Key Takeaways
- Standard of Care. Ensure the contract requires design professionals to perform with skill and care consistent with industry standards in similar locations and circumstances.
- Limitation of Liability. Many contracts cap a designer’s liability at their fee, which may be far less than potential damages from design errors. Negotiating a liability cap tied to the designer’s professional liability insurance—and voiding the cap if insurance lapses—offers better protection.
- Ownership of Design Documents. Without proper contract terms, design professionals may revoke your right to use project designs in payment disputes. At a minimum, secure an irrevocable license, and for some projects, consider negotiating full ownership of design documents.
- Indemnity. A balanced indemnity clause should hold the designer accountable for negligence while ensuring owners are not liable for claims solely due to their actions. Owners should also be prepared to indemnify designers for claims resulting from the owner’s negligence.
Property owners reviewing design contracts often focus primarily on scope and cost while giving only cursory attention to the legal terms tucked away at the end. However, these seemingly innocuous provisions can significantly impact risk allocation and potential liability. Here's a closer look at four provisions that deserve your careful scrutiny.
Standard of Care: Defining Professional Obligations
While design professionals may assure you they'll do quality work, what matters legally is how that obligation is defined. A well-drafted standard of care provision should require services "consistent with the professional skill and care ordinarily provided by professionals of the same discipline practicing in the same or similar locality under the same or similar circumstances."
This language establishes a measurable benchmark: your design professional should perform at least as well as their peers would under similar conditions. Additionally, consider including language requiring them to perform "expeditiously to allow the orderly progress of the project"—because in construction, delays almost always translate to increased costs.
Limitation of Liability: Avoiding Disproportionate Risk
One of the most financially consequential provisions involves liability limitations. Design professionals typically attempt to cap their liability at the amount of their fee. This creates a troubling imbalance: a design error could generate project costs far exceeding the professional's compensation.
Consider this scenario: Your project incurs $1 million in additional costs due to a design error, but your contract limits the designer's liability to their $250,000 fee. The prudent approach is to negotiate a liability cap equal to the amount of professional liability insurance the designer is required to maintain. For additional protection, include language specifying that if the insurance lapses, the liability limitation is void—creating a powerful incentive for maintaining proper coverage.
Ownership of Design Documents: Securing Your Rights
Design professionals typically assert ownership of their "instruments of service" while granting property owners only a conditional license to use the designs. This arrangement can become problematic if payment disputes arise, as the designer may revoke the license—potentially halting your project.
At minimum, negotiate for an unconditional license that cannot be revoked during payment disputes and can be transferred to subsequent owners if you sell the property. Depending on project specifics, full ownership of the design documents may be warranted.
Indemnity: Appropriate Risk Allocation
A properly crafted indemnity provision ensures the design professional will defend and compensate you for claims arising from their negligence, breaches of agreement, or misconduct. The provision should be balanced, expressly stating that the design professional is not required to indemnify the owner for claims arising solely from the owner's conduct. Likewise, owners should be prepared to indemnify design professionals for claims resulting from the owner's negligent actions—a reasonable arrangement since owners typically have limited obligations beyond payment.
While design professionals bring valuable expertise to your project, proper contract drafting ensures appropriate risk allocation. Have experienced construction counsel review these provisions before signing, as overlooking the fine print can lead to significant financial exposure. A small investment in legal review can prevent costly disputes down the road.