A common mistake that many owners and/or developers (Owners) 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 more fully-fledged form of contract. Consultants and other professionals, such as surveyors and environmental or geotechnical engineers, need to be hired either during pre-acquisition due diligence and/or early in the process of developing a property. Given that many Owners are under a time crunch to get their project started, executing a Consultant’s proposal (instead of taking the time to negotiate a more fulsome contract) seems like the quickest (and therefore the best) path forward. However, executing that proposal usually means accepting one-sided and unfair conditions that may result in the Owner waiving many important protections, rights, and claims. In fact, both the American Institute of Architects and the American Society of Civil Engineers recommend including a limitation of liability in proposals/contracts. Owners should always think twice before executing a proposal from a Consultant. Instead of executing a Consultant’s proposal, an Owner should take the time to put together a contract that, at the minimum, incorporates the following critical concepts:
- 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;
- 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.
