Obtain a signed contract Although some design professionals may like to get started on a project with their consultant and worry about the contract later, do not allow the contract with the consultant to be pushed aside. Just as with your client, it is critical for both you and your consultant to have a signed agreement. This will not only protect both of you, but it will establish the “rules of the road” and expectations for each of you, as well as confirm the scope, terms and conditions that are applicable to the project. This is as important as the signed contract between the prime and the client.
Liability for consultants Design professionals must bear in mind that as a prime for the project, a design professional agrees to perform many services for a client. As one might expect, the owner wants to have one point of contact, and one entity to pursue, if things go wrong. So even if parts of these services are performed by a consultant, the prime design professional is responsible for the appropriate performance of the overall design. This forms the basis for vicarious liability – the imposition of liability on one party for another party’s actions. Translated, this legal principle means the prime is responsible for the actions of their consultant.
In most states, the client cannot pursue a consultant directly but must follow the contractual obligations. Thus, the key is to make sure that consultants are qualified and will step up to the plate if an issue arises on the project.
Take, for example, a claim scenario where an owner retained an architect to provide design services related to a commercial building project. As civil engineering services were required to complete the project, the architect retained a civil engineering consultant to do the site design. The owner-architect contract required arbitration, but the architect- consultant agreement was silent on the issue.
Sure enough, issues relating to civil design arose on the project and the architect was left holding the bag. The client filed for arbitration with the architect, and when the architect asked his civil engineering consultant to participate in the arbitration, the consultant was non-responsive. The architect was forced to file a lawsuit against the consultant.
Due to a state law requiring that the architect must first suffer damages in order to pursue a claim, however, the court dismissed the architect’s lawsuit against his consultant. The judge ruled that the architect’s “damages” would not be realized until there was a finding that the architect was vicariously liable for the consultant’s actions. The architect was then left to defend the arbitration without any assistance from his consultant. Ultimately the architect settled the matter with the owner for $600,000 – but only after he spent $75,000 in legal expenses defending the claim. And the architect was not done with the claim – he continued to litigate the matter with his consultant.
To avoid this scenario, be careful with the wording in your contract. Before you even start the project and retain a consultant, make sure that if there is a dispute resolution procedure in the prime-client contract, the same procedure is outlined in the prime-consultant contract. In addition, make sure there is a way to join the consultant in the action with the client if necessary.
Using industry standard contract forms will help avoid this and other problems stemming from inconsistent contractual provisions. Design professionals can find these forms grouped into the same contract categories or “families” with agreements between the owner and design professionals. The owner-designer contract forms, as well as the owner- contractor forms, are all compatible within a certain category of documents. Be careful not to mix contract forms from different categories, which could render an attempt for consistent contracts to be futile.
Ensure consultant can respond to a claim Even if you have a signed contract with your consultant and can involve the consultant in responding to a project dispute, you still need to ensure the consultant can respond to a claim. Not only is the consultant’s financial stability key here, but so too is the consultant’s insurance coverage.
Consider the situation where an architect retained a structural engineer to assist in designing a manufacturing facility. Several months after substantial completion, the roof collapsed. Although no one was injured, manufacturing equipment was destroyed and the owner asserted a claim for $1 million. The post-collapse investigation revealed that the engineer undersized the roof trusses. As a result, the structural engineering consultant tendered the limits of their $250,000 professional liability policy.
As the prime on the project, the architectural firm was left holding the bag for their consultant, because under the theory of vicarious liability, the architect was responsible to the owner. And because the consultant did not have adequate insurance to cover the damages, the architect paid $650,000 from their professional liability policy and deductible to resolve the claim.