Subconsultants can help manage their liability by paying close attention to their contracts. These are some of the most important clauses to watch for.
If you’re a subconsultant, your contract with the prime design professional—as well as the prime’s contract with the owner (the Prime Agreement)—can have a big impact on your liability. These agreements may include unfavorable language, such as uninsurable indemnities or one-sided flow-down clauses.
You can avoid many of these problems by using standard form agreements such as those published by the American Institute of Architects (AIA), the Engineers Joint Contract Documents Committee (EJCDC), Royal Architectural Institute of Canada (RAIC), and the Association of Consulting Engineering Companies-Canada (ACEC-Canada). These forms are carefully integrated, cross-referenced, and coordinated with other agreements that may be used on a project.
Bear in mind, however, that even standard documents will require review and modification to reflect each project and jurisdiction. Revisions should be made with care, and with the advice of your lawyer and insurance agent or broker.
Ideally, you should review the Prime Agreement. If the prime doesn't want you to see the entire contract, ask to see those portions that affect you. If the Prime Agreement imposes unreasonable obligations on you, you can object to specific clauses in your agreement with the prime and include language stating that the terms of your agreement with the prime take precedence over the Prime Agreement.
Regardless of whether you use a standard agreement, an owner-written agreement, or your own contract form, it should be consistent and coordinated with the Prime Agreement and other professional services agreements on the project. For example, does your agreement call for New York law to apply to a dispute while the Prime Agreement calls for Pennsylvania law? Disputes regarding jurisdiction can be costly to resolve even before litigation begins in earnest.
Pay particular attention to the following clauses in your agreement with the prime consultant (many of the standard agreements address these issues):
1. Flow-down
A flow-down, or pass-through, clause requires the obligations of the Prime Agreement to also apply to the subconsultant. Generally, your agreement with the prime will pass to you the same legal rights and obligations the prime has in the Prime Agreement. (Note that instead of a flow-down clause, your agreement with the prime might incorporate the Prime Agreement by reference, but the same cautions apply.)
The Prime Agreement may contain language stating that if there is a conflict between the Prime Agreement and the subconsultant contract, the Prime Agreement will govern. (The AIA C401TM-2017 Standard Form of Agreement Between Architect and Consultant language does not.) In other words, even if you’ve been able to negotiate insurable indemnities or other important protections with the prime, if you agree that the Prime Agreement “rules,” then those carefully negotiated protections may not be upheld.
2. Billing and payment
Your contract should spell out when you will invoice, when payment is due, and your recourse if the prime doesn’t pay you or is slow to pay. If the prime insists on a pay-when-paid provision, consult legal counsel about the enforceability of such a provision or add a clause that sets a time limit for when you will be paid, regardless of when the prime is paid.
Your agreement with the prime should be consistent and coordinated with the prime’s agreement with the owner.
3. Dispute resolution
These terms should be coordinated with the Prime Agreement. In addition to coordinating the forum for dispute resolution, coordinate which jurisdiction will govern the application of the contract and the location where any legal action will be brought. Your agreement should also state how you will resolve disputes with other consultants on the design team.
4. Indemnity
Make sure the indemnity is coordinated with the Prime Agreement. We recommend insurable mutual indemnities based on comparative fault.
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Many Prime Agreements require that all subconsultants carry the same insurance as the prime. But what if you’re a small firm and/or your fees don’t justify carrying high insurance limits? Discuss this with your broker. It’s worth asking the prime to amend the Prime Agreement to allow for more reasonable limits. Require that each of you maintain and furnish proof of insurance to the other.
6. Limitation of liability (LoL)
If the prime has no LoL with the owner, should you ask for a limitation from the prime? That’s a matter you and the prime will need to negotiate. If you only stand to make a small fee, you may be unwilling to agree to unlimited liability. If the prime has an LoL in the Prime Agreement, make sure you have the same protections the prime is entitled to.
7. Scope of services
Your scope of services should define: 1) services that you will perform for a basic fee; 2) services that are available for an additional fee; and 3) services that are specifically excluded. Watch for potential gaps or overlaps in scope.
8. Termination and suspension
Be clear about the terms under which both you and/ or the prime can suspend or terminate the contract. (Standard professional agreements differ in their approaches to termination.) You should also have the right to suspend or terminate your services if the prime doesn’t pay you within a reasonable time.
Other issues to address:
- If there is a standard-of-care clause in the contract, insist on language that restates your duty of care under the law.
- Disclaim any certifications, guarantees, and warranties for obligations that elevate your risk.
- Who will be responsible for design coordination?
- Will you perform construction observation?
- Make sure any confidentiality language and time bars to legal action are reasonable and consistent with the terms in the Prime Agreement.
- Digital data transfer protocols
- Your right to rely on information provided by the prime and by the owner
Be sure to coordinate all terms and conditions with the Prime Agreement, get help from knowledgeable legal counsel, and work with your carrier to review insurability.
