contracts
Zeghy
EGR4050ContractClauses2020.pptx
CONTRACT CLAUSES FOR
PROFESSIONAL ENGINEERING SERVICES
JOHN W. TULAC
Attorney at Law
Copyright 2014, 2020
CONTRACTS AND RISK
Risk analysis is the bridge between tort law and contract law
Contracts help us prevent, manage, and mitigate risks that we identify and assess
Contracts allow us to allocate risks and responsibilities for or consequences of risk
Contracts may or may not help us deal with risks that we do not identify and assess
CONTRACT CLAUSES
How an engineer views a contract
Scope of work OK
Time of performance OK
Price OK
Terms and Conditions UGH!
Terms and Conditions are important
Like accounting principles. What the balance sheet giveth, the footnotes taketh away.
So yes, you have to read the whole thing ALL THE TIME!
HOW TO READ AND ANALYZE A CONTRACT
What is the contract subject matter & purpose?
Are the rights and obligations of each party clearly stated?
Does the contract clearly detail what each party must do and when each thing must be done?
Are risks (and “what ifs”) addressed?
Is it reasonably balanced?
Do the parties (not just the lawyers) understand it?
Use a checklist or outline approach
PRECISION COUNTS
Remember these two questions?
What does it mean to be a design professional?
What does it mean to me to be a design professional?
Precision versus accuracy in contract language
Ambiguities create uncertainty and risk and sometimes opportunity
STANDARD OF CARE
It’s the law.
It doesn’t need to be stated in the contract
STANDARD OF CARE
It’s the law.
It doesn’t need to be stated in the contract
Owners will put it in the contract anyhow
STANDARD OF CARE
It’s the law.
It doesn’t need to be stated in the contract
Owners will put it in the contract anyhow
AND THEY WILL SCREW IT UP!!!!!
STANDARD OF CARE
It’s better to leave it out
It is possible for you to agree by contract to a higher standard of care
If it must be in the contract at least make sure it is accurate
AVOID!
Absolutes
Exculpatory clauses (for the owner)
Construction contract language
Sale of goods language
Guarantees or warranties of work
Distinguish representations of fact
Representations of fact are powerful in contracts
DAMAGES
Remedy for breach of contract is damages
Not specific performance or other equitable relief
Measure of damages
Compensatory (usual measure)
Consequential (beware!)
COMPENSATORY DAMAGES
General measure of damages
Difference between what is promised and what is performed under the contract if performance is less than what is promised
Breach of contract
Substantial performance
Opportunity to cure the breach
CONSEQUENTIAL DAMAGES
Damages beyond the price of the contract itself
Example: penalty on another contract or lost profits
Dangerous
Must be agreed upon in the contract
Generally, must be bargained for in advance
Can be hidden in plain view
TIME IS OF THE ESSENCE
An often included clause, short and “sweet”
WHAT DOES IT MEAN?
TIME IS OF THE ESSENCE
It means time is important
As an aside
For the design professional, it also means that time is money
Expedited work can support a higher price
If a party does not perform on time, it means that there is a breach of contract
HOWEVER…
TIME IS OF THE ESSENCE
Most of the time, mere delay in performance does not amount to serious breach of contract
By itself, this sentence doesn’t mean much
If the objective reason why time is important is not included, then mere delay, absent more, is not in and of itself always material breach
Why is time important?
Example: Restock versus reception
One is important and has consequences; the other doesn’t
IF TIME IS TRULY IMPORTANT
THAT IS, OF THE ESSENCE
Then, it must be bargained for
The party that must perform on time must know of its importance, the consequences of delay, and the willingness to be liable in damages for the consequences of delay,
AND, IT MUST BE IN WRITING
No surprise, this can get contentious
DAMAGES
Do not agree to damages resulting from things you cannot control
Do not, as a general rule agree to consequential damages
If you must, set limits; get something in return
Liquidated damages
Who should bear the risks? Who’s making the big money? Hint: It isn’t the design professional
No punitive damages
INDEMNITY
Easy concept
Ridiculously and unnecessarily difficult clauses
Indemnity is an agreement by two or more parties to a contract allocating responsibility to pay for damages to third parties arising out of the contract (including torts committed in the performance of the contract)
A third party is someone not a party to the contract
INDEMNITY
Contract allocation of liability for damages
Can be allocated regardless of fault
Owners frequently overreach
So do general contractors
Gravity
Do not agree to indemnify for something outside your control or responsibility
Set limits; get concessions
INSURANCE CLAUSES
Necessary to the contract
Insurance companies can help. Really!
Different coverages
Single
Aggregate
Appropriate limits
Who should pay?
CHANGE ORDERS
K.I.S.S.
Follow the procedures
Changes must always in writing
Don’t get suckered into doing work now and documenting the change later
Give something, get something
A FEW MORE THINGS
Waivers
Termination of contract
Form contracts
Have your own standard contract
THE DESIGN PROFESSIONAL’S PERFECT CONTRACT
All liability is negligence based
Direct (compensatory) damages only
A maximum limit on design professional’s liability
No variation on the legal standard of care
No warranties or guarantees
Reasonable time
