Creating an Airtight Subconsultant Contract: Don’t Let Subs Sink Your Project (Part 3)

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.

The prime agreement between your company and a subconsultant can protect you when things go wrong.

Beyond establishing roles, responsibilities and liabilities of the client, the lead designer and the subconsultant, other contract clauses are particularly important when hiring subconsultants. Consider these topics in both the prime agreement and your contracts with subconsultants.

Scope of services: When using subconsultants, name all services the subs will perform. Include the scopes of services of the subconsultants to the project in the prime agreement, so the client knows who is responsible for what.

Insurance: Make sure all subconsultants have adequate professional liability insurance (also known as errors and omissions insurance). For most subs, that typically means minimum annual limits of $1 million to $2 million per claim.

For higher-risk subconsulting services (such as structural engineering), minimum limits may be $2 million or higher. If subconsultants are underinsured, the lead designer becomes the target of a claimant even if a sub was clearly at fault. Obtain from each sub an Acord COI (certificate of insurance) along with the signed and dated sub agreement.

Mediation: The client and all subconsultants must commit to using mediation as the first dispute resolution technique should a project upset occur. Without this, , it’s nearly impossible to get all parties to find a universally agreed upon way to handle project disputes.

Termination and Suspension: Your prime agreement likely identifies under what circumstances your client can terminate or suspend your services (e.g., nonperformance), as well as under what circumstances you may suspend your services to your client (e.g., nonpayment).

Make sure your agreements with subconsultants pass through each party’s right to terminate or suspend services. For instance, you might specify that if the client suspends or terminates your services, you have the right to suspend or terminate the subconsultant’s services.

Copyrights and Ownership: In your contracts with subconsultants, define who owns the design documents, copyrights and instruments of service related to the subconsultant’s work. Also make sure the prime agreement addresses which designs, copyrights and instruments of service, if any, will belong to the client.

Billings and Payments: Disputes commonly arise over the timing of billings and payments for services rendered. Schedule payments so funds are dispersed in a manner that is acceptable to all parties. Consider using pay-when-paid clauses in your contracts with subconsultants to protect you if the client is slow on payments or refuses to make payments for services rendered.

These are only a few of the contract clauses that need to be negotiated with your client and your subconsultants. Work with your legal counsel and insurance advisors to address the unique contractual issues that relate to each of your active projects.

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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