Have you ever said: “I don’t have a contract with the architect yet. I only signed a proposal.”
I’ve heard this statement or something similar from clients multiple times over the years. They are usually surprised to find out, however, that if they signed a proposal then they already have a contract. Here’s some advice for owners and contractors: do not sign proposals from design professionals unless you have them reviewed by counsel!
Many design professional proposals contain unfavorable terms and conditions that result in an owner or contractor waiving important legal rights and remedies. For instance, proposals often contain provisions limiting the design professional’s liability or requiring the owner or contractor to indemnify the design professional from any claims. Also, proposals often exclude any mention of insurance or ownership of the work product.
Many times, Owners and contractors sign these proposals thinking that they are simply locking in a price for a scope of services, and that the parties will sign a more formal agreement later to establish other terms. But once a proposal is signed, the parties have a contract. At that point, the design professional may refuse to sign another agreement. And if problems arise later on, an owner or contractor may find they have very little recourse.
Let me share a real life story to illustrate my point. A general contractor’s work required the services of a geotechnical engineer for a new phase of a project, so one of the contractor’s project superintendents called the engineer to get pricing for the engineer’s services. The engineer faxed its pricing for the services on its standard proposal form (which included the engineer’s standard terms and conditions) to the job trailer. The superintendent signed and returned the proposal, and the engineer performed the services.
A few months after the project was complete, a large slab in an area of the project began to heave and crack, and ultimately had to be completely replaced. The cause – the geotechnical engineer’s negligence in performing its services. The cost of replacing the slab exceeded $1 million but the contractor’s efforts to recover that amount from the engineer were unsuccessful. Why? Because hidden within a paragraph of the engineer’s standard terms and conditions was language limiting the engineer’s liability to a very nominal amount.
Even though no one really contested that the damages were caused by the engineer’s negligence, the court enforced the limitation of liability provision, and the contractor and its carrier were the parties were stuck with the repair costs.
So the next time you get a proposal from a design professional, have it reviewed by a lawyer familiar with construction law who can appreciate the potential impact of any terms and conditions in the proposal. It may slow the process down slightly, but it will be worth it in the long run.