While there are many ways an Architecture, Engineering or Design Firm can manage their risk in providing their services to a 3rd party, a thorough contract review is of utmost importance. With the complex services offered by A&E firms, coupled with the sometimes-challenging projects, an A&E firm must do their due diligence in every step of the process, starting with a thorough contract review prior to signing off on any project they plan to partake in.
Every architect, engineer or design professional should carry Professional Liability Insurance to protect them from errors and omissions in their work product. More often than not, insurance companies that write professional liability insurance for A&E firms will also offer complimentary
risk management services. Along with other services offered, they usually include free contract review. Some carriers offer unlimited contract reviews, while others may have a limit to how many contracts can be submitted for review during an annual policy period.
Contract reviews are typically done by an attorney who specializes in contract law. The attorney could be from an outside law firm hired by the insurance carrier to perform these duties or they could be part of a full risk management group chosen by the insurance company that offers all types of risk management services to their insureds.
Contract review is the process of evaluating and analyzing an entire contract with great attention to detail. Reviews are done to ensure that the conditions in the contract are in the best interest of the client. The original contract is likely to have some terms or conditions that may need to be amended, as they may be unfavorable and lock a firm into a situation or a standard of care that is unnecessary and possibly uninsurable.
According to the Business Dictionary, Professional Standard of Care is defined as: “Ethical or legal duty of a professional to exercise the level of care, diligence, and skill prescribed in the code of practice of his or her profession, or as other professionals in the same discipline would in the same or similar circumstances.” An architect or engineer should only be held to provide the level of skill and care that would be typical for the services that are being provided in a similar circumstance and geographical area.
Some contract language could state that the professional be held to a greater standard of care than what is typical. Architects and Engineers are not generally expected to be held to a greater standard of care, unless it is agreed to in the contract. This type of language can be devastating to an A&E firm should they unknowingly consent to it by signing an unreviewed contract.
There are other reasons why a thorough contract review is so important. A review can weed out any clauses that might state that the firm will hold harmless the other party in the contract for situations out of their control. It can also point out areas in the indemnification section that are one-sided or unfavorable to the firm. In some instances, the A&E firm could be agreeing to something that is uninsurable. A qualified attorney that specializes in contract review will be able to dissect the contract and point out areas that could lead to a bad situation for any firm.
Negotiations are typical and important to have before finalizing a contract. Having a thorough contract review performed will ensure that your firm is entering into a contract on a level playing field and ensuring that the terms are based on a professional standard of care.
About the Author
Gwynne Wright is the Architects and Engineers Practice Leader for Founders Professional. Gwynne helps architecture, engineering and design firms, of all types and sizes, to secure the firm’s professional liability insurance in conjunction with the a Professional Underwriters Inc. insurance agent. Gwynne can be reached at Gwynne.Wright@founderspro.com. A Professional Underwriters, Inc. agent can be reached at email@example.com.