Lessons Learned: Consultant Contracting Insights
Is my contract thorough? What provisions are critical? Am I exposed to risk? How much risk should I accept compared with my consultant? I’m not sure if the proliferation of contracts and agreements floating around our industry are the cause or the result of so much confusion around what makes a good professional services contract or agreement.
Legal note: A contract or an agreement is a legally binding document which seeks to guide and control the responsibilities of various parties in a development/construction setting. In this article we will refer to these documents and their function and content generally; the topics and general suggestions in the article should not be interpreted as legal advice.
Limit your consultant’s liability and exposure to circumstances where they are negligent; that is, where the consultant fails to meet the applicable Standard of Care in effect in your jurisdiction. Also, avoid words like best, highest and perfect in the standard of care provision, as these words leave developers exposed.
Resist the urge to try and make your consultant responsible for any and every circumstance through very robust, thorough (and cumbersome) Indemnification and Standard of Care provisions. While it seems like the safest path for your organization, asking consultants to be responsible for actions unrelated to the consultant violating the Standard of Care is the surest way to have your consultant’s insurer disclaim and void professional liability insurance coverage. Words like best and perfect create this same unintended risk within the Standard of Care.
Always include a “No Third-Party Beneficiary” provision in your contract as the best way to avoid unexpected liability exposure to a party “foreign” to the contract. Include a provision (Personal Liability Immunity) which clearly establishes that none of your organization’s owners, directors, officers, or employees are liable or responsible under your contract, under any circumstances.
Similarly, in the event there is a prime agreement or contract, pay attention to selecting narrowly tailored and approved language which unequivocally provides that the applicable terms and provisions in the Prime Agreement “flow down” and apply to your contract with your consultant.
Finally, be sure to include a “No Waiver” provision. This protection can be stated in a sentence or two. Essentially, it provides that if you are lenient with a consultant regarding work, services or a deadline, you are waiving enforcement of your contract in that one instance. Without this provision, a waiver in one instance may operate as a waiver of contract provisions going forward. The last thing you want to happen is to make an accommodation for your consultant only to have that accommodation work against you in the future.
First, let’s understand the statute of limitations and the statute of repose. A statute of limitations essentially provides rules and guidance to litigants as to how long they have to bring a lawsuit after a particular event. The statute of repose is different; it varies from jurisdiction to jurisdiction, as does the statute of limitations, and essentially provides an end date as to how long the developer and its consultants can be sued after they have substantially completed their work/service on a project.
A good rule of thumb is to add the statute of repose to the statute of limitations, plus one year. Requiring your consultants to maintain their coverage in place for at least this long helps to ensure that you, the developer, are protected for an error that your consultant made which results in damage or injury many years after the project is substantially completed.
While contracts and particular provisions may give you a headache, they bring Jane and her counterpart Jen great joy. Please email us for questions with your agreements, documents and contracting position.