Now that we have grabbed your undivided attention, the purpose of this article is to alert Design Professionals to an alarming trend. This trend involves the inclusion of contract provisions in agreements prepared by Owners/Developers and their attorneys that force a Design Professional to work for free in the event that the Owner/Developer unilaterally determines that there is a “dispute.”
It goes without saying that every contract, especially in the design field, must be read thoroughly before it is signed, or the signer will be stuck with the ramifications. Generally speaking, the clauses in question here state that in the event of any dispute between the Owner/Developer and Design Professional, the Owner/Developer may withhold payment until the dispute is resolved, but the Design Professional must continue to perform services. This upsets the historical balance of power between the Owner/Developer and the Design Professional and creates a situation where the Design Professional may very well end up working for free or else be faced with being sued if they stop work or suspend services.
This scenario was historically avoided by a more balanced philosophy in contracts whereby the Design Professional would be paid for the services rendered as these services were provided and invoiced. Because Design Professionals work under a “fee for services” arrangement, the balance between the party providing the service (Design Professional) and the party paying for those services (Owner/Developer) is really quite simple. As long as the Design Professional provides services, they should be paid. Likewise, as long as the Owner continues to pay, the Design Professional should continue to provide services and fulfill their obligations under the contract.
In the not too distant past, the type of provision discussed in this article was extremely rare in design contracts. Recently, however, there has been a clear trend of the inclusion of these provisions in both public and private contracts, and frankly, they appear in far too many of the contracts we review.
How Do These Provisions Upset the Balance Of Power?
Under the typical “fee for services” arrangement, if the Design Professional is not paid, they can simply suspend or stop services, as non-payment is typically considered to be a material breach of contract. In the event there is such a clause in place that allows the Owner/Developer to suspend payments in the event of a “dispute,” the Owner/Developer is given unfettered power to simply determine that any given situation rises to the level of a “dispute.” In such a situation, the Owner/Developer can legitimately refuse to make payment.
Excerpted from the a/e ProNet Guest Essay, How to Get a Design Professional to Work for Free (2007), authored by Brian K. Stewart, Esq. and Christie Bodnar Swiss, Esq. Continue reading: Download the full PDF version of from the a/e ProNet website.