The Dangers of Proceeding Without a Signed Contract
from the desk of Judy Mendoza
A recently reviewed agreement between an architect and a subconsultant illustrates the importance of having a signed agreement in place prior to performing services for a client or receiving services from a subconsultant. The architect’s subconsultant agreement had been revised by the subconsultant to include the following language:
Subconsultant’s maximum aggregate liability under this Agreement shall not exceed $250,000.
Having been warned of the dangers of limiting the liability of a subconsultant without having a corresponding limitation in the prime agreement, the architect attempted to further negotiate with the subconsultant. The subconsultant agreed to increase their liability to $500,000 but said “I am told by our legal council that based on the work we are doing and the amount of our fee, $500,000 is our limit.” The architect asked for our further advice because, as he stated: “Work on the project had begun prior to the contracts being completed. Now the subconsultant is withholding their design documents until they receive a contract on the project. What can we do?”
The subconsultant is withholding the documents because they are still negotiating a contract. If the architect had a signed agreement prior to the start of services, they would not be in such a precarious position. At this point the architect’s options are severely limited. The options include:
- Continue to negotiate with the subconsultant.
- Attempt to negotiate a corresponding limitation of liability in the prime agreement (noting that it’s probably too late to do so).
- Conduct a risk management analysis based on the project type, location, client, and extent of the subconsultant’s services to evaluate the probability and cost of a potential claim to determine whether or not the architect is willing to assume the risk of a claim that exceeds $500,000.
- Discuss with local legal counsel the legal status of limitation of liability provisions in the local jurisdiction.
- Analyze, with advice from legal counsel, the risks of walking away from the agreement with the subconsultant and starting over with another firm. Might this action result in delay claims from the owner? Could this result in a fee claim by the subconsultant?
- Consider, with input from local legal counsel, the option of not signing the agreement but continuing to pay the subconsultant. This might force the subconsultant to turn over its deliverables without the protection of a contractual limitation of liability.
It is important to have a signed agreement prior to the start of services, even when the agreement is with subconsultants.