-Partners in Practice -

Picture this: A client comes to you with a serious problem. You have the expertise to solve it, and it poses an interesting challenge. Your backlog is down. The only trouble is, the undertaking involves enormous risk. What do you do?

Not so very long ago, the choices seemed clear-cut: Either take a deep breath and plunge in, or turn down the work. Negotiating a way around the problem did not appear to offer a solution. Client resistance was presented as resolute, and your competitors were characterized as standing in line to plunge in cheerfully in your stead. Indeed, many were.

Does all this sound painfully familiar? Probably. Are there flaws in the logic? Certainly. The most glaring are these: 1) Your potential client did not approach you because of your listing in the yellow pages; 2) everything is negotiable, representations to the contrary notwithstanding; and 3) some jobs truly are best left to those who are willing to ignore the risks involved-in the long run you are likely to prosper, and they are likely to suffer the consequences. The consequences can be severe.

1. A slope on property owned by the city is failing. You are asked to investigate and recommend temporary methods to stabilize the soil until a more permanent solution can be found. The problem is this: Homeowners on the crest of the hill have already engaged the city in a massive lawsuit for damages. Seasonal rain is expected to intensify within a month. Your prospective fee is $50,000. So is your deductible. Your potential profit, if you are fortunate and if everything goes well, is $7,500. The question is, are you really willing to risk being named in the homeowners' action for a $7,500 profit?
2. Design of an underfinanced, mixed commercial and residential project is halted after design development. The architect is dismissed. Two months later, you are asked to prepare the working drawings without unnecessary and costly redesign. The carrot is not the fee (which is barely adequate to finish the job). It is the prospect of future work for a client you have been pursuing for a long time. Not until you ask do you learn that the residential units are, in fact, condominiums and that your services will not be required during construction. You also discover that three other architects have already turned down the work. You are being pressured for a prompt response.
3. An unfortunate industrial accident releases a large, but unknown quantity of toxic waste into tidal marshlands. The owner, anxious to act quickly to mitigate the damage, asks you to formulate recommendations for immediate containment and to develop a plan for cleanup operations. Recognizing the urgency of the situation, you mobilize a project team and start work. Then you discover that the owner has taken an apparently intractable position as respects your liability for losses connected in any way with the performance of your services. That a lawsuit is pending as a result of the spill is already public knowledge.

What do these examples have in common? They all involve an owner who faces a precarious, if not a desperate situation. You have been called in because your reputation and your expertise are badly needed. There is enormous risk involved, and large sums are at stake. The paramount concern is to bring economic loss under control as quickly as possible. You can respond, and you may be eager to do so. But is it necessary for you to assume the burden of the owner's problem in return for the privilege? Probably not. Consider these alternatives.

Leave the risk where it belongs. Some projects are so fraught with risk that the only sensible course of action is to seek indemnification to the fullest extent permitted by law. If you are considering such a project, ask your attorney to help you draft an enforceable provision that affords the protections you need. If you believe indemnification to be essential under the circumstances and if your client has the financial wherewithal to stand behind the commitment, do not hesitate to insist upon it as a condition of your participation.

Transfer the risk to others. It may not always be possible, but in at least one of the situations outlined above, it is conceivable that project insurance may be available as a risk transfer mechanism. If so, insisting that it be purchased and that the owner pick up the associated cost without contribution on your part may not be unreasonable. Nor would it be unreasonable for you to increase your fee to offset otherwise unacceptable, residual risks-your deductible obligation, for example.

Become an agent of the owner. The unique circumstances you face might suggest that you seek to contract as an agent of the owner (as opposed to your more customary role as independent contractor). This may have the effect of extending to you many of the protections afforded the owner's employees under the law. It should also entitle you to insist upon an extension of the indemnity and insurance protections your client demands from the general contractor. Discuss this alternative with your attorney; you will want to understand both the legal uncertainties involved and the clear limitations on the protections you can expect to derive from it.

Limit your liability. Where the risks you face are serious, but somewhat manageable, and where you consider your compensation to be sufficient to offset at least some of them, you may want to ask your attorney to assist you in seeking to limit your liability to some reasonable amount in an effort to accommodate those that remain. This approach can afford a measure of protection by placing a ceiling on your potential liability to your client and, possibly, to the general contractor. Keep in mind, however, that limitation of liability is a generally unsatisfactory alternative if the exposure you are seeking to control is the risk of third party claims.

Triple your fee. This is simply a shorthand reminder of a long-standing principle of commerce: Risk ought to bear some reasonable relationship to the anticipation of gain. Even public entities accept this principle-if they did not, state lotteries would fail. One way to respond to the imposition of inordinate risk is to insist upon inordinate profit. If your client is seeking to impose risks you would not normally assume, but which you believe you can manage, you have every reasonable right to seek to quantify those risks and profit from taking them on.

Finally, be prepared to walk away. After you have explored all of your options in their various forms and combinations, you will have done everything you can. If the outcome is still unsatisfactory, if your client still refuses to accommodate your valid concerns, you do not have a client. It is not difficult to walk away from a client you do not have. If push comes to shove, be prepared to exercise this final option. It will give you the strength of purpose you will need to be effective in your pursuit of the other options available to you.

For inquiries or problems please contact us via e-mail at Earleen Thomas or call us directly at 800-705-7742.
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