Construction Engineering 380

Design Contracts

Design Contracts

• Design contracts are agency relationships

• Making “estimations” of an individual’s ability to perform

• Negotiate with individuals for a complex (intangible) service

• Compare to buying a car- corporate pricing, can take it for a test drive, tangible product

Design Contracts

• Because of the nature of design, the contracting process is fraught with agency risk and authority determinations

• Always get representations of authority in writing

• Sole proprietor- usually only the proprietor will contract

Design Contracts

• Partnerships- any partner can act with authority, but it is good to have all partners sign (if it is a small partnership

• Corporations- authority to contract is spelled out in the by-laws or articles. Fiscal agency usually has dollar limits. Higher limits require higher authority. Always good to get Board approval for contracts

Design Contracts

• Associations (especially those with volunteer managers)- ALWAYS get Board approval and attach empowering language (like the by-laws).

• Public contracting- always at risk. Courts protect public funds from agency abuses. Apparent authority is hard to prove, so reliance on representations from public officials can lead to risk. Always use substantive documentation for public contracting

Design Contracts

• Financial capacity– Pay up front (retainer contract)– Interim fees (won’t get the whole package

unless paid along the way)– Review of financial condition– Ask for individual guarantee (LLC’s,

proprietorships, and closely held corps)– Use a surety (bond the owner through surety)

Design Contracts

• Financial capacity continued– Asset pledge (give you interim title to house or

land to assure against default)– Uncover shell corporation and asset transfer

schemes– Mechanic’s liens (much more common action

for contractors- designers have a hard time establishing “improvement” as basis for claim

Design Contracts

• Ethics and competition- since the mid 1970’s, design contracts have been opened up to competitive bidding and fee negotiation. This was considered unethical in the 1950’s and before

• Putting fee at risk (other than standard market risk of owner default) is uncommon

Design Contracts

• Must use careful accounting and control when designers take financial risk on projects. Temptation to cut corners can be great. One of the downsides to design-build

• Parol evidence- design contracts seldom represent the intent of the whole agreement. Lawyers can introduce parol evidence to support the written contract

Design Contracts

• Appendix A in the text contains examples of AIA (American Institute of Architects) Document B141- 1997 edition, which is the standard contract form for design services. Note especially:– category of services on page A-7 & A-8– Compensation worksheet on A-11 & A-12, – Signatory parameters on page A-16thru A18