Seven deadly sins for design pros

Avoid legal complications by taking these steps

Here are some of the most important issues commonly encountered by design professionals in basic owner-design professional agreements:

1. Do not rush to sign a contract. The pressure on design professionals to secure work is intense. The corresponding temptation to enter contracts with objectively unacceptable terms is understandable, but must be resisted. Avoid contracts that fall outside your area of expertise. In addition, avoid contracts that because of existing obligations to other clients exceed your staffing capabilities as well as contracts that unfairly allocate risk – and above all, those that that contain uninsurable risks.

Too many owners, particularly unsophisticated ones, come predisposed to think they are purchasing a product, not services. Take advantage of contract negotiations to educate the prospective client at this early stage. Accurately capturing the project criteria, enables you to perform your work, while minimizing the risk of later confusion and disagreement.

2. Get it in writing. This extends to every important project communication. Written communications not only promote better dialogue and understanding, they may also be crucial to your ability to defend or pursue claims should they ensue. Provided there is not too long of a lag, after-the-fact documentation of oral communications can be just as effective. Remember, problems often bubble up long after project completion, and when issues arise, it is important to have a contemporaneous record of what was done and why.

3. Don’t miss an opportunity to limit the duration of your liability exposure. New Hampshire, like many states, has a discovery rule, which prevents the statute of limitations from beginning to run until the injured party knows both the existence of harm and the relationship of that harm to the other party’s conduct. But the discovery rule can be limited or eliminated by contract. For example, until the 2007 amendments, the applicable AIA documents eliminated the discovery rule by causing the statute of limitations to run upon substantial completion. Under pressure from owners, that provision was changed and replaced by a 10-year limit on liability exposure. However, there is no reason not to negotiate for substantial completion as the trigger of the statute of limitations. Provided the parties are sophisticated, such a provision should be enforceable.

4. Don’t miss an opportunity to try to limit the dollar amount of your exposure. New Hampshire’s anti-indemnity statute prohibits agreements that hold harmless or indemnify design-professionals from damages arising from their own negligence. However, try limiting liability to all or some percentage of the contract price, or to the amount paid on behalf of the design professional by its insurer to resolve an owner’s claims. While the ability to enforce these limitations in New Hampshire is unclear, the statute should not prevent a proper limitation of liability. The nature of the project, public or private, may have an effect on enforceability. At least one New Hampshire court has held damage limitation clauses unenforceable in a public project.

5. Beware of contracts that seek to impose an enhanced standard of care. New Hampshire law requires “due care” in light of “the standards and recommended practices and procedures of the profession.” Express warranties of design, by definition an enhancement of the standard of care, are dangerous. Some clauses may seek to shift the contractor’s change order costs to the design-professional by negating the standard of care defense. These are but a few of the many ways owners use to enhance your duty of care. Remember: Acceptance of an enhanced standard of care can jeopardize insurance coverage.

6. Beware of ill-defined or expansive language describing the construction contract administration role. Too often definition of the scope of contract administration duties, receive insufficient attention. Design professionals do not “supervise,” “direct,” “control” or “inspect to assure that work meets the plans and specifications.” These words should be red flags and must be avoided.

7. Be familiar with your insurance coverage and make sure your policy meets contractual insurance requirements and covers the risks likely to be encountered on a particular project. Insurance for design professionals is typically declining limits coverage, or so-called “wasting” policies, where coverage reduces as legal defense costs are incurred. Be sure to understand the impact of this common feature on the amount of your insurance coverage and your corresponding damages exposure.

Most contracts contain provisions governing the location, choice of law, and method of dispute solution. These provisions often have real and substantial impacts on the cost and burden of resolving disputes and should be understood and carefully considered.

Always remember: Effective risk management starts well before the work begins.

Peter S. Cowan, a shareholder in the law firm of Sheehan Phinney Bass + Green, can be contacted at 627-8193 or pcowan@sheehan.com.