Schinnerer's RM Blog - contracts tag

Task Orders that Contain Onerous Terms

Tue, 21 Feb 2012 15:32:00 GMT

Design firms often have long-term clients that engage their services from time to time on different projects. These clients often execute a master services agreement with the design firm and then use task orders to parcel out the work to their consultant as needed. A lot of time and effort is spent on negotiating the master services agreement. However, to allow the client flexibility to craft the task order to the specific needs of the particular project, the master services agreement often states that the terms of the task order have precedence over the terms of the master services agreement. We have seen situations where the important protections of the master services agreement that have been painstakingly negotiated have been effectively eviscerated by task orders that have onerous terms and conditions. It is crucial that design firms carefully scrutinize the terms and conditions of the task order, and take the time to negotiate those terms that shift too much risk to the design firm.

Florida Design Firms Need to Understand Their Legal Protections

Tue, 07 Feb 2012 16:00:00 GMT

Recently we have seen governmental agencies in Florida requiring professional service firms to accept broad contractual defense and indemnity obligations. This is a trend we are seeing across the U.S. state and local governments as they appear to be attempting to insulate themselves and their political leaders from any project risk. But design firms in Florida have protection from such uninsurable and unmanageable exposures—as long as they understand and enforce Florida law.

Contractual defense and indemnity provisions must conform to highly specific state law requirements. In Florida the legal constraints on such contractual obligations have always been somewhat unusual. While parties are fairly free to negotiate anything in private sector contracts, for the last decade in Florida there has been a law that precludes public entities from requiring contractual provisions that exceed the normal legal liability of design firms to correct harm to the extent it is caused by the design firm’s deficient performance. The actual provision that does this is Florida statute 725.8, which states: “a professional services contract entered into with a public agency may not require that the design professional defend, indemnify, or hold harmless the agency, its employees, officers, directors, or agents from any liability, damage, loss, claim, action, or proceeding, and any such contract provision shall be void as against the public policy of this state.” This prevents the governmental entity from requiring an upfront defense paid for by the design firm or a payment to indemnify the client related to “any” action. Therefore, the design firm’s exposure remains the reimbursement of costs, losses, or damages to the extent caused by the design firms’ negligence—which is within the scope of professional liability insurance coverage—recklessness, or intentional wrongful conduct.

This language is a great model for adoption in other states. It is an important protection that all construction-related professionals in Florida should be referencing when government agencies overstep their contractual authority.

EJCDC Adds Teaming Component to Revised Joint Venture Agreement

Tue, 20 Dec 2011 13:20:00 GMT

Recognizing that firms are in many cases teaming with others to pursue business opportunities, the Engineers Joint Contract Documents Committee (EJCDC) has added a Teaming Agreement to a new revised version of the joint venture document. The EJCDC E-580, Teaming Agreement to Pursue Joint Business Opportunity and Joint Venture Agreement Between Engineers has two components—the Teaming Agreement can be used for two firms that wish to join together to pursue an opportunity to obtain work, and the Joint Venture Agreement can be used to define the relationship of the firms when they are providing professional services to a client.

EJCDC documents can be obtained at the online stores of the four sponsoring organizations of EJCDC: the American Society of Civil Engineers (ASCE), the Associated General Contractors of America (AGC), the National Society of Professional Engineers (NSPE), and the American Council of Engineering Companies (ACEC). They can also be purchased at www.ejcdc.org.

Confidentiality Agreements

Tue, 15 Nov 2011 15:37:00 GMT

Recently I’ve been asked to review several confidentiality agreements. Design professionals frequently receive confidential information necessary to perform their services. Sometimes, information of this nature may constitute a “trade secret.” In most states, the common law protects clients from the disclosure of designated “trade secrets,” “confidential information,” or “proprietary information.” In addition, clients will often require that an express confidentiality provision be included in the professional services contract or, alternatively, will request that the design professional sign a separate confidentiality agreement. Clients have many reasons for this desired confidentiality. Disclosure of the information could adversely affect the proposed acquisition or sale of property, place the client at a competitive disadvantage to its competitors, or subject the client to various statutory or common law liabilities for site cleanup or personal injury.

Design professionals, however, may be required by law or professional responsibility rules to disclose certain information to regulatory authorities. For example, while performing services, the design professional may learn that a soil sample indicates that a site contains hazardous waste. A licensed professional’s public health and safety obligation generally requires that this information be disclosed to protect innocent third parties from potential injury or to comply with federal and state statutory and regulatory reporting requirements.

Accordingly, confidentiality provisions in contracts should include exceptions for disclosure required by legal or ethical obligations. Here is an example of a provision that recognizes the client’s rights to confidentiality while acknowledging the design professional’s disclosure responsibilities:

Sample Provision: Consultant shall maintain the confidentiality of the Project information including but not limited to the nature of the Project, the location of any sites under consideration or selected sites, together with any other information supplied to Consultant by Client and designated by Client to be confidential or proprietary, except (1) when such confidential information becomes generally known to the public through no fault of Consultant or (2) when disclosure is required pursuant to applicable governmental regulations or with an order of a court of competent jurisdiction.

If the client requests the execution of a separate confidentiality agreement, the above referenced exceptions for disclosure should be included. In addition, the design professional should take care to be sure that the separate confidentiality contract is coordinated with the terms of the professional services contract and does not include conflicting terms. In particular, the design professional should be certain that the separate confidentiality agreement does not include express warranties or guaranties or alter the ownership and use-of-documents provision or choice-of-laws provision contained in the professional services contract.

Warranties in Contracts

Wed, 07 Sep 2011 12:29:00 GMT

In a recently reviewed contract, an engineer replaced the word “warrants” with the word “represents,” believing that this would alleviate the possibility of an uninsured claim for express warranties. Unfortunately, it did not solve the problem. A warranty is a promise of a given result. If the promised result does not occur, the consultant can still be held responsible, even if the damages were not caused by the consultant’s negligence. Warranties can be created in many ways without using the word “warrant.” Using words such as “assure,” “ensure,” “insure,” “promise,” “represent,” and even “shall” could result in uninsurable warranties.

Express warranties and guarantees establish liability even though no proof of negligence is required. Under U.S. common law, design professionals have the responsibility of using due care in providing their services. There is no warranty of the efficacy of professional services, nor does the design professional provide a warranty for the work of the contractor or others based on the services or instruments of service provided by the design professional. Courts have not extended the duty to provide a guarantee to design professionals because they provide services based on judgment and expertise; a design professional is applying its professional skills and reasoning on a unique set of facts for each project. Professional liability insurance policies exclude coverage for claims arising out of express warranties or guarantees. Because coverage is for professional services provided and not assumed contractual obligations, professional liability insurance does not "stretch" to provide coverage for a warranty of services beyond meeting the standard of care.