New Design-Build Agreement from ConsensusDocs

ConsensusDocs is an organization comprising contractor, subcontractor, and specialty contractor organizations. It is headed by the Associated General Contractors of America and creates standard agreements and construction administration forms.

In our reviews of policyholder contracts, we see the ConsensusDocs series more than any other set of standard contracts for design-build projects. That can likely be attributed to the increasing trend of contractors taking the lead on design-build projects and design professionals serving as subcontractors.

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Using the unmodified 2017 version of ConsensusDocs 420 (Standard Agreement Between Design-Builder and Design Professional) on a design-build project does not create any significant professional liability exposures for a professional service firm. The agreement, however, does expose design professionals to potential lawsuits and reduces the role of the design firm because it allows the firm to be the direct target of project owner claims even though the design-builder is in privity of contract with the project owner and under state law takes responsibility for both the design and construction of the project.

Many of the “bull’s-eye” provisions, which we objected to in the past because they targeted the design firm for cost recovery actions, have been modified. However, Schinnerer still has concerns with certain provisions, including the following:

  • A “skip-over” provision where the design-builder gives the project owner a direct path to bring a claim against the designer without involving the design-builder. The rationale for such a provision is that while state laws allow a design-builder to furnish design services, they restrict the performance of services to properly credentialed and authorized firms.
  • A broad-form withholding of the fee provision even if there is no proof of damage to the design-builder or the project owner. This challenges professional liability coverage because it gives a client the right to stop payment based on an alleged harm. This is not the same as a professional liability claim where the client has to prove that a design firm was negligent and that negligence resulted in a cost, loss, or damage to the client.

Both provisions give the design-builder significant contractual powers to coerce the design firm into surrendering its fee or paying a cost regardless of actual legal fault.

Many firms might find practice management concerns with the scope of services under ConsensusDocs 420 because it reduces the level of services provided by the design firm to a minimum; that often creates risk without control. Further discussion with legal counsel is recommended.

For more information on ConsensusDocs 420, we will soon publish a Management Advisory about it, or go to www.ConsensusDocs.org.

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