LMNOP FIRST QUARTER EVENT

Contracts for

Architects and interior designers

Contribution from Colette Taber

The next time that you are pursuing your “big fish,” maybe, just maybe, before submitting your proposal, have a lawyer look over your language. The right words could prevent some painful gutting later in the process.

"It is better to be lucky. But I would rather be exact.
Then when luck comes you are ready.”

― Ernest Hemingway, The Old Man and the Sea

  Yao Bailey,    Partner at Duane Morris LLP

Yao Bailey,
Partner at Duane Morris LLP

Be precise, be specific—two big talking points of the night when LMNOP NYC took on the subject of contracts for the January workshop hosted at the New York law offices of Duane Morris LLP. During the proposal stage, architects and interior designers often have to navigate the murky waters of an ill-defined scope or, at least, a nuanced project vision; they have a particularly troublesome obstacle to overcome: achieving buy-in for an environment that doesn’t actually exist (yet). Architects and designers trade in intangibles. Therefore, using precise language and defining deliverables (read: client expectations) in specific and complete terms may not come easily.

Why Learn Legalese?

The subject of contractual language is typical for LMNOP NYC. Founded in 2009, the mentoring, training, and networking organization addresses the “business of architecture,” which is how LMNOP President and founder Jennifer Graham describes an area often neglected by professional development groups for the architectural and design (A&D) industry.

“Contracts” is also a seasoned workshop, back by popular demand. This is its third run with Yao Fu Bailey leading the discussion. She is a partner at Duane Morris and a real estate lawyer skilled at representing A&D professionals. Colleague Nicole Woolard joined her. Woolard is a construction lawyer with significant experience negotiating construction, architect, and engineer agreements, as well as trade contracts/subcontracts and licenses.

Hosting the workshop and contributing experts to the discussion also align with the Duane Morris collegial and collaborative culture; the large practice has significant international reach but routinely makes outreach to local communities a priority. Bailey is part of Duane Morris' Real Estate Practice Group, which handles  acquisitions and dispositions; leasing; financing; hospitality; multi-family/healthcare, student and military housing; national condemnation; and REITs and capital markets. Woolard is part of Duane Morris' Construction Practice Group, which tackles all aspects of construction and government contracting, from contract negotiation, formation, and performance to litigation and dispute resolution of construction claims. Consequently, Bailey and Woolard had a full 360-degree perspective on contract negotiations to offer the LMNOP community.

When you understand exactly what the other party wants and needs,
you are better positioned to negotiate your preferred arrangement.

The diverse audience of architects, designers, project managers, and furniture manufacturers—representatives from both full-service design practices and smaller shops—learned about contract language from a multitude of angles. Workshop education objectives included understanding the reasoning behind contract provisions and stipulations from both the owner and professional service provider’s perspectives.

Every Word Counts

 Jennifer Graham -= LMNOP founder

Jennifer Graham -= LMNOP founder

Whether your typical proposal template is a letter agreement or looks more like a multi-chapter, weighty tome showcasing your firm’s design accomplishments, it is first and foremost one thing: a contract. Therefore, all words, regardless of context or location in your document, have the potential to be interpreted in legal terms. This means that every word is part of a written agreement that is intended to be enforceable by law. And, reasonably, a discussion about the merits of design excellence belongs in your marketing materials, not your agreement.

In response to their constituents’ needs, professional associations, including the American Institute of Architects (AIA), the International Interior Design Association (IIDA), and the American Society of Interior Designers (ASID), have developed industry standard contract templates and forms. The AIA’s B101 Standard Form of Agreement Between Owner and Architect (used in conjunction with the A201, General Conditions) is possibly the most well known of the standard agreements meant to protect the professional’s interests during all stages of building design and contract administration.

 Standard Forms for Different Project Requirements

Standard Forms for Different Project Requirements

Are these standard forms enough? According to Bailey, no. The majority of design practices, big and small alike, tweak their standard terms and conditions in response to the specific requirements or “tone” of an approach or project. Furthermore, responsibilities (liability) differ according to the role of the design professional, whether or not the professional is functioning as Architect of Record, and the project phases included in the scope of services. Jack Weisberg, owner of a small design and planning firm described the inevitable “softening” of contract language, especially with smaller projects that presumably don’t need all the bells and whistles provided in a comprehensive standard agreement. “I incorporate the AIA [standard terms] into my own language.”

The contract should ultimately fit the project.
Therefore, additional review by legal counsel is always recommended.

Owners, with repeat clients by far the biggest culprits, also do their fair share of tweaking. In addition to her LMNOP responsibilities, Graham is a Senior Project Manager at the global architectural firm Perkins+Will. She described how owners will sometimes “not want to go through legal,” so they offer their own letter agreement and “reference the AIA.” Bailey was emphatic that this is “not enough!” You need to “specify the specifics.”

Woolard urged service professionals to ask the question, “Exactly why did the owner eliminate some provisions but decide to keep others?” The owner’s perspective on contractual language is typically affected by past experiences, but the various addendums, modifications, riders, and boilerplate tweaks can result in conflicting provisions. As the service provider, you want to know the “reason behind each tweak,” said Woolard, and correlate your response in favorable terms for your interests, too. Every word counts.

How to Specify the Specifics—and Grow Your Business

Ana Luchangco attended LMNOP’s January workshop and, after the event, shared some of her experiences as an interior designer having just recently formed her own practice. The “business of architecture” was on her mind. “Crafting the optimal contract language,” she said, “is essential for successful project outcomes. The right language can also help support lasting business relationships.”

Perhaps one of the most desirable of qualities in a creative personality is the capacity to apply past lessons learned to new situations. For Luchangco, lessons learned are applied to the operation of her startup. Previously, she worked with several innovative, small design practices, experiencing firsthand how creatives can differentiate and establish themselves in a market using best practices in business. “Experience is the best teacher,” she said. With Woolard, Luchangco and I talked about using the small business startup recipe as a model for building the necessary business tools to succeed: upfront investment, hard work, and the willingness to adapt.

Logic dictates that a good contract achieves
two seemingly contradictory objectives:  
risk mitigation and maximizing gains.

The “upfront investment” phase involves building an effective and complete (as possible) standard terms and conditions document, which can serve as the basis for most if not all of your contractual relations. Both Bailey and Woolard advise working with an attorney on this, regardless of whether or not you plan to use language from a professional trade association’s standard contract template.

Your due diligence is about making sure that the terms are “both effective and enforceable,” said Bailey. Ideally with legal counsel, you want to identify language to establish parameters for conducting business. How many design options, revisions, meetings, site visits, shop drawing/submittal reviews, etc., can the owner expect as part of the basic scope of services? What items are considered reimbursable expenses? How will you and your team make yourselves available to the owner and the owner’s representatives? What is a reasonable amount of time before the original terms need to be renegotiated for a stalled project?

For that matter, how exactly do you want to define “available” and “reasonable”?

Part of the reasoning behind “getting it down in the beginning,” said Woolard, is managing client expectations, but part of it is also being proactive in identifying and preventing a potential impetus for the souring of client relations. Defining upfront (in detail) what constitutes “additional services,” for example, is a critical aspect of building effective terms and conditions. Revisions after approvals by the owner seem straightforward, but an often-overlooked additional service involves revisions due to changes in codes. Similarly, you would expect that a client would be amicable to compensating you for revisions due to changes in a project’s size, complexity, schedule, or budget, but what if the original scope called for an “interconnecting stair” and not a “multi-floor feature stair” connecting three levels? The difference can be calculated in hundreds of design hours.

Planning for this level of subtlety in language is where the “hard work” of developing effective contracts begins. To use our startup analogy again, successful businesses invest significant time and resources into knowing their customer base. Effective contract language must also reflect that same deep knowledge of building owners building in specific regions for specific markets. When negotiating compensation terms, this kind of deep industry knowledge is reflected in what workshop participant Michael Woods, AIA, Project Manager at Perkins+Will, described as “top-down budgeting.” Start with the high-level requirements necessary to meet client expectations and industry standards and, then, breakdown the corresponding services and deliverables into component parts within the budget. Language for the terms and conditions should follow suit, clearly and accurately communicating parameters for pricing from high-level objectives down to the minutiae of achieving those results.

Every project is different, of course, which leads us to the third ingredient for success: a willingness to adapt. But, remember, be willing to “define your project including the scope of basic services” with each new development, counseled Bailey. She offered this sage advice several times during the course of the evening’s workshop.

Final Thought: Protect Yourself

Ultimately, investing time and resources to develop a good contract is about mitigating risk. This can be about protecting your wallet, your people, your intellectual property, your practice, and even your reputation.

   Eliminating Words that Can Harm

Eliminating Words that Can Harm

Bailey and Woolard described several types of documents that have the potential to harm your professional practice if you don’t get the language right. They discussed critical provisions for consultant contracts: accountability should “flow down,” said Woolard. They also addressed indemnification clauses, including the difference between consequential and direct damages, and how to protect one’s design (and practice) at the event of termination. (Designers are considered the “authors” of the design and can “license” the design to owners.)

The workshop also addressed in some detail dispute resolution, with Bailey explaining the advantages and disadvantages of arbitration versus litigation. Worth noting, “the clock starts ticking,” according to Woolard, “with the final performance of services or materials furnished,” so if you think filing a Mechanic’s Lien may be in your future, better put the lawyer on speed dial sooner, rather than later!

To access the workshop presentation, which includes sample forms and language, please visit the LMNOP website events page. For information about sponsoring similar events please review the various support options. Note: the generous support of our sponsors enables LMNOP to provide members of the A&D community with professional development mentoring, training, and networking activities and resources.

Michelle HillComment