A Reasonable Contract

Risk Allocation is an important part of the contract negotiation process for Architects, Engineers, and other Design Consultants.

“In allocating risks by contract terms and conditions, the goal is to allocate the specific risks to the party with the best ability to manage them. Although a contract can assign ownership of risks to any party, there can be serious adverse consequences if a party assumes risks it can’t manage. A design firm, for example, isn’t in a position to manage site safety responsibilities that most appropriately belong to the construction contractor. Despite the practicalities, however, of who is actually in the best position to manage site safety, if the design firm agrees to such responsibility by contract, the designer may be found liable for site safety by courts and possibly the Department of Labor.

“To be reasonable, a contract must be reasonable for all parties involved. If a contract attempts to shift all the risks to one party or the other, it will create problems on the project. A one-sided contract is likely to cause hard feelings during contract administration. It may also increase the likelihood of claims turning into litigation. As a practical matter, this means parties are better served by negotiators who don’t try to negotiate a contract that unreasonably shifts risk to someone who can’t logically manage it or accept legal responsibility for it. Such risk transfer will cause problems in the long run, and may even create uninsurable losses and claims.

“In evaluating who the various risks should be assigned to, parties can develop a table or list of responsibilities and risks to more easily see which risks most logically belong to each party. For example, site safety typically falls to the construction contractor. Easements and rights-of-way, as well as site data, including geotechnical information, may logically be allocated to the project owner. Responsibility for exercising due care in the planning and designing of a project generally falls to the design professional performing those services.

“Problems begin when any of these risks are allocated to the party that is not technically responsible for the related services. Unless you are in a position to manage a particular risk, it is not appropriate for you to accept contractual liability for that risk.”

This is an excerpt from a/e ProNet’s Risk Management & Contract Review Guide for Design Professionals (© Copyright 2006; a/e ProNet & J. Kent Holland, Jr.), one of the many resources ProNet Member Broker’s provide to their clients. A digital version of the full guide is available for purchase ($19.99). Contact a/e ProNet today to get in touch with your local ProNet broker.

About the Author: J. Kent Holland is a construction lawyer located in Tysons Corner, Virginia,  (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC. He is also the author of Contract Concerns, a series of articles available on our website here.

Emails. Every work-day, we read, write, and respond to dozens of them. Some are no longer than a single sentence, but that sentence may turn out to be a vital one, especially in the event of a claim. Today, expectations for document retention are higher than ever, and the penalties for failing to meet those expectations in the event of litigation are correspondingly severe.

Knowing what you can (and must!) do with your electronic documents is important. We hope the following excerpt from the December issue of ProNetwork News, Document Retention and Disposition: A Key Element of a Design Professional Quality Control Manual, will answer a few of your questions to this end:

Excerpted from “Guidelines for Developing Your Firm’s Quality Control Manual” by Jacqueline Pons-Bunney and Peter Stacy of Weil & Drage, APC of CA, NV and AZ

Electronic Documents

As we increasingly function in virtual or paperless environments, the retention of electronic information has become a hot topic. Courts have imposed damage awards and penalties on companies that have stalled in discovery or failed to maintain and/or purged such information in anticipation of litigation. Further, there are regulatory and contractual requirements that make an electronic document policy a must.

With the passage of document tampering and destruction provisions of the Sarbanes-Oxley Act and recent amendments to the Federal Rules of Civil Procedure, every company is required to have someone with knowledge of the storage and retrievability of electronic records.

Emails in particular are extremely important in litigation discovery, but please note that they are not the only electronic files in your firm. You will have to apply your e-document policy to Internet downloads, instant messaging, text messages, Websites, e-faxes and on-line bulletin board postings. They all need to be retained in some format/location for generally the same length of time as hard copy documents, and you will need to address retention, destruction, system requirements and storage capabilities, monitoring and enforcement.

Here are some basic steps towards formulating an e-document policy:

  • Consult with your IT staff or outside firm about current system capacities and procedures.
  • Consider volume, usage, existing archiving (locally and system-wide) and time expended on existing and potential procedures.
  • Review both legal/regulatory and contractual requirements.
  • Establish procedures for purging emails from local hard drives, the company’s system and separate servers.
  • Address implementation (automatic v. manual) and enforcement.

Remember that the policy with respect to the destruction of e-documents, just like hard copies, must be suspended once there has been a notification of litigation or if it is reasonably anticipated.

It is important to consult with legal counsel, and in the case of e-documents, with an IT expert, to determine the scope and content of document retention and disposal policies and procedures. Then, tailor them to your employees, your clients and your fields of practice. The risks and costs of failing to address the retention of both hard copy and electronic information are too great to be ignored.

The full-length PDF version of this newsletter includes many more helpful tips.

ProNetwork News is the latest value-added resource produced by a/e ProNet. Each monthly edition includes an informative and timely article relevant to the design industry and authored by an industry expert. Contact your local a/e ProNet broker for early access to these excellent newsletters.