January/February 2019

Legal Beat
New Firm Needs Risk Management Advice

BY ARTHUR SCHWARTZ, DEPUTY EXECUTIVE DIRECTOR AND GENERAL COUNSEL

Question: I am a licensed professional engineer and recently started my own consulting engineering firm. While I am confident that all professional engineers in my firm have engineering practice and technical competence, most within my firm do not have a deep knowledge of law, contracts, and risk management. As a consulting engineering firm just starting out, what are some of the legal, contractual, and risk management issues I will need to consider when offering professional engineering services to our clients? (Missouri)

Answer: As a general rule, most lawyers and risk managers familiar with the practice of professional engineers identify the following key legal, contractual, and risk management issues that should be considered when offering services to clients:

Written Agreements: You should always obtain a signed agreement before starting work. Sometimes engineering firms are asked to start work without a signed agreement, which can put you and your firm at risk. Engineers should not treat a proposal as a contract unless the proposal includes standard terms and conditions within the proposal.

Scope of Services: Clearly define the engineering services you will deliver, and exclude any services you will not be providing. For example, in addition to providing the engineering drawings, plans, and specifications, you should include the number of site visits, project meetings, as-built or record drawings, and other details of service.

Standard of Care: Clearly set forth that the professional engineering services you will be performing under the written agreement will be consistent with what a reasonable licensed professional engineer would provide under the same circumstances, in the same time frame, and in the same jurisdiction. You should also state that no other implied or express warranty is made concerning the professional services performed under the agreement. forth the client’s responsibilities for the successful completion of the project. Identify the information and services the client is required to provide, including a project budget; project information, including surveys and title information; geotechnical reports; environmental reports; and any financial information, time-schedule information, environmental reports, zoning reports, or other key information. Indemnification: Identify and understand any indemnification obligation you may have, including any “duty to defend” imposed upon you by the client. Any indemnity obligation imposed upon you in any agreement should apply only to the extent any loss or damages are caused by your negligence in performance of services. Any agreement that imposes upon you a “duty to defend” the client or other party is not insurable under most professional liability policies.

Limitation of Liability: In many states, a limitation of liability clause is valid and enforceable and should be negotiated with the client. This clause limits the professional engineer’s liability to the client to (1) the amount of the professional fees, (2) the extent of professional liability policy limits, or (3) some contractually designated amount.

Consequential Damages: Include a mutual waiver of consequential damages in the event of a claim. A waiver of consequential damages might protect against claims such as delay damages for late completion of the project, loss of use, lost profits, and increased interest charges.

Termination: In your agreement, always include a termination clause. This includes termination for cause (nonpayment, termination due to suspension of the project, termination for convenience) or no cause. Make sure that the termination provision flows in both directions so that both the engineer and the client have rights and obligations under the clause.

Dispute Resolution: Carefully consider whether disputes should be resolved by mediation, arbitration, or civil litigation.

Instruments of Service: Ensure the instruments of service (drawings, plans, specifications, and contract documents) remain the property of the professional engineer, that the instruments of service shall only be used for the construction and maintenance of the project under the project agreement, and that the use of instruments of service may only be used after the engineering firm has been paid in full for services rendered.

Warrantees and Guarantees: Delete all warranty and guarantee provisions, including any statement that the engineer is responsible for the performance of the contractor.

A good starting point for drafting your agreement is either the Standard Form Agreement Between Owner and Engineer for Professional Services (E-500, 2014), published by the Engineers Joint Contract Documents Committee, or EJCDC’s Short Form of Agreement Between Owner and Engineer for Professional Services (E-520, 2015). For more information, visit www.nspe.org/ejcdc.