Construction Corner: Design Contract Basics

by Shipman & Goodwin LLP
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In prior Construction Corner posts, we discussed statutory requirements and guidelines for the procurement of architectural services. Here we will address the basic elements of design contracts between public and private owners and architects.

As with any contract, the contract for design services for any project should clearly and comprehensively address the rights and obligations of each party – both those that are specific to the project as well as the general terms and conditions customarily included in contracts (such as dispute resolution procedures, notice requirements, etc.).

The basic elements of a design contract are:

  • Scope of services
  • Schedule for performance of the services
  • Compensation to be paid for the services

Although this may seem elementary, in the flurry of activity leading up to contracting with a design professional it is not uncommon for owners to give the design contract little attention. Many owners will actually proceed with design services based only on a letter of proposal from the design professional. A well drafted contract serves at least two important functions. First, a written contract is usually the culmination of an exchange of information and multiple discussions between the owner and the architect. This ultimately provides each party with a better understanding of their relative roles and responsibilities. Secondly, the contract will serve to memorialize that understanding which will be invaluable should a dispute arise.

Scope of Services
The traditional scope of services for an architect commences with the predesign phase, during which the architect assists the owner to define the owner’s project goals and concepts, and continues until the project achieves final completion.  The architect’s services, schedule for performance of those services and compensation are generally defined and allocated by project phase (schematic design, design development, construction documents, bidding/negotiation and construction/closeout).  It is important to clearly identify services that are included as “basic services” (included in architect’s fee) as opposed to “additional services” (for which the architect will be entitled to additional compensation).

Compensation
Most commonly, the architect’s compensation for basic services is a fixed fee or a fee based on a specified percentage of the direct costs of the construction. Additional services are generally compensated based on an established hourly rate.  Many architect’s contracts provide for an increase in compensation if the project duration is materially extended beyond that originally projected, through no fault of the architect.

Design Contract Requirements

State Assisted Public School Projects
For state assisted public school projects, CGS §10-290e (a) sets forth certain contract requirements for design contracts:

  • The contract must include the agreement of the architect to perform its obligations under the contract in accordance with a standard of care specified in the statute.
  • The contract may not limit the liability of the architect for errors and omissions related to the performance of the services.

Subsection (b) of the statute requires that the instruments of service prepared by the architect be owned solely and exclusively by the town or regional school district that contracted for the services and the Department of Administrative Services and cannot be used by the architect for any purpose beyond the scope of the services in the contract without the prior written consent of the town or regional school district.  Although not mandated to be set forth in the contract, we recommend that the requirements of subsection (b) be set forth in the contract.

Note: If the town or regional school district fails to comply with CGS §10-290e, the statute provides that the town or regional school district will be assessed a ten per cent reduction in the amount of the grant for the project.

Private School Projects and Public School Projects without State Assistance
The requirements of CGS §10-290e are not applicable to private school projects or public school projects that are not state assisted.  For those projects, the applicable standard of care, the breadth of the architect’s indemnification obligations and architect’s retention of rights in its instruments of service will be largely the subject of negotiation. Generally, the architect will look for a standard of care that is no higher than the “professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances”.  As regards indemnification, an architect often looks to limit its liability under the contract to the compensation to be received for its services and/or the insurance proceeds available under the architect’s errors and omission insurance policy.  As for the architect’s rights in its instruments of service, generally architects will grant a nonexclusive license for the benefit of the owner to use the instruments of service for the project but will expect to retain rights in and ownership of the design documents.

All Projects
We referred in a prior Construction Corner Post to “finger pointing” between the architect and the contractor in the event of a problem with the project.  With both public and private projects, it is important to the extent possible to create a clear contractual boundary between the architect’s responsibilities and the contractor’s responsibilities and to identify those circumstances where cooperation between them is required. The various AIA documents are a good starting point for the delineation of project roles because these documents reflect a relatively traditional division of responsibilities between the architect and the contractor and are intended to complement each other.

Keep a look out for our discussion of the basic elements of a construction contract in our next Construction Corner post.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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