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PSMJ Resources, Inc. 10 Midland Avenue Newton, MA 02458 Call 8oo.537-PSMJ E-mail info@psmj.com
29 TERMS TO INCLUDE IN A/E CONTRACTS
Over the past twenty-five years, PSMJ has observed design firms using various terms to improve their contracts with
clients. While we do not provide legal services or advice, we share with you below, as an exclusive PSMJ subscriber
benefit, 29 contract term ideas. Study these suggested terms, and rewrite them to meet your own firm's specific circumstances. You may not get everyone of them into your next contract, but each new one will improve your firm's
approach to the “business of design.” As always, check with your attorney before finalizing any contractual change.
1. Prepayment: “Upon acceptance of this contract by
the client, a payment of $___ will be required to initialize
the project.”
Explanation: In the event a project is cancelled, get the
client's commitment to pay for opportunities you lost by
committing to work on the project. This cancellation fee
will decrease the longer the project has run, as you
should have earned a greater portion of expected
revenues.
Explanation: Cover working capital obligations on the
project. If the project will take three months or less to
complete, request 100% of the fee up-front. If it will last
longer, request a lesser percentage of the fee up-front,
etc.
4. Project Restart Fee: “Because of substantial cost
incurred by XYZ Associates to stop and restart a project
once it is underway, should this project's progress be
halted at any time for 30 or more days by the client, for
any reason, a project restart fee of $___ or 10% of the
total fee earned to date, whichever is greater, will be due
and payable immediately.”
2. Fee in Escrow: “Upon acceptance of this contract by
the client, a deposit of $___ will be placed in an interestbearing escrow account in the name of XYZ Associates.
These funds, including interest, will be released to XYZ
on ___, 2002, or upon completion of 75% of the work on
this contract, whichever occurs first.”
Explanation: Use this clause if you fail to get prepayment. It allows you to earn interest on funds, which will
eventually be paid.
Explanation: The longer you work on a project, the
longer it takes to get back up to speed after a stop. The
longer the stoppage, the more potential for changes.
Seek some compensation for events beyond your
control.
2a. Evidence of Funds: “As a condition of the
Architect's obligation to commence or continue with its
services, the client shall furnish upon request during the
course of the project evidence satisfactory to the
Architect of available funds to satisfy the client's
obligations hereunder.”
5. Construction Contingency: “A contingency fund of
___% [usually 5% to 8%] of the total estimated construction cost of this project will be established by the
client. The purpose of this fund will be to pay for any
unanticipated changes that occur during the course of
the design and construction of the project.”
Explanation: Make sure your client has the money to
pay you if you are not going to receive payment up-front
or if payment will not be held in escrow.
Explanation: Insist the client secure extra funds in the
initial financing to cover contingencies that may not be
anticipated at the beginning of the project. The funds to
cover these contingencies may not be easily secured
down the road.
3. Job Cancellation Fee: “Because of potentially
significant revenues from other projects forgone by XYZ
Associates to take this project, if the project is cancelled
by the client, a cancellation fee will be immediately due
and payable according to the following schedule: 0 to 30
days, $___; 31 to 60 days, $___, etc.”
Help us to build this list of terms. Send in your successful
terms, ans we will publish them annonymously. Send them
to: PSMJ Contract Terms, 10 Midland Ave, Newton, MA
02458, Fax: 617-965-5152, or email: info@psmj.com.
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6. Automatic Escalator: “After ___, 2002, all fees and
hourly rates quoted within this contract may increase by
___% annually thereafter.”
11. Certification Fees: “As an acknowledgement of the
significant liabilities incurred by XYZ Associates when
signing certifications, a certification fee Of $5,000 will be
due for the first certification required on this project,
$4,000 for the second certification required, etc., with a
minimum fee Of $500.
Explanation: Most firms put a clause in their contracts
stating that after some date, all fees wilt be subject to
renegotiations. This is not the same as specifying a
specific percentage increase. “Renegotiations” could
result in decreased fees to the design firm.
Explanation: If you must sign certifications, get compensated for the associated risk. The per-certification fee
should decline with each additional certification required.
7. Limit of Liability: “It's understood that the total liability
of XYZ Associates for any claims arising out of the services performed under this agreement shall be limited to
a maximum of the net fee received by XYZ Associates,
not including reimbursable sub-consultant fees and
expenses.”
12. Limitation on Design Alternatives: “XYZ
Associates will ... [use one of the following: (1) ... limit the
number of design alternatives provided under this
contract to three; (2) ... limit to hours the time expended
in design; or (3)... stop developing project design] by
___, 2002, upon which time the design will be considered
complete.”
Explanation: This is simply a more reasonable limit of
liability than that of the total fee.
Explanation: Make sure you're not designing all the way
through the project, or if you are, get paid for the effort.
8. Late Penalty Schedule: “All invoices not paid
promptly will be subject to the following late payment
penalty: 30 to 59 days overdue, $500; 60 to 89 days
overdue, $750; etc.”
13. Premium for Client Team Member Reorientation:
“There will be a client team member reorientation fee of
$10,000 paid for each project team member from the
client who is added or replaced prior to 25% completion
of the project, $20,000 for each team member added or
replaced prior to 50% completion, etc.”
Explanation: This clause will help you get paid faster. It
may also bypass usury laws by not being referred to as
an interest penalty.
8a. Suspension of Services: “If the client fails to pay an
invoice within seven days of the date payment is due, the
Architect shall be entitled, upon three days' notice, to
suspend further services until all accounts due have
been paid,”
Explanation: New project team members in the client's
office cost you time and money. Prepare for such a
likelihood (and discourage when avoidable) by passing
the cost to the client. The obvious down side to this
clause is that the client may want you also to sign off
rights to change team members.
Explanation: The best payment leverage is to cease
working, which also minimizes the extent of the potential
lost time and effort.
9. Sample Invoice Format: “All invoices will be formatted and submitted as in the attached example
provided in Appendix A.”
14. Job Site Signage: “Because of its standing as a
professional design firm, XYZ Associates has complete
authority over all content, graphics, and placement of all
job site signs with the exception of those required for the
purpose of maintaining worker safety and the security of
the facility.”
Explanation: Define the invoicing format and procedure
according to what is best for you as opposed to the
client. This sets the stage for additional fees should the
client want to vary from the “standard.”
Explanation: It is in your best interests to maintain
control over project signs from the standpoint of
maximizing marketing opportunities and maintaining your
professional identity.
10. Certification Identification: “The client shall indemnify XYZ Associates from claims arising out of any
certifications which are required to be signed on behalf of
the client during the course of the project.”
15. Graphics Control: “Because of its standing as a
professional design firm, XYZ Associates has complete
control over graphic content and presentation of all
studies, reports, and other documents produced under
this agreement.”
Explanation: Discourage requests for signing of
certifications by establishing the client's associated
liability.
Explanation: Same as #14 above.
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16. Lien Provisions: “The client acknowledges that it
has secured legal rights to the property upon which the
project will be built or that such right wilt be secured by
____, 2002, and shall furnish a description of the property to the architect prior to the Architect's commencement of services. The client further acknowledges that
non-payment of fees owed under this agreement will
result in a mechanics lien being placed on the property
upon which the project is/will be located.”
20. Ownership and Copyright of Documents: “All
drawings and documents produced under terms of this
agreement are the property of XYZ Associates, and
cannot be used for any reason other than to bid and
construct the above-named project. The client shall be
granted a revocable license to use the drawings and
documents for the purpose of constructing, maintaining
and operating the [project], and shall not use such
documents for any other purpose without the Architect's
consent. The client shall indemnify and defend the
Architect from any claim, loss or damage arising out of
the client's failure to abide by the terms hereof.”
Explanation: Even though most state statutes allow you
to do this anyway, it never hurts to have it clearly spelled
out in the contract.
Explanation: Documents used for other than their
original purpose may result in liability to the original
design professional.
17. No Back-up for Reimbursable: “ No back up data
or copies of bills will be provided for reimbursable expenses invoiced under this agreement. Should back-up
data be requested, it will be provided for an administrative fee of $100 per monthly invoice requiring
verification, plus $1.00 per bill or cost item supplied.”
21. Fee for Prints after Five Years: “After five years
from the date of project completion, or on 2003, a
document reproduction fee of $___ [typically $500 to
$1,000] per sheet will be charged.”
Explanation: Supplying back-up for reimbursable
expenses takes time. The typical A/E/P firm doesn't have
staff resources to squander on non-billable activities.
Explanation: The minute you bill the client for anything,
it may have extended the applicable statute of limitations
along with your potential liability. Seek compensation for
this risk. Furthermore, unless a firm physically surveys a
project on which it provides prints, it does not know what
physical changes have been made after construction,
rendering prints obsolete.
18. No Exact Reimbursable: “The client will pay 15% of
each total monthly invoice for professional services
submitted by XYZ Associates as a reimbursable fee to
cover all typical reimbursable expenses, such as
postage, fax, phone and mail, but excluding models,
renderings, or copies of drawings or specifications in
excess of sets. “
22. Higher Fees Paid for Changes: “Any changes
requested in the attached scope of services provided
under this agreement will be billed at a multiplier Of 1.25
times customary billing rates.”
Explanation: This clause greatly simplifies your
accounting and saves money. It also eliminates the need
to keep track of mountains of detailed back-up.
Explanation: Project changes mean a costly remobilization, a greater potential for errors and omissions, and
disruption of other project schedules. Seek compensation at higher rates than normal.
19. Client Signatures at Various Stages in the
Project: “Beginning with the date of project initiation, all
drawings produced under this agreement will be signed
by an authorized representative of the client each 60
days during the project, or at more frequent intervals
when appropriate.”
23. Stamp Only after Payment: “XYZ Associates will
not stamp drawings produced for any phase of this
project under the terms of this agreement until all
invoices billed up to that point in the project have been
paid in full.”
Explanation: Document any design changes mandated
by the client. You wilt need to minimize future misunderstandings on client wants and needs. Notice that the
above was written to provide signatures at a date, not a
phase or percentage of completion, but leaves open the
possibility of sign-off at the end of a phrase. It's too easy
to end up in an argument with your client over what
defines or constitutes completion of a phase. Hence,
PSMJ recommends never tying payment of fees to
“phase completion.”
Explanation: This is one more attempt to get paid
expeditiously.
24. Stamp on Drawings: “XYZ Associates shall not be
liable for any plans or specifications produced under this
agreement until such drawings are stamped as approved
by all relevant building department officials.”
Explanation: This clause is used to help liability.
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25. Contract Validity: “This contract is valid only if
signed on or before ___, 2002, unless formally extended
by both parties.”
above-named project and property through the rendering
of unique design services, a term will be added to the
legal deed on the property by the client at the time of
closing providing XYZ Associates a royalty of $___ each
and every time the property is sold subsequent to the
initial closing for a period of 99 years.”
Explanation: Don't make open-ended commitments that
you may not want or be able to live up to in the future.
This clause also helps to define the time of project
completion.
Explanation: Since you create real value, you may be
entitled to a share of the project's profits as it changes
hands in future years. This must be written into the first
deed on the property by the client at closing.
26. Free Publicity: “XYZ Associates has the right to
photograph the above named project and to use the
photos in the promotion of the professional practice
through advertising, public relations, brochures or other
marketing materials. Should additional photos be needed
in the future, the client agrees to provide reasonable
access to the facility. The client also agrees to cite the
name of XYZ Associates as the designer in all publicity,
presentations, and public relations activities which
mention the name of or depict the facility. “
29. Hazardous Waste: “Any hazardous waste or
asbestos required to be removed, encapsulated or
otherwise contained during the course of this project will
result in compensation to XYZ Associates equaling 3.0
times above normal customary hourly billing rates for any
plans, specifications, or construction observation
services provided. XYZ Associates will additionally be
indemnified from any and all liability associated with
removal, encapsulation or containment of hazardous
waste or asbestos.”
Explanation: This doesn't cost your client anything, yet
can mean a great deal to you.
Explanation: Discourage involvement with hazardous
waste and asbestos, but get paid welt if it is required by
the client.
27. Third Party Legal Defense after a Specified
Period of Time: “After September 1, 1995, any legal
cost arising to defend third party claims made against
XYZ Associates in connection with the above-named
project shall be borne by the client.”
Acknowledgement:
Explanation: If you are at fault, your errors would
certainly have been discovered in five years of operating
the facility, so why should you be bothered with third
party claims that you obviously weren't responsible for.
This list was prepared with the valuable assistance of
Attorneys Burton Winnick and Stanley A. Martin of
the firm Gadsby & Hannah, LLP. Mr. Winnick and Mr.
Martin can be reached at 617-345-7000 or by e-mail
at bwinnick@ghtaw.com.
28. Royalty Clause: “In recognition of XYZ Associates'
significant contribution to the long-term real value of the
Disclaimer:
PSMJ Resources, Inc. is not in the business of rendering legal advice and intends these
contract terms and conditions to be used only after consultation with a competent attorney
knowledgeable in contract law in your area of professional practice and in your locale.
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