Best Contract Clause
I make it a point to continually learn about contracts and review my “standard letters,” contract clauses, etc. I attend any seminars put on by my insurance carrier, XL Insurance. I especially like their seminars for two reasons: first, they are AIA-approved continued education units; second, they offer a 10 percent premium discount (I receive a check upon successful completion of the seminar and coursework, if any). But what I really like is what I learn from the seminars.
XL Insurance also gives me a premium “credit” for my projects, which have a Limit of Liability clause. The amount of the credit is deducted from the premium before I even pay for it.
So I have become a fan of Limit of Liability clauses (or LOL for short). During a recent seminar, a local attorney presented an alternate to the standard clause based on his success in defending an engineer to the Georgia Supreme Court. The issue was on whether the LOL is viable in Georgia contract law. The Georgia Supreme Court sided with the engineer, stating something to the effect that the client/owner made business decisions based on balancing the engineer's fees, the LOL, and the cost of construction. XL insurance has further strengthened the use of the LOL clause by suggesting that the architect or engineer (in the proposal or contract) gives the client the standard LOL amount, as well as stating that a higher LOL can be incorporated for additional fee. Previously it read something like this:
To the maximum extent permitted by law, the Client agrees to limit the Consultant's liability for the Client's damages to the sum of $____ or the Consultant's fee, whichever is greater. This limitation shall apply regardless of the cause of action or legal theory pled or asserted.
I use suggested text something like this:
In recognition of the limited scope of this work, the Owner/Client will limit the liability of the Architect to $______ or XX times the fee paid, whichever is greater, or the Client may obtain a higher limitation of liability for an additional negotiated cost prior to the commencement of services.
Of course, I still maintain the indemnify and hold harmless:
The Owner and Owner’s representative shall indemnify and hold harmless the Architect and all consultants for services not performed under the scope of this agreement.
What other “gems” do you use in your contracts? How does the AIA Contract Documents family help/support your goals?
—Lisa Stacholy, AIA