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Structuring Architect, Engineering, and Design
Contracts: Limiting Risk, Liability and Defenses
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WEDNESDAY, NOVEMBER 4, 2020
Presenting a live 90-minute webinar with interactive Q&A
David M. Adelstein, Partner, Kirwin Norris, Orlando and Ft. Lauderdale, Fla.
John D. Broghammer, Partner, Sims Lawrence & Arruti, Roseville, Calif.
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FOR LIVE EVENT ONLY
Liability Claims against Architects, Engineers,
and Construction Design Professionals
David AdelsteinKirwin Norris, P.A.
What is a project delivery method?
A method to deliver a project to an owner that factors in risks associated w/ project size, complexity, scope, contractor input, budgetary constraints, lean construction principles, risk-allocation such as dispute resolution, sustainability (LEED), emerging technology (BIM), collaboration, owner control…
After considering these factors/ risks, owner selects project delivery method that provides it the best value allocating the responsibility of the design and the construction of the project
David [email protected]
6
I. Design Professional Risks Associated with Project Delivery Methods
I. Design Professional Risks Associated with Project Delivery Methods
More conventional project delivery methods
Design-Bid-Build
Multi-Prime
Design-Build
CM-Agency
CM-At-Risk
*Evolving delivery methods (that may include more integrated design roles)
Integrated Project Delivery (IPD)
Green – Sustainable Projects (SP)
Public-Private-Partnership (P3)
David [email protected]
7
Collaboration
Lean Construction Principles Emerging Technology (BIM)
Green / Sustainability
Dispute ResolutionComplexity, Scope, &
Risk
8
You are
Here
David [email protected]
IPD
American Institute of Architects
A project delivery approach that integrates people, systems, business structures and
practices into a process that collaboratively harnesses the talents and insights of all
participants to optimize project results, increase value to the owner, reduce waste, and
maximize efficiency through all phases of design, fabrication, and construction.
ConsensusDOCS
The Parties agree that the Project objectives can be best achieved through a relational
contract that promotes and facilitates strategic planning, design, construction and
commissioning of the project, through the principles of collaboration and lean project delivery.
This approach recognizes that each Party's success is tied directly to the success of all other
members of the Collaborative Project Team and encourages and requires the Parties to
organize and integrate their respective roles, responsibilities and expertise, to identify and
align their respective expectations and objectives, to commit to open communications,
transparent decision-making, proactive and non-adversarial interaction, problem-solving, the
sharing of ideas, to continuously seek to improve the Project planning, design, and
construction processes, and to share both the risks and rewards associated with achieving
the Project objectives.
What do these definitions mean?
Collaborate=working and cooperating with others to perform a task to achieve a
common goal by maximizing coordination, efficiencies, waste reduction, and
profitability (all while reducing overall costs)9
IPD
Considerations:
Shared risk/reward through “transparency”
Waiver of claims among project team
Collaborative relationship between design and construction
Need sophisticated leadership team
Funding requirements
Procurement requirements
Technology (BIM) requirements (for collaborative design)
Sustainability
Lean construction principles
New school thinking regarding risk allocation
Contingency? (unlike GMP contracts)
Insurance considerations (e.g., project specific professional liability / manuscript policies with extended reporting period, make sure PL covers negligent design conveyed in digital data, rectification coverage…
Note: professional liability coverage centers on conventional notions of professional liability / E&ODavid Adelstein
IPD
BIM
Digital 3D (virtual) modeling of project
Promotes sharing of digital information among project team to increase coordination, planning, efficiency and constructability of design—optimize design at all phases (preconstruction, during construction, post-construction)
E.g, BIM would be virtual model of structure (load bearing walls, slabs, windows, etc.) and utilities (duct, piping) and can include real-time scheduling information in the model (manpower, coordination, etc.) and budgetary information (cost)
Transparency-All this data is shared to try to imitate actual construction for the purpose of better coordinated design and construction
Note: Think also 3-D laser scanning and drone imageryDavid [email protected]
11
IPD
BIM
Owner wants Building Information Modeling (BIM) more
so than in conventional project delivery methods
Willingness to invest in a longer, more detailed design
phase using BIM to make key design and cost decisions
collaboratively to produce a fully coordinated design with
an emphasis on prefabrication and procuring long lead
items
David [email protected]
12
IPD
BIM & Objectives
Less on site administration effort as conflicts and questions resolved virtually
Fewer RFIs because stakeholders collaboratively involved in design (and longer
precon phase) and better communication of design intent
Less shop drawing and submittal approval time
More prefabrication and procurement of long lead items
Less waste and inefficiency
As builts incorporated into the virtual model
Schedule tied to virtual model (allows for visualization of deviation from planned
sequences and durations)
David [email protected]
13
IPD
IPD
Standard Form Contracts
Both the ConsensusDOCS and AIA have standard documents addressing BIM and IPD (legal and administrative issues and risk allocation):
ConsensusDOCS 300 Multi-Party IPD Agreement
ConsensusDOCs 396 Tri Party Agreement for IPD
ConsensusDOCS 301 BIM Addendum
AIA E203 BIM and Digital Data Exhibit
AIA G202-2008 BIM Protocol Form
AIA B195, A295 and A195 Transitional Documents between O-C and
O-A for IPD
AIA C195-2008 Single Purpose Entity Agreement for IPD
AIA C191-2009 Multiparty Agreement for IPD
AIA C196-2008 Single Purpose Entity and Owner for IPD
David [email protected]
14
Considerations:
LEED certification
Financial incentives and projected cost savings
Claims associated with achieving certification,
incentives, projected cost savings
David [email protected]
15
SP
Identify objectives relating to sustainable design / green building elements such as LEED certifications, energy efficiency, product ratings, etc.
AIA A101-2007 SP Agreement between O-C
AIA A201-2007 SP General Conditions
AIA B101-2007 SP Agreement between O-A
(*) AIA E204-2017 SP Exhibit
ConsensusDocs 310 Green Building Addendum
David [email protected]
16
SP
Partnership between public and private entities to
deliver project for public purposes (e.g.,
infrastructure) where private entity finances (and
perhaps operates and maintains) project in
consideration for revenue (or % of revenue)
completed project will generate for “x” number of
years
David [email protected]
17
P3
Considerations: Sophisticated leadership teams with understanding of
process
Cost of private financing (cost associated with debt)
Increased private party participation in delivering public
project
Risk transfer to private consortium (e.g., design,
construction, financing, operations and maintenance,
etc.)
Insurance considerations (similar to design-build or potentially IPD)
David [email protected]
18
P3
II. Theories of Liability
Design Professional Liability:
1) Common Law (Tort)
2) Statutory / Administrative Obligations
3) Contractual (breach of contract)
* Note: Contractual liability becomes VERY important with evolving delivery methods where A/E’s role fallsoutside of more conventional delivery methods. Reason insurance considerations applicable to design errors & omissions become major criteria
David [email protected]
20
Design professional’s standard of care gaged under negligence theory (hence, importance of professional liability coverage…)
Failure to use use reasonable / due care which reasonable, careful design professional would use under like circumstances
Failure to use reasonable / due care that conforms to acceptable standards that is detrimental to client or public
David [email protected]
21
II. Theories of LiabilityCommon Law
❖ Ex. Lochrane Engineering, Inc. v. Willingham Realgrowth Investment Fund, Ltd., 552 So.2d 228, 232 (Fla. 5th DCA 1989) –”However, the duty imposed by law upon professionals rendering professional services is to perform such services in accordance with the standard of care used by similar professionals in the community under similar circumstances.”
→ Note: FL- duty of care of supervising design professional not extended to subs. See Spancrete, Inc. v. Ronald E. Frazier & Associates, P.A., 630 So.2d 1197 (Fla. 3d DCA 1994)
❖ Ex. Overland Constructors, Inc. v. Millard School District, School District No. 17, Douglas County, 369 N.W.2d 69, 76 (Neb. 1985) -“the test is whether the architect has exercised that degree of skill and diligence ordinarily exercised under like circumstances by architects in good standing in the same or similar communities.”
❖ Ex. Martin v. Barge, Waggoner, Sumner & Cannon, 894 S.W.2d 750 (Tenn.App. 1994) –“Tennessee courts have adopted the “same or similar community” standard of care with respect to professional negligence.”
❖ But see ex. In re Parsons, Main, Inc., ASBCA No. 51355, 2002 WL 1307490, (June 10, 2002) –USACOE project near St. Louis; A/E argued that government must apply standard of care of geotechnical engineers in St. Louis; rejected local standard in favor of national standard
David [email protected]
22
II. Theories of LiabilityCommon Law
Design Professional’s reasonable / due care requirement based on statutory / administrative licensing requirements:
Ex: Florida Administrative Code 61G1-12.001(4)- An architect, firm, or business holding a certificate of authorization may not be negligent in the practice of architecture. The term negligence is defined as the failure, by an architect, to exercise due care to conform to acceptable standards of architectural practice in such a manner as to be detrimental to a client or to the public at large.
(a) Plans, drawings, specifications and other related documents prepared by an architect shall be of a sufficiently high standard to inform the users thereof of the requirements intended to be illustrated or described by them. Such documents shall clearly and accurately indicate the design of all essential parts of the work to which they refer. An architect shall meet a standard of practice which demonstrates his knowledge and ability to assure the safety and welfare of his clients and the public.
(b) An architect shall be required to coordinate his activities with other professionals involved in those projects wherein the architect is engaged to provide plans, drawings and specifications which result in the production of working documents which are used or intended to be used for the construction of a structure.
David [email protected]
23
II. Theories of LiabilityStatutory
Ex. Ohio Administrative Code 4703-3-07 (A) (1)- In practicing architecture, a registered architect shall act with reasonable care and competence and shall apply the knowledge and skill which is ordinarily applied by registered architects of good standing, practicing in the same locality.
Ex. Alabama Administrative Code 100-X-7-.01 (1)- In practicing architecture, an architect’s primary duty is to protect the public’s health, safety, and welfare. In discharging this duty, an architect shall act with reasonable care and competence, and shall apply the knowledge and skill which is ordinarily applied by architects of good standing, practicing in the same locality.
David [email protected]
24
II. Theories of LiabilityStatutory
Duties are imposed by contracts such as industry form contracts:
EJCDC E-500 – Standard Form Agreement Between Owner and Engineer for Professional Services
6.01.A. Standard of Care: The standard of care for all professional engineering and related services performed or furnished by Engineer under this Agreement will be the care and skill ordinarily used by members of the subject profession practicing under similar circumstances at the same time and in the same locality. Engineer makes no warranties, express or implied, under this Agreement or otherwise, in connection with Engineer’s services.
David [email protected]
25
II. Theories of LiabilityContractual
AIA B101 – Standard Form Agreement Between Owner and Architect
2.2 The Architect shall perform its services consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances. The Architect shall perform its services as expeditiously as is consistent with such professional skill and care and the orderly progress of the Project.
David [email protected]
26
II. Theories of LiabilityContractual
Design Professional’s common law duty of care can be extended / broadened by contract…WATCH OUT FOR THIS!
Ex. The School Board of Broward County, FL v. Pierce Goodwin Alexander & Linville, 137 So.3d 1059 (Fla. 4th DCA 2014)
“2.1.3 As to all services provided to this Agreement, the Project Consultant [the architect] shall furnish services by experienced personnel and under the supervision of experienced professionals licensed in Florida and shall exercise a degree of care and diligence in the performance of these services in accordance with the customary professional standards currently practiced by firms in Florida and in compliance with any and all applicable codes, laws, ordinances, etc. . . .
2.1.5 All professional design services and associated products or instruments of those services provided by the Project Consultant shall: .1 Be in accordance with all applicable codes, laws, and regulations of any governmental entity, including, but not limited to, [list of regulatory entities] with the Owner serving as the interpreter of the intent and meaning of . . . any other applicable code.”
→ In this contract, architect contracted to heightened standard of care and was contractually obligated to perform to more heightened standard of care than common law standard. Here, architect accepted risk of design plans not code-compliant (no matter what!)
David [email protected]
27
II. Theories of LiabilityContractual
Ex. The School Board of Broward County, FL v. Pierce Goodwin Alexander & Linville, 137 So.3d 1059 (Fla. 4th DCA 2014)
- Previously discussed
- First Cost Defense / Added First Cost Benefit Theory
Architect not responsible for costs of items left out of original design since owner would always be responsible for this cost based on cost of item if that item was included in original design
“For example, if the school board would have paid a cost for construction in accordance with the code-compliant final design plans, an award of a COI [change order item] expense against the architect attributable to a change in the initial design plans for the same cost would put the school board in a better position than if the design services had been performed as agreed. Stated another way, if there had been no change between the initial plans drawn for bidding by contractors and the final construction plans, the school board would have been solely responsible for paying all construction expenses incurred for the renovation.”
David [email protected]
28
Case Example
A&H Properties, v. GPM Engineering, 2015 WL 9435974 (Tex.App.-Austin 2015) –owner hired design-builder to install/design energy efficient improvement including geothermal loop. Engineer hired by design-builder. No contract between engineer and owner. Owner sued engineer for negligence for design of geothermal loop that caused it financial damages. Summary judgment granted in favor of engineer under economic loss rule. Affirmed on appeal.
“[T]he Texas Supreme Court recently clarified in a similar factual scenario that the availability of contractual remedies in a vertical chain of contracts on a construction project precludes tort recovery when no personal injury or property damage is alleged. The record before us establishes that GPM [engineer], as subcontractor, was performing services part of of the overall construction project based on its contract with the general contractor, Bell. GPM’s duty to perform work on A&H’s [owner] arose of that construction subcontract, and no other duty or relationship between GPM and A&H is presented in this record.
***
“Application of the economic-loss rule is particularly appropriate here, where permitting A&H to sue GPM for economic loss would disrupt the risk allocations that A&H negotiated with Bell, and that Bell, in turn, negotiated with GPM.”
David [email protected]
29
Case Example
Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kahl, LLP, 226 Md.App. 420 (Md.Ct.Sp.App. 2016)-City hired engineer to produce construction documents for wastewater treatment plant under design-bid-build. Years later successful bidder (contractor) sued engineering firm for delays associated with defective design and negligent misrepresentations. No contract between contractor and engineer. Trial court dismissed based on economic loss rule. Affirmed on appeal.
“[I]n the absence of privity, death, personal injury, property damage, or the risk of death or serious personal injury, no duty of care in tort runs from an engineer or architect to a contractor for purely economic losses on a public construction project.”
David [email protected]
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Case Example
But see Gongloff Contracting, L.L.C. v. L. Robert Kimball & Associates, Inc., 119 A.3d 1070 (Penn. 2015)- University hired A/E and GC. GC hired steel sub. Steel sub hired plaintiff (sub-sub) to erect steel. Concerns were raised with A/E roof design. During construction it was determined that roof design not sufficient to bear loads. There were 3 shut-downs of steel erection due to redesigns. Plaintiff submitted 81 change order requests resulting in it being unable to pay vendors, laying off its crew, and leaving site. Plaintiff sued A/E for negligent misrepresentation re: the design of the roof. Trial court granted judgment on pleadings based on economic loss rule. Reversed on appeal.
“We conclude that the amended complaint's allegations that Kimball's [A/E] design documents constituted negligently-supplied false information have been pled with the appropriate level of specificity to state a cause of action for negligent misrepresentation…. While Kimball might prove later in the litigation that the allegation that it provided false information concerning the integrity of its roof design was unsubstantiated, it is not entitled to judgment in its favor at this stage of the proceedings.” (relying on case that A/E can be liable for negligent misrepresentation when it negligently supplies information knowing that 3rd parties will rely on such information)
David [email protected]
31
Case Example
32
EFFECTIVE PROJECT
DOCUMENTATION
Using Documentation For Risk Allocation and Warfare.
John D. Broghammer
S u n Tz u … W i t h A Tw i s t 34
“It is said that if you know
your enemies and know
yourself, you will not be
imperiled in a hundred
battles; if you do not know
your enemies but do know
yourself, you will win one
and lose one; if you do not
know your enemies nor
yourself, you will be
imperiled in every single
battle.”
Sun Tzu35
YOUR ENEMY IS YOU!!
• Per a large A/E insurance carrier, a dispute is ALMOST ALWAYS caused by a documentation error—not a design error.
– 1. No or poorly drafted contracts;
– 2. Failure to manage expectations;
– 3. Failure to document and follow up.
36
Studies have shown the genesis of most lawsuits, in one way or another, is a
contract problem.
37
38
Your Contract is Your Castle’s Defense 38
Preparations for WarCLAUSES, WORDS AND EXHIBITS ARE
LIKE RAMPARTS, MOATS, AND GATES.
Each word is like brick and mortar.
Your client wants you to have fewer defenses.
John Broghammer [email protected]
39
GET IT IN WRITING!!!
• Contracts should be in writing and many states require a written contract with specific provisions for inclusion.
• Ancient Chinese proverb: “The faintest of ink is worth more than the strongest memory.”
40
FROM THE “DUH” FILES:
“An oral contract is
not worth the paper
it is written on.”
41
YOU DON’T EAT UNTIL YOU DRAG THE SIGNED CONTRACT HOME.
42
READ YOUR CONTRACT…..PLEASE!!
I’ve never been told by
any client embroiled in a
lawsuit that he or she
regretted taking the time to readand understand the contract.
43
MORE “DUH” STUFF:
• Keep a copy of the contract in separate file or electronic folder.
• Add papers or e-mails that impact the contract and/or your scope of work.
• Scan all contracts and related documents an electronic file.
44
NEGOTIATIONS
• It is unsexy, non-paying and drudgery.
• The other side fights you on issues which you think are stupid.
• And as Colin Powell once said: “No battle plan survives contact with the enemy.”
45
SUN TZU
“The general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand.”
• BE PREPARED….
46
Sun TzuChinese Military Strategist, Commander and Philosopher
47
48
NEGOTIATIONS
• Your contract is your friend…maybe your only friend on a project.
• It is the single most critical thing on a project.
• Never give contract negotiation short shrift.
49
CONTROL THE NARRATIVE
• “Those skilled in war bring the enemy to the field of battle, and are not brought there by him.” Sun Tzu
Draft your own contract!
50
NEGOTIATIONS
• Be specific. Let others review your drafts for content and errors.
• Better yet, use stock contracts (e.g., AIA).
• Read the RFP (or similar documents) closely.
• Memorialize in writing additions/subtractions.
51
Competitive Arousal
Competitive arousal is the visceral urge in negotiating to “win,”
rather than get the best deal.
52
Confirmation Bias Confirmation Bias describes the
psychological process where we seek information that confirms our beliefs.
53
People infer information that supports their existing beliefs, even if the data
support an opposing view.
Confirmation bias is a problem to overcome when you need to make a
fact-based decision.
54
THE CURES?1. Get the opinion of others and listen to them!!
2. Play “devil’s advocate” and view the deal from the other side. Why do they want the contested
language?
3. Work to build empathy and relationships then share WHY you need certain language.
55
“If asked how to cope with
a great host of the enemy
in orderly array and on the
point of marching to the
attack, I should say:
“Begin by seizing
something which your
opponent holds dear;
then they will be
amenable to your will.”
Sun Tzu 56
NegotiationsFirst, understand that negotiations are an exchange of what each side
“holds dear.”
The owner/client has money and you have your
time/services.57
Negotiations
Second, negotiations are about personal relationships….established before
negotiating, not during the process.
The parties then hold the relationship “dear.”
58
Negotiations
Learn about your client and the person you are negotiating with.
Do they own a dog?
Where did they go to college?
Do they have children?
Does he/she like to cook?
Did you watch the game this weekend?
59
CRITICAL CONTRACT CLAUSES
A. Detailed Scope of Work Language.
B. Construction Administration Language.
C. Indemnity Clauses.
D. Standard of Care.
60
SCOPE OF WORK
• From a prominent A/E insurance carrier re: Scope of Work claims/lawsuits:
“Failure to manage the owner’s
expectations; failure to explain the
scope of work and exclusions thereto.”
• This must be started during negotiations.
61
SCOPE OF WORKShould always be Exhibit A to your contract.
GOOD!!
UH…NOT
GOOD
62
SCOPE OF WORK
63
CRITICAL CONTRACT CLAUSES
A. Detailed Scope of Work Language.
B. Construction Administration Language.
C. Indemnity Clauses.
D. Standard of Care.
64
You do not inspect…you only observe !!! 65
CONSTRUCTION ADMINISTRATION
Construction observation is the periodic observation of completed work to determine
general compliance with the plans, specifications and project documents.
IT IS NEVER AN INSPECTION OR GUARNATEE
66
CUSTOM AND PRACTICE
• Observation is the visual observation of the engineering system for general conformancewith the approved plans and specifications.
• Inspection is the monitoring of materials and workmanship that are critical to the integrity of the project to ensure compliance with the approved plans, specifications and applicable laws.
67
68
SAMPLE PROBLEM
• “[Design Professional] shall make…periodic on-site observations, not less than weekly…. Observations shall be conducted deliberately and thoroughly...”
• “Observations shall be for the purpose of ascertaining…that the …quality and detail of construction…complies with…the contract documents.”
69
Report limitation language
“Limited observation services pursuant to the
contract for this Project were performed in
substantial accordance with the standard of
care and generally accepted field observation
practices for [structural engineering entities]
under similar circumstances.”
70
BADGOOD!!!
AWFUL!!!!71
OMG!!!
72
EXPECTATIONS
• 1. Understand what the law in your state/locale requires.
• 2. Understand the local customs and practices.
• 3. Define your duties and rein in client expectations.
73
THE PANDA
EATS
SHOOTS
AND
LEAVES.74
CRITICAL CONTRACT CLAUSES
A. Detailed Scope of Work Language.
B. Construction Administration Language.
C. Indemnity Clauses.
D. Standard of Care.
75
INDEMNITYOWNER
DESIGN PROFESSIONAL
INDEMNITY CLAUSE
76
INDEMNITY
≈
INSURANCE• "An indemnity contract resembles an insurance
agreement.” (MacDonald & Kruse v. San Jose Steel (1972) 29 Cal.App.3d 413, 420.).
77
INDEMNITY
• PURPOSE: Indemnity, like insurance, seeks to shift all or part of the risk of loss from Player A to Player B.
78
INDEMNITY
• Insurer’s business model is to collect premiums and spread risk. Insurance works by receiving more premiums than the company pays out in benefits. You do not work this way.
79
INDEMNITY
What to look for….and why to look for it?
80
INDEMNITY
81
California civil code section 2782.8.
(a) For all contracts, and amendments thereto, entered into on or after January 1, 2018, for design professional services, all provisions, clauses, covenants, and agreements contained in, collateral to, or affecting any such contract, and amendments thereto, that purport to indemnify, including the duty and the cost to defend, the indemnitee by a design professional against liability for claims against the indemnitee, are unenforceable, except to the extent that the claims against the indemnitee arise out of, pertain to, or relate to the negligence, recklessness, or willful misconduct of the design professional. In no event shall the cost to defend charged to the design professional exceed the design professional’s proportionate percentage of fault. However, notwithstanding the previous sentence, in the event one or more defendants is unable to pay its share of defense costs due to bankruptcy or dissolution of the business, the design professional shall meet and confer with other parties regarding unpaid defense costs. The duty to indemnify, including the duty and the cost to defend, is limited as provided in this section. This section shall not be waived or modified by contractual agreement, act, or omission of the parties. Contractual provisions, clauses, covenants, or agreements not expressly prohibited herein are reserved to the agreement of the parties.
INDEMNITY
82
California civil code section 2782.8.
(a) For all contracts, and amendments thereto, entered into on or after January 1, 2018, for design professional services, all provisions, clauses, covenants, and agreements contained in, collateral to, or affecting any such contract, and amendments thereto, that purport to indemnify, including the duty and the cost to defend, the indemnitee by a design professional against liability for claims against the indemnitee, are unenforceable, except to the extent that the claims against the indemnitee arise out of, pertain to, or relate to the negligence, recklessness, or willful misconduct of the design professional. In no event shall the cost to defend charged to the design professional exceed the design professional’s proportionate percentage of fault. However, notwithstanding the previous sentence, in the event one or more defendants is unable to pay its share of defense costs due to bankruptcy or dissolution of the business, the design professional shall meet and confer with other parties regarding unpaid defense costs. The duty to indemnify, including the duty and the cost to defend, is limited as provided in this section. This section shall not be waived or modified by contractual agreement, act, or omission of the parties. Contractual provisions, clauses, covenants, or agreements not expressly prohibited herein are reserved to the agreement of the parties.
INDEMNITY
83
California civil code section 2782.8.
(a) For all contracts… after January 1, 2018… that purport to indemnify including the duty … to defend … by a design professional against liability for claims against the indemnitee, are unenforceable, except …[for] claims [that] arise out of, pertain to, or relate to the negligence…of the design professional.
In no event shall the cost to defend charged to the design professional exceed the design professional’s proportionate percentage of fault.
This section shall not be waived or modified by contractual agreement.
84
12. INDEMNIFICATION.
12.1 TO THE FULLEST EXTENT PERMITTED BY LAW, CONSULTANT FOR ITS OWN ACTS OR FAILURE TO
ACT, AND IN CONSIDERATION OF THE SUM OF ONE HUNDRED DOLLARS ($100.00), WHICH SUM IS INCLUDED IN THE
PRICE(S) ESTABLISHED UNDER THIS AGREEMENT, THE ADEQUACY AND RECEIPT OF WHICH IS HEREBY
ACKNOWLEDGED, AND FOR THOSE OF ITS AGENTS, EMPLOYEES, SUPPLIERS, SUBCONSULTANTS,
SUBCONTRACTORS AND SUB-SUBCONTRACTORS (INCLUDING THOSE EMPLOYED DIRECTLY OR INDIRECTLY BY
SUCH AGENTS, EMPLOYEES, SUPPLIERS, SUBCONSULTANTS, SUBCONTRACTORS AND SUB-SUBCONTRACTORS)
(COLLECTIVELY, THE “CONSULTANT REPRESENTATIVES”), SHALL INDEMNIFY, DEFEND, PROTECT AND HOLD
HARMLESS OWNER, ALL SUBSIDIARY OR AFFILIATED COMPANIES OF OWNER AND ALL OF SUCH PARTIES’
REPRESENTATIVES, PARTNERS, STOCKHOLDERS, DESIGNEES, OFFICERS, DIRECTORS, CONTRACTORS, AGENTS,
AND EMPLOYEES AND THEIR RESPECTIVE HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS, AND ASSIGNS,
AND OWNER’S LENDER(S) (COLLECTIVELY THE “INDEMNIFIED PARTIES”), FROM ANY AND ALL LOSSES, COSTS,
EXPENSES, REASONABLE ATTORNEYS’ FEES AND OTHER COSTS OF DEFENSE INCURRED IN DEFENDING AGAINST
ANY CLAIM(S) OR IN ENFORCING THIS INDEMNITY AND DEFENSE OBLIGATION, LIABILITIES, CLAIMS, COURT COSTS,
DEMANDS, DEBTS, CAUSES OF ACTION, FINES, JUDGMENTS AND PENALTIES (COLLECTIVELY, “LIABILITY”) WHICH
MAY ARISE FROM OR RELATE TO: (A) DEATH OR INJURY TO PEOPLE OR DAMAGE OR INJURY TO PROPERTY IN
CONNECTION WITH THE PERFORMANCE OF THE SERVICES; (B) THE NEGLIGENT ACTS, ERRORS OR OMISSIONS OF
CONSULTANT OR ANY CONSULTANT REPRESENTATIVE IN CONNECTION WITH THE PERFORMANCE OF THE
SERVICES; (C) ANY AND ALL LIENS, STOP NOTICES AND CHARGES OF ANY TYPE, NATURE, KIND OR DESCRIPTION
WHICH MAY AT ANY TIME BE FILED OR CLAIMED AGAINST THE SITE OF THE COMMUNITY OR ANY PORTION
THEREOF, OR THE OWNER OR THE OWNER’S LENDER (EXCEPT WHEN SUCH LIENS OR STOP NOTICES ARE CAUSED
BY OWNER’S DEFAULT IN ITS OBLIGATION TO PAY CONSULTANT PURSUANT TO THE PROVISIONS OF THIS
AGREEMENT) IN CONNECTION WITH PERFORMANCE OF THE SERVICES; (D) ANY CLAIM(S) UNDER WORKERS’
COMPENSATION ACTS, DISABILITY BENEFITS ACTS, AND OTHER EMPLOYEE BENEFIT ACTS, (PROVIDED, HOWEVER,
THE INDEMNITY AND DEFENSE OBLIGATION HEREUNDER SHALL NOT BE LIMITED BY ANY LIMITATION ON THE
AMOUNT OR TYPE OF DAMAGES, COMPENSATION OR BENEFITS PAYABLE UNDER SUCH ACTS); (E) CONSULTANT’S
FAILURE TO FULFILL ITS OBLIGATIONS UNDER THIS AGREEMENT IN STRICT ACCORDANCE WITH ITS TERMS,
INCLUDING CONSULTANT’S BREACH OF ANY REPRESENTATIONS OR COVENANTS GIVEN IN THIS AGREEMENT OR
ELSEWHERE BY CONSULTANT; (F) VIOLATION OF ANY LOCAL, STATE OR FEDERAL LAW, REGULATION OR CODE; (G)
INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, OR VIOLATION OF TRADE SECRET OR OTHER
PROPRIETARY RIGHT, IN CONNECTION WITH PERFORMANCE OF THE SERVICES; OR (H) THE FAILURE OF
CONSULTANT OR CONSULTANT’S REPRESENTATIVES TO PAY IN FULL ALL OBLIGATIONS TO ANY WAGE CLAIMANT,
ANY STATE AGENCY, OR ANY EMPLOYEE BENEFIT TRUST FUND.
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12. INDEMNIFICATION.
12.1 TO THE FULLEST EXTENT PERMITTED BY LAW, CONSULTANT FOR ITS OWN ACTS OR FAILURE TO
ACT, AND IN CONSIDERATION OF THE SUM OF ONE HUNDRED DOLLARS ($100.00), WHICH SUM IS INCLUDED IN THE
PRICE(S) ESTABLISHED UNDER THIS AGREEMENT, THE ADEQUACY AND RECEIPT OF WHICH IS HEREBY
ACKNOWLEDGED, AND FOR THOSE OF ITS AGENTS, EMPLOYEES, SUPPLIERS, SUBCONSULTANTS,
SUBCONTRACTORS AND SUB-SUBCONTRACTORS (INCLUDING THOSE EMPLOYED DIRECTLY OR INDIRECTLY BY
SUCH AGENTS, EMPLOYEES, SUPPLIERS, SUBCONSULTANTS, SUBCONTRACTORS AND SUB-SUBCONTRACTORS)
(COLLECTIVELY, THE “CONSULTANT REPRESENTATIVES”), SHALL INDEMNIFY, DEFEND, PROTECT AND HOLD
HARMLESS OWNER, ALL SUBSIDIARY OR AFFILIATED COMPANIES OF OWNER AND ALL OF SUCH PARTIES’
REPRESENTATIVES, PARTNERS, STOCKHOLDERS, DESIGNEES, OFFICERS, DIRECTORS, CONTRACTORS, AGENTS,
AND EMPLOYEES AND THEIR RESPECTIVE HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS, AND ASSIGNS,
AND OWNER’S LENDER(S) (COLLECTIVELY THE “INDEMNIFIED PARTIES”), FROM ANY AND ALL LOSSES, COSTS,
EXPENSES, REASONABLE ATTORNEYS’ FEES AND OTHER COSTS OF DEFENSE INCURRED IN DEFENDING AGAINST
ANY CLAIM(S) OR IN ENFORCING THIS INDEMNITY AND DEFENSE OBLIGATION, LIABILITIES, CLAIMS, COURT COSTS,
DEMANDS, DEBTS, CAUSES OF ACTION, FINES, JUDGMENTS AND PENALTIES (COLLECTIVELY, “LIABILITY”) WHICH
MAY ARISE FROM OR RELATE TO: (A) DEATH OR INJURY TO PEOPLE OR DAMAGE OR INJURY TO PROPERTY IN
CONNECTION WITH THE PERFORMANCE OF THE SERVICES; (B) THE NEGLIGENT ACTS, ERRORS OR OMISSIONS OF
CONSULTANT OR ANY CONSULTANT REPRESENTATIVE IN CONNECTION WITH THE PERFORMANCE OF THE
SERVICES; (C) ANY AND ALL LIENS, STOP NOTICES AND CHARGES OF ANY TYPE, NATURE, KIND OR DESCRIPTION
WHICH MAY AT ANY TIME BE FILED OR CLAIMED AGAINST THE SITE OF THE COMMUNITY OR ANY PORTION
THEREOF, OR THE OWNER OR THE OWNER’S LENDER (EXCEPT WHEN SUCH LIENS OR STOP NOTICES ARE
CAUSED BY OWNER’S DEFAULT IN ITS OBLIGATION TO PAY CONSULTANT PURSUANT TO THE PROVISIONS OF THIS
AGREEMENT) IN CONNECTION WITH PERFORMANCE OF THE SERVICES; (D) ANY CLAIM(S) UNDER WORKERS’
COMPENSATION ACTS, DISABILITY BENEFITS ACTS, AND OTHER EMPLOYEE BENEFIT ACTS, (PROVIDED, HOWEVER,
THE INDEMNITY AND DEFENSE OBLIGATION HEREUNDER SHALL NOT BE LIMITED BY ANY LIMITATION ON THE
AMOUNT OR TYPE OF DAMAGES, COMPENSATION OR BENEFITS PAYABLE UNDER SUCH ACTS); (E) CONSULTANT’S
FAILURE TO FULFILL ITS OBLIGATIONS UNDER THIS AGREEMENT IN STRICT ACCORDANCE WITH ITS TERMS,
INCLUDING CONSULTANT’S BREACH OF ANY REPRESENTATIONS OR COVENANTS GIVEN IN THIS AGREEMENT OR
ELSEWHERE BY CONSULTANT; (F) VIOLATION OF ANY LOCAL, STATE OR FEDERAL LAW, REGULATION OR CODE; (G)
INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, OR VIOLATION OF TRADE SECRET OR OTHER
PROPRIETARY RIGHT, IN CONNECTION WITH PERFORMANCE OF THE SERVICES; OR (H) THE FAILURE OF
CONSULTANT OR CONSULTANT’S REPRESENTATIVES TO PAY IN FULL ALL OBLIGATIONS TO ANY WAGE CLAIMANT,
ANY STATE AGENCY, OR ANY EMPLOYEE BENEFIT TRUST FUND.
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12. INDEMNIFICATION.
CONSULTANT FOR ITS OWN ACTS OR FAILURE TO ACT … SHALL INDEMNIFY,
DEFEND, AND HOLD HARMLESS OWNER … FROM ANY AND ALL LOSSES,
EXPENSES, REASONABLE ATTORNEYS’ FEES … INCURRED IN DEFENDING
AGAINST ANY CLAIM(S) OR IN ENFORCING THIS INDEMNITY … WHICH MAY
ARISE FROM OR RELATE TO:
(A) DEATH OR INJURY TO PEOPLE OR DAMAGE OR INJURY TO PROPERTY IN
CONNECTION WITH THE PERFORMANCE OF THE SERVICES;
(B) (B) THE NEGLIGENT ACTS, ERRORS OR OMISSIONS OF CONSULTANT… ;
(E) CONSULTANT’S FAILURE TO FULFILL ITS OBLIGATIONS UNDER THIS
AGREEMENT IN STRICT ACCORDANCE WITH ITS TERMS,
(F) VIOLATION OF ANY LOCAL, STATE OR FEDERAL LAW, REGULATION OR
CODE;
HELP!!
• Delete “defend.” HOWEVER, in California at least you must affirmatively disavow a duty to defend as “indemnify” automatically includes defend.
• Hence, you must say “but not defend.” Or, “consultant shall have no immediate duty to defend” or other similar language.
• Always tie the claim/demand to your negligent acts/errors/omissions.
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HELP!!
• The Consultant will indemnify the Client for actual damages for which the Client becomes liable if the damage upon which the liability is based was caused by the proven active negligence of the Consultant.
• If the Client is determined to be liable for damage caused by the proven active negligence of the Consultant, the Consultant will reimburse the Client for the reasonable value of the defense costs insured to defend against the damages caused by the Consultant’s proven negligence.
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Sample clauses7. INDEMNIFICATION. Consultant shall indemnify, save harmless and defend, to the fullest extent permitted by law, the Housing Authority of the City, the City and the
County … from liability, claims, demands, attorney's fees or litigation and related costs, including without
limitation, court costs and investigator, witness, arbitrator and mediator fees, for any injury or damages
to persons or property resulting from Consultant's prosecution of work under the Contract, or otherwise related to this Contract, whether caused, in whole or
part, by an intentional act, negligent act or omission by Consultant, its officers, employees, or agents.
John Broghammer [email protected]
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Sample clausesTo the fullest extent permitted by law, the Design Professional shall (1) immediately defend and (2)
indemnify the Water Authority … from and against all liabilities regardless of nature or type that arise out of, pertain to, or relate to the negligence … of the Design
Professional …. The Design Professional’s obligations to both defend and indemnify apply unless it is finally
adjudicated that the liability or liabilities, in whole or in part, do not arise out of, pertain to, or relate to the negligence, recklessness, or willful misconduct of the
Design Professional or its employees, agents, or subcontractors. Defense counsel shall be approved by
the Water Authority.John Broghammer [email protected]
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Sample clausesC. To the fullest extent permitted by law (including
without limitation California Civil Code section 2782 and 2782.5), CONSULTANT agrees to defend (with legal counsel reasonably acceptable to LOCAL AGENCY), indemnify and hold harmless LOCAL AGENCY… from and against any and all claims, demand, penalties, fines, loss, damage … that
arise out of, pertain to or relate to, directly or indirectly, in whole or in part, the negligence, recklessness, or willful
misconduct, errors or omissions of CONSULTANT …. Such obligations to defend, hold harmless and indemnify [the LOCAL AGENCY] shall not apply to the extent that such
Liabilities are caused in part by the sole negligence, active negligence, or willful misconduct of [the LOCAL AGENCY].
John Broghammer [email protected]
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(b)Consultant agrees to defend immediately upon tender and to the fullest extent regardless of
liability, and to indemnify, save and hold harmless Indemnitees from and against any and all loss, …
claims, … or demands, … or any other loss, damage or expense whatsoever, arising out of or related in any manner to ... Consultant’s presence
at the Project site, or the acts, negligence, or inactions of Consultant, including, without
limitation, those in part due to the active and/or passive negligence of Indemnities save and except [claims, demands or damages] arising through the
sole negligence … of Indemnities.
John Broghammer [email protected]
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The consultant specifically obligates himself in the following respects:
(c) To assume the defense of and indemnify … owner from any and all claims of loss, damage, injury and liability, howsoever the same may be caused, alleged by anyone, including consultant itself, resulting directly or indirectly from the nature of the work covered by the contract.
John Broghammer [email protected]
93
Endowment Effect or Overconfidence Bias
This bias is the tendency to place too much emphasis on your knowledge, abilities
and negotiation skills.
94
Know Your LimitationsHIRE A LAWYER
95
CRITICAL CONTRACT CLAUSES
A. Detailed Scope of Work Language.
B. Construction Administration Language.
C. Indemnity Clauses.
D. Standard of Care.
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STANDARD OF CARE
• As a general rule, NEVER, ever, agree to contract language that alters the standard of care.
• Generally speaking, all states have a default standard of care which will apply absent contract language to the contrary.
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STANDARD OF CARE
“A [professional] is negligent if he/she fails to use the skill and care that a reasonably careful [professional] would have used in similar circumstances. This level of skill, knowledge, and care is sometimes referred to as “the standard of care.””
Cal. Jury Instruction 600
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STANDARD OF CAREGOOD!
UH…NOT…GOOD!
Best means better
than everyone else.99
STANDARD OF CARE
Any blanket promise to correct defects may alter the standard of care. Are you insured for this?
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STANDARD OF CARE
• Beware of warranties, guarantees, and certifications which effectively turn the Standard of Care into a promise of perfection.
• You normally do not have insurance coverage for such warranties, guarantees, and certifications.
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“We shall be unable to turn natural advantage to our account unless we make use of local
guides.”
Sun Tzu
103John Broghammer [email protected]
Sims, Lawrence & Arruti LLP.
2261 Lava Ridge Court
Roseville, CA 95661
(916)[email protected]
John Broghammer [email protected]
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