Contracting with Consultants: Part 4, Contracting Principles
As an architect, you have probably had a need to retain consultants under your contract with your client to supplement architectural services with certain engineering or other non-architectural services. This article will discuss basic contracting principles for your consideration as you undertake the process of subcontracting with specialty consultants. This article is the fourth in this series about contracting with consultants and will focus on five discrete issues: (i) who should retain consultants— owner or architect; (ii) payment issues; (iii) flow down of terms from the architect’s contract with the client; (iv) relationship with the client’s consultants; and (v) the process of contracting with consultants and contract terms.
The first issue, who should retain the consultants, is the first question one should ask. The architect is not qualified to provide specialty engineering services, which are services regulated and licensed by the states. If services such as structural or mechanical engineering services will be required, under whose contract should the services be provided? Although it is common for the architect to contract these services, it may be desirable for the client to contract the services. Consideration should be given to whether or not the architect has had good working relationships with the consultants, or is the client insisting that the architect retain consultants with whom the architect has no prior history but have worked with the client? The architect should understand that contractual duties will exist between the architect and consultant, and be aware of the possibility of a consultant not understanding who its employer is under the present circumstances. Because the architect will be responsible for the performance of the consultants under its contract, care should be taken to select and employ consultants who are qualified for the specific needs of the project and will be responsive to the contractual obligations they will have to the architect.
It is axiomatic that the architect as the contracting party with a consultant will have the obligation to pay the consultant for its services. Typically, the architect will have contract terms with its consultants that will allow the architect to pay the consultants if and when the architect is paid by its client. In other words, payment to the consultant may be conditioned upon receipt of payment for the consultant’s services from the architect’s client. Such terms are called “pay-if-paid” terms. Pay-if-paid terms are not enforceable in every state. The architect should confirm that such terms are enforceable for the project and, if not enforceable, the architect may want to consider asking the client to contract directly with any consultants needed for the project. Then the architect will not have the exposure and financial risk of having to pay the consultants, even if the architect is not paid by the client.
A third important issue for consideration by the architect who will subcontract services to consultants is that the architect will want to be sure to flow-down all terms from the client-architect agreement to the architect-consultant agreement that are applicable to the consultant’s performance, payment, and insurance obligations so there are no gaps between the two contracts. The architect should ask for a proposal from each consultant and make sure the terms in the proposals are back-to-back with the requirements imposed upon the architect in its contract with the client. Issues such as attendance in meetings, schedules for issuing documents, number and frequency of site visits, overall length of time for basic services, insurance requirements, payment frequency—to name only a few—need to be aligned so there are no gaps between the obligations applicable to the services required of the architect to the client that will be subcontracted to the consultant, and of those of the consultant to architect.
The architect’s client may decide to contract separately with some or all specialty consultants needed for a project. In that event, the architect will then be in the position of coordinating its services with those of the client’s consultants and will need to have the ability to rely upon the information and services provided by those consultants. The architect should be aware of the distinction between coordinating the services of consultants under contract to the architect and coordinating its services with the services of consultants not under contract to the architect. The distinction between the two contracting schemes is that when the consultants are contracted to the architect, the architect will have responsibility and liability for the services provided by those consultants; however, when consultants are not under contract to the architect, the architect assumes responsibilities only for coordinating their services if that is assumed by contract language delegating that responsibility from the architect’s client to the architect. Otherwise, the architect will be coordinating with the consultant and the consultant with the architect, but the architect will not be responsible for failures of the consultant to coordinate its services and deliverables with the architect’s. Therefore, the architect should be mindful of contract terms that would obligate the architect to coordinate the services of the non-contracted consultants or in other ways assume responsibility for their services.
The problem this creates is an obligation to supervise and manage consultants who have no contractual privity with the architect, which leaves the architect in the position of having little ability to successfully manage the design process. The architect will always be able to accept an obligation to coordinate with the client’s consultants, but should give thoughtful consideration to accepting an obligation to manage and coordinate those services. The architect should also confirm for itself that it understands the client’s consultants’ scopes of service and schedule, and notify the client of any gaps that the client will need to fill either with existing consultants or new ones added to the project.
The architect would be well advised to have a rigid process for contracting with consultants. An example of such a process follows.
The precepts underlying the procedure for contracting with consultants are that the architect needs to be able to: (1) pass down to the consultant all of the general terms of the agreement between the architect and the client; (2) outline pay-if-paid payment terms; (3) provide for use of documents; (4) outline insurance requirements; (5) provide protection to the architect in the form of a solid indemnity in favor the architect; and (6) provide for other general conditions that relate to the consultant’s responsibilities that the architect needs to make clear.
The consultant’s main concern is that it has a contract that accurately outlines its scope of services and compensation. However, many consultants, following advice of counsel or an insurance carrier, prepare proposals with general conditions that are never going to be acceptable to the architect. Examples are avoidance of a pay-if-paid relationship and limitations of liability. These are only two of many possible examples. When a consultant attaches general conditions to a proposal, they should be highly scrutinized or even rejected and returned to the consultant, noting that those general conditions will not be accepted or included in the contract. Failure to notify the consultant of unacceptable terms in a proposal may constitute approval of those terms.
To protect the architect from having gaps between the client-architect agreement and a consultant agreement, as well as from unacceptable contract terms, the following procedure for consultant contracting provides a level of protection necessary for the architect’s management of projects. Please note, the architect should not sign a consultant’s proposal unless the proposal satisfies all of the architect’s concerns and requirements for complying with the architect’s obligations to the client applicable to the consultant. The architect should send a request for proposal (RFP) or other communication to the prospective consultants that includes the following:
(a) A description of the scope of services applicable to the consultant’s discipline.
(b) A copy of the architect’s form of agreement between architect and consultant.
(c) A statement that the response to the RFP must include the consultant’s agreement to the architect’s contract terms, and its insurance certificates showing evidence of compliance with the insurance requirements shown in the RFP.
(d) A statement informing the consultant that it must execute the agreement between architect and consultant or must have received a consultant authorization to proceed prior to commencement of any services.
(e) Include the latest project schedule so the consultant’s scope of services can be tied to a duration.
After the consultant has been selected and all the above has been confirmed, the consultant may proceed with services provided that the architect has an agreement with the client, or a pending agreement with the client and an executed notice to proceed from the client. The architect should never allow a consultant to start providing services until and unless all contracts are fully agreed and executed.
As with most questions regarding obligations between two contracting parties, the first place to look is the contract. The AIA publishes three primary contract templates that deal with contracting with consultants: AIA Document C401™–2017 Standard Form of Agreement Between Architect and Consultant; AIA Document C402™–2018 Standard Form of Agreement Between Architect and Consultant for Special Services; and AIA Document C421™–2018 Standard Form of Master Agreement Between Architect and Consultant for Services Provided under multiple Service Orders.
AIA has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors. The AIA’s Risk Management Program posts new materials and resources periodically.
Read our full seven-part series on Contracting with Consultants >
More from AIA
Explore resources related to risk and liability management and help cement a foundation of security for your practice. Whether you’re looking to establish, lead, or wind down your practice, effectively managing risk is an essential part of being a successful architect. AIA is dedicated to helping members proactively and effectively manage risk – integral to your firm’s viability and profitability.