Design Contracts Imposing Duties Beyond Ordinary Care Create Extraordinary Risk

TexasBarToday_TopTen_Badge_VectorGraphicDesign professionals are under assault by those in the construction industry determined to contractually alter the standard of care that applies to these design professionals’ work.

Every design professional and construction contract comes with its own set of risks. But design professionals that agree to heighten the standard of care that applies to their work not only subject themselves to extraordinary risks, but also jeopardize their available insurance coverage when mistakes are made.

In ancient times, the standard of care for builders was to do exactly what the king, pharaoh, or ruler ordered them to do. If they failed to adhere to those exacting standards, severe consequences, including execution, could follow. Fortunately, the legal standard of care today is not quite that strict.

Today, most states define the standard of care for design professionals as a duty to use ordinary care.

The classic statement of the design professional’s standardContract Shock of practice is found in Coombs v. Beede, 89 Me. 187, 36 A. 104 (1896). In Coombs, a client won a trial court judgment based solely on what the client and architect discussed verbally regarding price and design. The Supreme Judicial Court overturned the ruling, holding:

“The responsibility resting on an architect is essentially the same as that which rests upon the lawyer to his client, or upon the physician to his patient, or which rests upon any one to another where such person pretends to possess some skill and ability in some special employment, and offers his services to the public on account of his fitness to act in the line of business for which he may be employed. The undertaking of an architect implies that he possesses skill and ability, including taste, sufficient to enable him to perform the required services at least ordinarily and reasonably well; and that he will exercise and apply, in the given case, his skill and ability, his judgment and taste, reasonably and without neglect. But the undertaking does not imply or warrant a satisfactory result. It will be enough that any failure shall not be by the fault of the architect. There is no implied promise that miscalculations may not occur. An error of judgment is not necessarily evidence of a want of skill or care, for mistakes and miscalculations are incident to all the business of life. Id at . 36 A. at 104-05.

Section 2.2 of American Institute of Architect’s (AIA) B101, Standard Form of Agreement between Owner and Architect (2007), incorporates this classic standard.

“The Architect shall perform its services consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances. The Architect shall perform its services as expeditiously as is consistent with such professional skill and care and the orderly progress of the Project.”

 The Engineers Joint Contract Documents Committee (EJCDC) E-500, Paragraph 6.01.A, Agreement between Owner and Engineer for Professional Services similarly defines the standard of care for engineers.

“The Standard of Care for all professional engineering and related services performed or furnished by Engineer under this Agreement will be the care and skill ordinarily used by members of the subject profession practicing under similar circumstances at the same time and in the same locality.  Engineer makes no warranties, express or implied, under this Agreement or otherwise, in connection with any services performed or furnished by Engineer.”

Other commonly used standardized form contracts available from ConsensusDOCS do not include a definition of the standard of care applicable to architectural and engineering services. The ConsensusDOCS drafters decided it was better for design professionals to be held to a standard imposed on them by their own profession (i.e., one imposed by the standard a court would endorse) rather than one defined by the ConsensusDOCS.

There are significant differences between AIA, EJCDC, and ConsensusDOCS forms, but regardless of what forms used, every industry organization wisely recommends that the agreements’ references to the professional’s standard of care should not be modified.

The Association of General Contractors (AGC) for example cautions that adding language that would hold a design professional to a standard of care above that which is customary and normal for design professionals in the same time and location also might result in the unintended consequence of voiding professional liability coverage available to the designer

Despite this widely shared warning, it unfortunately remains common place for owners to demand that design professionals sign contracts committing them to a significantly higher level of professional services than the common law standard of ordinary care.

Design professional must be on the lookout for an owner and other parties to insert phrases into a contract such as “highest level of care,” “with no material errors,” or “trust and confidence.”

The problem arises because these phrases like “highest level of care” are not well-defined by code, case law, or by peers working on similar projects. The design professional likely may not discovery how a court would define such a contract term until after another design professional testifies in litigation about the latest and greatest, cutting-edge technology being used by other design professionals on the other side of the country.

Other terms like “trust and confidence” can imply a special relationship between the design professional and the client, and thus a severely heightened standard of care.

Design professionals also should avoid agreeing to contract terms that commit them to comply with all regulations, codes, ordinances, and laws, and assume liability for the owner’s damages resulting from a failure to comply.

Such terms may seem reasonable at first glance but they create the potential for an absolute warranty and guarantee that the services provided comply with regulations, codes, ordinances, and laws that the design professional erroneously believed did not apply.

Ironically, often the owners insisting on these heightened standards of care are those working on the tightest budgets, and therefore expecting Cadillac service at a discount price.

Additionally, experience reveals that the owners demanding these contractually heightened standards of care greater than the industry norms frequently turn out to be the most difficult and demanding clients on every aspect of the project.

An owner demanding that the design professional execute an onerous contract should always be a red flag the project may not be worth the fee or hassle.

If a demanding owner insists on the use of these terms, the design professional may be able to skillfully negotiate additional language that mitigates the risk or eliminates it entirely. For example, a design professional may consider including limiting language elsewhere in the contract such as:

“No terms contained this contract are intended to create a guarantee, warranty, or a strict liability standard. The parties agree that the design professional shall only be required to not perform its professional services negligently, or as a result of willful or reckless misconduct. Nothing in this Agreement shall be construed to establish a fiduciary relationship between the parties.”

As discussed above, contractually raising the standard of care above the ordinary care standard also can jeopardize insurance coverage. Most professional liability insurance policies exclude coverage for acts other than ordinary negligence. The insurer will perceive this as a voluntary assumption of risk for which the design professional would not otherwise be responsible, and therefore uninsurable.

For example, the design professional may defeat a claim for negligence but lose on a breach of contract count based on other contract language creating a higher standard of care. As a result, the design professional’s professional liability insurance policy may not cover the loss because it may be excluded by either the “contractual liability” or “warranty” exclusions of the policy.

Fortunately, design professionals can eliminate many of these situations by taking a few simple steps:

  1. Be diligent. Every design professional should implement a strong internal contract review process. Additionally, many design professionals surprisingly remain unaware that many of the best professional liability insurance policies provide for contract review services as part of the benefits available in the policies.
  2. Never sign a contract that alters the standard of care from the common law or industry standard language without first consulting an experienced construction law attorney to fully understand the terms used and potential risk assumed.
  3. Consult with an insurance broker that specializes in the field to make sure that every risk assumed by the design professional in the contract is insured if it is insurable.
  4. Negotiate limiting or mitigating language to redefine the terms used in the contract to mean ordinary care and to hopefully eliminate any unintended standards of care, guarantees, or warranties

Construction contracts are a minefield of potential liability for the unwary or inexperienced design professional. A strong contract review team is the first and best line of defense.

But every design professional also must be prepared to walk away from a deal where the owner insists on contract terms that increase the standards of care beyond an acceptable standard, or be prepared that such onerous contracts may likely result in no insurance coverage when something inevitable goes wrong.

Tim Soefje - 04--09-18Timothy B. Soefje is the Managing Member and head of the professional liability and construction defect group at the boutique firm of Seltzer Chadwick Soefje & Ladik, PLLC based in Dallas, Texas. He is admitted in Texas and Oklahoma. For regular information about professional liability matters, follow him on Twitter at @TimSoefje and search #ProfessionalLiability. For more information, visit us at www.realclearcounsel.com or contact him  at tsoefje@realclearcounsel.com.

sbaldwinSamuel P. Baldwin is Of Counsel at the boutique firm of Seltzer Chadwick Soefje & Ladik, PLLC based in Dallas, Texas. He is admitted in Texas. His practice focuses on the defense of professional liability, construction defect, and complex commercial litigation claims. For regular information about professional liability matters, follow him on Twitter at @Sam_Baldwin5 and search #ProfessionalLiability. For more information, visit us at www.realclearcounsel.com or contact him at sbaldwin@realclearcounsel.com.

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