Vol. 6 No. 9		September 1987

There is a long-standing principle in real estate which, at its very seamiest, goes something like this: "No transaction, no project, no contract can be so compelling that we should not be able to walk away from it on cue without losing a dime." There are endless variations on this theme, and few owners embrace it completely, but its pervasive influence in the construction industry can, nevertheless, be found in most professional service agreements.

Some of the variations are patently abusive. The most onerous tend to appear in agreements drafted by attorneys for the underfinanced--those about to embark on projects best characterized as raw speculation. They will not hesitate to propose that payment of your fees be made contingent on construction financing, for example, or that you limit the liability of your client to the (possibly inconsequential) assets of the partnership formed to pursue the project at hand.

More subtle variations are likely to be encountered during the course of most negotiations. One is insistence on the ability to terminate your agreement at any time, without cause and without cost. This is not a modest demand. It has important business implications, and it may have significant liability implications, as well

Imagine, for a moment, the very worst case. Without any real warning, you receive a certified letter from an important client. It informs you that a major project is being permanently abandoned. You are instructed to stop work immediately and prepare a final invoice covering services rendered through the date of your receipt of the notice. You are also instructed to forward all drawings, specifications, and project documentation without delay. You reach for your copy of your contract and find, to your dismay, that you have unconditionally agreed to do just that.

The hard dollar costs of this concession suddenly become real. They include the expense of closing out the job, downtime you can ill afford, and a loss of profits you had counted on. Then, gradually, the less tangible costs begin to emerge: A lost opportunity to complete work on a project in which you had invested your most valuable resources; the demoralizing impact of that loss on your staff; the ensuing disruption of activity in your office; and, worst of all, the possible loss of talented young professionals you badly want to keep.

Purely from a business point of view, why would you want to commit your expertise and your financial resources to an undertaking in which your client is not willing to make a serious commitment to you? If your client insists on retaining the right to terminate your agreement without cause, as some may, why should you agree to absorb the associated costs? You probably should not.

What can you do about it? It would not be unreasonable to insist that your agreement provide for reimbursement of the additional expenses you will incur if your agreement is terminated for reasons other than fault or breach of contract on your part. Nor would it be unreasonable for you to reserve your own right to terminate the agreement, without liability for consequential or other damages, should your client fail to meet his or her obligations to you.

No less important are the intangible losses you will suffer. They are more than sufficient justification for a stiff financial penalty for termination of your agreement at the convenience of your client. Just such a penalty can be found in AIA Document B141, but more often than not, it is deleted without discussion. This is unfortunate, for it is a reasonable protection against what could be a very costly turn of events.

One-sided termination provisions usually go hand in hand with a demand for ownership of your plans and specifications. It is here that the liability implications begin to overshadow the business issues. Those implications can be serious.

Your clients may view ownership of your documents as part of an unassailable right to do as they see fit on their projects. This perception is not only inappropriate, but its relevance pales in light of your need to protect the integrity of your design.

The possibility that your documents may be misused by others opens a Pandora's Box of potential liability. You will certainly be dragged into any claim arising out of the project. Should liability be found, it may be next to impossible to sort out whether it was the product of your original design or whether it was caused by unauthorized modifications. Your deductible, your relationship with your insurer, your professional reputation, and the orderly conduct of your practice may all be seriously jeopardized by the actions of others over whom you have no control

To be placed in this position is inherently unfair. In the language of the bar it exposes you to "substantial, immediate, and irreparable harm." It also flies in the face of custom and practice in the construction industry--custom and practice which has long been reinforced by the judiciary. The courts have consistently acknowledged both the unique nature of professional services and the economic harm which could result if the instruments of those services were to be treated as commodities in the marketplace.

All this may be well and good, but what are your options? None are as effective as convincing your clients that ownership of your documents is not a negotiable issue. As a practical matter, this is not always possible. Keep in mind, however, that you are being asked to make a major concession. It is not one you will want to grant without inlisting on a major concession in return. A suggestion that your fee be doubled, for example, might be a reasonable, albeit unattainable consideration.

As an alternative, you might seek indemnification to the fullest extent permitted by law. Assuming your client has the financial wherewithal to stand behind such a commitment, and subject to review by your attorney, you might propose a contractual provision drafted along the following lines:

It is acknowledged and agreed that the plans and specifications prepared by the Architect/Engineer pursuant to this Agreement are instruments of professional service intended for one-time use on this project only. Nevertheless, the plans and specifications shall become the property of the Owner. In consideration thereof, the Owner agrees to hold harmless, indemnify, and defend the Architect/Engineer from and against any and all claims, liabilities, losses, damages, and costs, including but not limited to costs of defense, arising out of the modification, misinterpretation, or misuse of the plans and specifications in the completion of this project by others or arising out of any reuse of the plans and specifications on any other project or for modification to this project, excepting only those liabilities, losses, damages, and costs caused by the sole negligence of the Architect/ Engineer.