Contracts as a tool to minimize conflict

Reading Jason Burke, P.E.’s article, "Project contracts and conflicts," in the Aug. 22 issue of Civil Connection prompted me to expand on the importance of well-drafted contracts to a design professional and on some specific points Burke astutely made.

In my experience in the engineering/construction industry prior to becoming a lawyer, I had little understanding of the importance of contracts and less exposure to their negotiation. I knew they set forth the parties’ performance obligations, but did not appreciate the importance of negotiating terms, and of the terms themselves. Unfortunately, most professionals did not take a contracts course as part of their undergraduate studies, but rather, have relied on their experience (and sometimes bad experiences) to [learn] about how contracts can minimize disputes and conflict. Not to discount the importance of a professional’s business relationships and experience, but many professionals rely too heavily on these relationships and their experience when evaluating the need for a written contract and the contractual terms.

For instance, settling on a handshake or a verbal contract in lieu of a written contract can cost the most seasoned professionals their livelihood. As dramatic as that sounds, professionals have come to me with one-page proposals, setting forth a broad line-item description of the services and the associated lump-sum costs, and others have had no written contract at all. Because of these verbal contracts based on past relationships and one-page contracts that the professional "has been using for years," these professionals are either uninsured and dipping into retirement to pay for litigation expenses or experiencing significant increases in their professional errors and omissions insurance premiums. Some clients have even been reported to the state’s licensing board from complaints that the professional failed to adequately perform the contract or to meet their client’s expectations.

As Burke correctly pointed out, properly drafted contracts can help minimize conflict and should set forth the scope of services and the payment provisions. However, professionals need to do more in preparing or evaluating contracts. They should also ask themselves: Are the services clearly and sufficiently detailed? Do the payment provisions address all payment issues, including reimbursable expenses and payment for additional services? Are the parties’ roles clearly defined between themselves and third parties (client/contractor, consultant/subconsultants, and consultant/contractor)? Is the termination provision equitable? Is the dispute resolution process-negotiation, mediation, and arbitration-fair and balanced? Do the insurance requirements create uninsurable risks or exposure, and is it feasible to meet them? Does the contract include balanced, risk-sharing provisions (limitation of liability, indemnity, and damage waivers)?

The engineering/construction industry today is inherent with risks too numerous to mention here. All risks cannot be eliminated. As Burke said, "With a well-written [contract], however, the professional is starting out on the right foot toward avoiding disputes." By investing money and engaging legal counsel on the front-end to assist in drafting a contract and in reviewing contracts, the professional will become informed of the associated risks and will be provided an opportunity to minimize and plan to manage risks before they can turn into losses and liabilities.

Posted in Uncategorized | January 29th, 2014 by

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