractual language that is uninsurable, and even declining projects where such language is just unacceptable. Most of our client base falls somewhere in between. Irrespective of the client or the project, always put yourself in position to decline the job if you are unable to come to acceptable terms with the client. Catastrophic losses have happened to several design firms who have given up too much to win the contract. Even if you end the contract negotiations, it is not certain that the firm will lose the project. Many times clients with whom contract negotiations have stalled are impressed by the design firm’s professional handling of the negotiation and will rethink their position. Then again, you may never hear back from the client, and perhaps that may turn out to be the best possible risk management measure of all. 

Ashley Hurd, CIC, CRM (360) 598‐5013 direct [email protected] 19660 10th Ave NE, Poulsbo, WA 98370 www.hallandcompany.com California License # OB57923