Orange County Branch Newsletter

August 2012

Law & CE

The Must-Haves and Should-Haves of Engineering Contracts

Sometimes it is the least intriguing part of becoming involved in a new project that will make the difference between a profitable, successful experience and a nightmare that results in that dreaded call to your insurance broker and attorney.  The client that seemed so reasonable and down to earth at first may not remain so once placed under the pressures of a challenging project.  However, a well thought out, clear contract can help to avoid straining a client relationship and also provide some protection for you during and after a project that does not go as planned.  The purpose of this article is to provide a list of the critical provisions you need in your contracts (the must-haves), as well as a list of contract provisions that would be desirable (the should-haves). 

The Must-Haves:

The Professional Engineers Act requires you to have written contracts before performing services for a client with only limited exceptions.  Section 6749 states that “[a] professional engineer shall use a written contract when contracting to provide professional engineering services to a client….”  This section goes on to require the following issues be addressed in each contract:

(1) A description of the services to be provided to the client by the professional engineer.
(2) A description of any basis of compensation applicable to the contract, and the method of payment agreed upon by the parties.
(3) The name, address, and license or certificate number of the professional engineer, and the name and address of the client.
(4) A description of the procedure that the professional engineer and the client will use to accommodate additional services.
(5) A description of the procedure to be used by any party to terminate the contract. Id.

An express and detailed explanation of the services you intend to perform can go a long way towards avoiding misunderstandings with a client about what you agreed to do during the project.  Almost as important as defining what you will do, is defining what is not a part of the contract.  If you are not going to provide construction phase services, say so.  Next time you send that delicate letter to a client advising that what they want you to do is outside the scope of your contract and will cost additional money, wouldn’t it be nice to be able to reference an express exclusion in your contract?

While it may be hard to have a conversation with a new client in the courting stage of your relationship about the possibility of rising costs (i.e. additional services) and termination procedures, imagine how hard it will be having that conversation once there is a rift or disagreement.

The Should-Haves

Once you have satisfied the basic requirements in your contract, your focus can now shift to the additional provisions that can provide even greater protection for you during the project and help should a lawsuit ever result.  Some of the most useful things to include in your contract are the following:

(1) Limitations of Liability:  These clauses can limit your monetary liability to a specific dollar figure (for example,  $50,000 or your fee) or exclude a category of damages altogether, such as consequential damages, to avoid the uncertainty of being responsible for lost profits and other indirect damages that a client may seek to recover through a lawsuit if a project is delayed or a problem interferes with the ability to get full use and enjoyment out of the property.
(2) Express Indemnity Agreements in Your Favor:  One of the most powerful clauses that can be put into a contract is a requirement that if there is a claim related to your work on the project by someone other than your client (for example, the general contractor), the client agrees to pay for your defense costs and any monetary judgment against you.  While it may not always be possible to work these into your contract due to the unequal bargaining position that often exists between engineers and their clients, it could save you thousands if there is a claim. 
(3) Right for You to Stop Work during Pay Disputes: This contractual clause is jokingly referred to as the 13th Amendment clause since being forced to continue to work for a client that is not paying you can feel like involuntary servitude.  If the client wants the project completed on time without delays, this provision should help to compel the client to keep paying your invoices throughout the project.
(4) Prevailing Party Clause:  Typically, each party in a lawsuit is responsible for paying its own attorney’s fees and litigation costs.  However, a prevailing party provision can deter a client from filing a lawsuit against you for meritless claims because the provision acts to shift the expense of litigation to the losing party. It can also help to make it worth your while to file a claim for unpaid fees that you may otherwise be inclined to write off, knowing that the attorney’s fees and costs that it will take to obtain a favorable judgment will not offset any amount recovered. 

Next time a new project comes across your desk, don’t shy away from contract negotiations, but go into the process being confident that you know what has to be included in your contract and what you want to be included in your contract.  Remember that the five items listed above are all that are required for a valid engineering services contract.  Once those are confirmed with the client in writing, you can continue to negotiate the final terms of a contract, seeking all the bells and whistles you want.

Michele L. Gamble, Esq.                                  Christian E. Bredeson, Esq.
750 The City Drive, Suite 400                            750 The City Drive, Suite 400
Orange, CA 92868                                           Orange, CA 92868
Phone:  (714) 823-4100                                    Phone:  (714) 823-4100
Fax:  (714) 823-4111                                        Fax:  (714) 823-4111
[email protected]                              [email protected]                                                     ;

Nothing contained within this article should be considered the rendering of legal advice.  Anyone who reads this article should always consult with an attorney before acting on anything contained in this or any other article on legal matters, as facts and circumstances will vary from case to case.

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