In partnership with Public-Private Partnerships: Robin G. Banks Goldberg & Banks, PC Are Design Professionals 56 th Annual Meeting of Invited Attorneys Chicago, Illinois May 25 – 26, 2017 Partners or Pawns?
Our Story … CNA University City of Victorville 58 th Annual Meeting of Invited Attorneys
CNA University Plans to Build… Biggest Problem: FUNDING 58 th Annual Meeting of Invited Attorneys
Our Team Institution Developers WeDesign School Builders 58 th Annual Meeting of Invited Attorneys
Risks Contract Timing Provision Risks Risks Reconciliation Risks 58 th Annual Meeting of Invited Attorneys
Timing Risks 58 th Annual Meeting of Invited Attorneys
Timing Risks Know Your Partners • Prior experiences Institution • Risk philosophy Developers & • Financial wherewithal School Builders • A/E claims history • Prior experiences Major • On-board early Subconsultants 58 th Annual Meeting of Invited Attorneys
Timing Risks Negotiation and Execution of Teaming Agreement (or MOU) and Design Agreements • What is a Teaming Agreement? – Why is it necessary? – Necessary elements in Teaming Agreement • When are Teaming and Design Agreements negotiated and executed? – Before issuance of RFQ vs. Before issuance of RFP vs. After issuance of RFP 58 th Annual Meeting of Invited Attorneys
Timing Risks Negotiation and Execution of Teaming Agreement (or MOU) and Design Agreements • Risks – Institution Developers financing arrangements unknown – No sample lease between City and Institution Developers – Terms of Design-Build Agreement Unknown • How to Manage Risks – Clarify the services being provided – Disclaim services not being provided – Reserve right to amend proposal 58 th Annual Meeting of Invited Attorneys
Timing Risks Payment for Early Services • Risks – WeDesign bears the entire risk of early efforts if team is unsuccessful • How to Manage Risks – Negotiate a piece of stipend, if any – Develop compensation model Multiplier of Sweat Direct Labor Expenses Equity Costs 58 th Annual Meeting of Invited Attorneys
Timing Risks Design Assumptions • Risks – WeDesign performs early services based upon information in RFQ or RFP – Institutional Developers and School Builders treats design as final • How to Manage Risks – Identify assumptions – Clarify need for further development of design – Verify design contingency – Disclaim liability for costing and quantity errors 58 th Annual Meeting of Invited Attorneys
Contract Risks 58 th Annual Meeting of Invited Attorneys
Contract Risks Standard of Care AIA Document B101-2017 § 2.2 The Architect shall perform its services consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances. The Architect shall perform its services as expeditiously as is consistent with such professional skill and care and the orderly progress of the Project. 58 th Annual Meeting of Invited Attorneys
Contract Risks Standard of Care Risks • Obvious Warranties – Agreement to perform services: - “in a highly professional manner” - “in accordance with the highest professional standards” – Design will be: - “defect-free” - “fit for its intended purpose” - “in compliance with all laws and codes” • “Ghost Warranties” – “Back to Back” or Flow Down 58 th Annual Meeting of Invited Attorneys
Contract Risks Standard of Care – Risk Mitigation Link performance exclusively to Disclaim express and standard of care implied warranties and guarantees 58 th Annual Meeting of Invited Attorneys
Contract Risks Existing Site Conditions & Reference Documents • Risks – WeDesign assumes the risk of existing site conditions – School Builders (and higher tier parties) disclaim liability for reference documents • How to Manage Risks – Disclaim obligation to inspect site – Ensure right to rely on reference documents 58 th Annual Meeting of Invited Attorneys
Contract Risks Indemnification What are Who are they being they being asked to asked to do do? it for? Why are How can they being they avoid asked to do uninsurable it? risk? 58 th Annual Meeting of Invited Attorneys
Contract Risks Timing & Liquidated Damages • Risks – Time is of the Essence – WeDesign is liable for its delayed performance, regardless of negligence • How to Manage Risks – Position #1 – No LD’s at all – Position #2 – LD’s caused solely by WeDesign delays to critical path – Position #3 – LD’s to the proportionate extent caused by WeDesign’s negligent acts or omissions 58 th Annual Meeting of Invited Attorneys
Contract Risks Waiver of Consequential Damages • Risks – Design Agreement has mutual waiver of CD’s, but includes exceptions – Most losses are consequential – exposure enormous • How to Manage Risks: – Negotiate “clean” mutual waiver of consequential damages - Only exceptions for fraud, willful misconduct, or gross negligence 58 th Annual Meeting of Invited Attorneys
Contract Risks General Mitigation Negotiation of limitation of liability Erosion of limitation of liability 58 th Annual Meeting of Invited Attorneys
Contract Risks Extended Warranties & Guarantees • Risks – Performance guarantees flow down – Obligation to remediate defects (E&O’s) for free for a specified period following Substantial and Final Completion – Extension of liability beyond statute of limitations and statute of repose • How to Manage Risks – Disclaim performance guarantees – Disclaim “defect remediation” obligations – Disclaim extended warranties and guarantees 58 th Annual Meeting of Invited Attorneys
Contract Risks Withholding and Set-off of Payments • Risks – School Builders may withhold payment without limitation – Cross-default • How to Manage Risks – Position #1 – Strike the withholding/set-off provision in its entirety – Position #2 - Limit right to withhold until WeDesign is found legally liable – Position #3 - Limit ability to withhold to agreement at issue and - Retain right to go to immediate dispute resolution on claimed errors and omissions 58 th Annual Meeting of Invited Attorneys
Contract Risks Ownership of Instruments of Service • Federal and common law provide protection for WeDesign’s instruments of service • But: – The Design-Build Agreement requires that School Builders convey all right, title and interest in all instruments of service to Institution Developers; and – The Design Service Agreement requires that all instruments of service prepared by WeDesign for the Project be treated as “works for hire” 58 th Annual Meeting of Invited Attorneys
Contract Risks Ownership of Instruments of Service – Risk Mitigation • Position #1 1. Obtain – Only give a license to use IOS indemnification for modification • Position #2: or reuse of IOS – Give ownership of IOS to Institution 2. Negotiate compensation for Developers to the extent required by the reuse in event of Design-Build Agreement, and T for C – License to School Builders • Position #3 – Give up all rights to IOS, but still negotiate indemnification for modification or reuse of IOS 58 th Annual Meeting of Invited Attorneys
Contract Risks Third Party Beneficiaries •Risks –Erosion of privity of contract requirement •How to Manage Risks –Strike the provision in its entirety 58 th Annual Meeting of Invited Attorneys
?? Polling Question ?? WHAT CONTRACT RISK IS THE MOST IMPORTANT TO YOU AND/OR YOUR CLIENTS? A. Standard of Care B. Indemnification C. Consequential Damages D. Limitation of Liability E. Other 58 th Annual Meeting of Invited Attorneys
58 th Annual Meeting of Invited Attorneys
Reconciliation Risks 58 th Annual Meeting of Invited Attorneys
Reconciliation Risks Moving Targets Design- Build Agreement Lease Developer Agreement 58 th Annual Meeting of Invited Attorneys
Reconciliation Risks Managing the Risks •Review all higher tier Project documents •Amend the design proposal to address differing risks and responsibilities •Rank the “must have’s” •Be aware of the “break point” 58 th Annual Meeting of Invited Attorneys
Final Thoughts 58 th Annual Meeting of Invited Attorneys
Final Thoughts •Design Professionals are typically pawns, not partners •Design Builders typically do not care if agreements are insurable 58 th Annual Meeting of Invited Attorneys
Questions 58 th Annual Meeting of Invited Attorneys
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