Do not define government rules and regulations as contract documents

Tue, 08 Nov 2011 14:42:00 GMT

Professional services agreements often incorporate terms from other documents by reference. In a recent client-drafted contract review we came across the following clause:

The Contract Documents consist of and include:
a) This ten (10) page Agreement.
b) All Exhibits referenced within or attached to this Agreement. c) All approved Change Orders.
d) All applicable governmental and agency ordinances, standards, policies, regulations, resolutions, conditional approvals, rules and permit conditions, whether or not specifically named as part of the Contract Documents.

The terms that are most often incorporated are the terms that matter the most.

Design professionals should be wary of any clause that seeks to make all government rules and regulations that are deemed applicable part of the contract documents. By definition, a professional services agreement is intended to describe the role and responsibilities of the parties to a contract; incorporating government rules and regulations into the contract documents provides no meaningful guide to either the client or the design professional and in our opinion such a clause should be deleted. It is difficult for the design professional to ascertain what the inclusion of the applicable government rules and regulations means. The prudent thing to do from a risk management perspective is to identify the specific government rules and regulations that pertain to the project, and then write the scope of services so that the impact of the applicable rules and regulations are accounted for. This approach reduces the contract terms between the client and the design professional to a limited universe of documents that explain the roles and responsibilities of the parties.

Transfer of copyright to client

Tue, 25 Jan 2011 16:37:00 GMT

When clients require that title ownership and copyright of the instruments of service are transferred to the client, and if the design professional chooses to agree to the transfer, we typically recommend that the client agree to the following in exchange for the transfer:

The client acknowledges the documents are project-specific and are not intended for reuse on other projects.
That any reuse by the client without the involvement of the design professional will be at the client’s sole risk.
The client agrees to defend, indemnify, and hold the design professional harmless from any claims brought against them arising out of the reuse.
The design professional has the right to reuse standard details of the contract documents.

It is important that design professionals carefully review such language. In a recent contract review, I came across the following clause:

Client may reuse the Work Product without notice to or permission from Professional and will owe no compensation or consideration to Professional for such reuse. If Client makes any alteration to the Work Product without the consent of Professional in connection with any reuse by Client, Client shall defend, indemnify and hold harmless Professional against claims arising solely out of such alteration; provided, however, nothing herein shall be deemed to release Professional from liability for that portion of the Work Product prepared by Professional. [emphasis added]

At first glance it may seem that the client has provided the design professional with the recommended indemnity provision. However, note that the indemnity obligation is only limited to “any alteration to the Work Product” in connection with the reuse without the consent of the design professional. There is no indemnity obligation for a claim that arises from the reuse of the unaltered instruments of service.

It is essential that design professionals read contract language carefully (especially client-drafted clauses) as part of their risk management practices. It may appear that you have an important protection from your client when in reality it is not worth much. In this case it would be prudent to ask the client why they limited their indemnity obligation. What do they intend to do with the documents after this project is completed? Do they intend to reuse the work product on another project? Their answers to these questions, along with the answers to all the other questions/issues you have due to your detailed review, will help you gauge your potential exposure to the risks involved.

Schinnerer's RM Blog - contractdocuments tag

Do not define government rules and regulations as contract documents

Transfer of copyright to client