Construction Engineering 380
Design Contracts
Design Contracts
• Design contracts are agency relationships
• Making “estimations” of an individual’s
ability to perform
• Negotiate with individuals for a complex
(intangible) service
• Compare to buying a car- corporate pricing,
can take it for a test drive, tangible product
Design Contracts
• Because of the nature of design, the
contracting process is fraught with agency
risk and authority determinations
• Always get representations of authority in
writing
• Sole proprietor- usually only the proprietor
will contract
Design Contracts
• Partnerships- any partner can act with
authority, but it is good to have all partners
sign (if it is a small partnership
• Corporations- authority to contract is
spelled out in the by-laws or articles. Fiscal
agency usually has dollar limits. Higher
limits require higher authority. Always
good to get Board approval for contracts
Design Contracts
• Associations (especially those with volunteer
managers)- ALWAYS get Board approval and
attach empowering language (like the by-laws).
• Public contracting- always at risk. Courts protect
public funds from agency abuses. Apparent
authority is hard to prove, so reliance on
representations from public officials can lead to
risk. Always use substantive documentation for
public contracting
Design Contracts
• Financial capacity
– Pay up front (retainer contract)
– Interim fees (won’t get the whole package
unless paid along the way)
– Review of financial condition
– Ask for individual guarantee (LLC’s,
proprietorships, and closely held corps)
– Use a surety (bond the owner through surety)
Design Contracts
• Financial capacity continued
– Asset pledge (give you interim title to house or
land to assure against default)
– Uncover shell corporation and asset transfer
schemes
– Mechanic’s liens (much more common action
for contractors- designers have a hard time
establishing “improvement” as basis for claim
Design Contracts
• Ethics and competition- since the mid
1970’s, design contracts have been opened
up to competitive bidding and fee
negotiation. This was considered unethical
in the 1950’s and before
• Putting fee at risk (other than standard
market risk of owner default) is uncommon
Design Contracts
• Must use careful accounting and control
when designers take financial risk on
projects. Temptation to cut corners can be
great. One of the downsides to design-build
• Parol evidence- design contracts seldom
represent the intent of the whole agreement.
Lawyers can introduce parol evidence to
support the written contract
Design Contracts
• Appendix A in the text contains examples of
AIA (American Institute of Architects)
Document B141- 1997 edition, which is the
standard contract form for design services.
Note especially:
– category of services on page A-7 & A-8
– Compensation worksheet on A-11 & A-12,
– Signatory parameters on page A-16thru A18