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Avoiding Vicarious Liability Through Prime Agreements: Don’t Let Subs Sink Your Project (Part 2)

oswaldcompanies March 9, 2023

When serving as the lead or prime designer on a major project, nothing is more reassuring than having a knowledgeable and reliable team of subconsultants you can count on to bring your designs to life.

Ideally, lead designers build long-lasting relationships with subconsultants who understand the lead’s business and can provide the skills and expertise needed to carry out their specialized roles at a high standard.

In good times, when quality projects, skilled professionals, labor, supplies and materials are readily available, putting together a talented design team of subconsultants with whom you are well familiar is typically the norm. But lately, with shortages of resources — human and material– putting together talented design teams to execute quality designs on budget and on schedule has proven more difficult.

Hiring skilled and knowledgeable subconsultants is key to delivering a quality project to your client. And delivering a quality project helps the lead designer avoid vicarious liabilities.

Vicarious liability is what a lead designer assumes when a subconsultant he or she hires for a project does something wrong. Because the lead designer brought the subconsultant into the project, he or she may be held responsible for the subconsultant’s mistakes.

It may seem unfair that subconsultants are not fully and solely responsible for their negligent actions. After all, the lead designer did nothing wrong.

Fortunately, there are ways to reduce this vicarious liability.

Contract Language is the Key

A comprehensive, written contract between a design firm and its client (often called the prime agreement) is key to avoiding liability. For projects that use subconsultants, good contract language between the lead designer and its subs is equally important and effective in managing risks.

However, drafting a prime agreement and separate subconsultant agreements is not enough. Make sure all contracts meld together to avoid contradictions and confusion regarding responsibilities, services to be performed and liabilities.

Your prime agreement should state that all limitations placed on your liability to the project owner shall be passed through to each subconsultant — individuals and entities — that you have retained to perform the services specified in the prime agreement.

For example, suppose your prime agreement reduces your risks through a limitation of liability (LoL) clause that caps the extent to which you are liable for a certain loss. You can broach these contractual shifts in liabilities to subconsultants in your lead/subconsultant agreements. You can give a subconsultant the protection of that LoL clause or transfer a liability you would normally assume to the subconsultant as part of an indemnity agreement.

The AIA C401 standard form includes pass-through language it recommends to its architect members. In part, this form reads:

“The Architect shall assume toward the Consultant all obligations and responsibilities that the Owner assumes toward the Architect, and the Consultant shall assume toward the Architect all obligations and responsibilities that the Architect assumes toward the Owner…The Architect shall have the benefit of all rights, remedies and redress against the Consultant that the Owner, under the prime agreement, has against the Architect, and the Consultant shall have the benefit of all rights, remedies and redress against the Architect that the Architect, under the prime agreement, has against the Owner.”

Regardless of the subconsultant you work with, make sure your prime agreement is written to provide full coverage for your company in case of a bad outcome.

Oswald can provide guidance on insurance issues and can refer you to fully vetted consultants. Contact your Oswald representative to learn how we can help.

View our entire series:

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