consultant agreements and the role of the consultant

Consultant Agreements and the Role of the Consultant

LORMAN EDUCATION SERVICES

Presented by Samantha Ip

December 12, 2014

Fundamentals of Construction Contracts in British Columbia

Before entering into a contract for services with a consultant, you should understand the role of the consultant...

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How is the Role of the Consultant Defined?

a)The agreement between consultant and owner

b)The construction contract between owner and contractor

c)Applicable industry standards and professional requirements

d)The common law and statutory requirements

e)Consultant insurance requirements

The Role of the Consultant

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The Role of the Consultant, cont’d

The Industry Standards 1. Architect

a) Bylaw 30.1 of The Code Of Ethics and Professional Conduct from the Architectural Institute of B.C. (“AIBC”):

• In practicing architecture, an architect shall act with reasonable care and competence, and shall apply the knowledge, skill and judgment which are ordinarily applied by architects currently practicing in B.C.

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The Industry Standards

1. Architect, Bylaw 30.1, cont’d

a) An architect shall remain informed with respect to the practice of architecture in B.C.

• This Bylaw approximates the “reasonable architect” test for negligence.

• It is an architect’s responsibility to recognize personal impairment to the ability to function competently and, when so impaired, to withdraw from practicing architecture until competence is restored.

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The Industry Standards 1. Architect

b) Bylaw 30.3 of The Code Of Ethics and Professional Conduct:

• An architect shall undertake to perform professional services only when qualified, together with those whom the architect may engage as consultants, by education, training and experience in the specific areas involved.

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1. Architect - Bylaw 30.3, cont’d• An architect shall limit professional practice to areas of personal

competence or shall engage others (including staff) who are competent in supplementary areas.

• Where so governed under Provincial statute, other professionals must be engaged to practice their professions.

An architect is authorized to undertake architectural services for any project, but must recognize personal and professional limitations and must refrain from rendering service in those areas until such limitations are overcome.

An architect must be able to manage and coordinate the provision of other design professionals’ services competently, whether the other professionals are engaged by the architect or the client

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1. Architect

c) Bylaw 33.4 of The Code Of Ethics and Professional Conduct: • In practicing architecture, an architect shall take into

account all applicable federal, provincial and municipal building laws and regulations.

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1. Architect – Bylaw 33.4, cont’d

• This Bylaw recognizes the increasing complexity of laws and regulations applicable to the practice of architecture. This Bylaw is complementary to 33.1 in that compliance is mandatory but it permits the architect to rely on the advice of others qualified by education, experience or training to provide interpretation.

• In relying on the advice of others, it is incumbent on the architect to determine that such persons have the requisite credentials and responsibilities for providing that advice; to brief such persons properly relating to issues on which advice is sought; and to confirm such advice in writing.

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2. Engineer

a) Section 22 of Engineers and Geoscientists Act (“EGA”): • An engineer is not permitted to engage in the practice of a

professional engineer or professional geoscientist unless the engineer is a member of APEGBC and is licensed.

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2. Engineer

a) Bylaw 14(a)(2) of the Bylaws of the Association requires that engineers undertake and accept responsibility for professional assignments only when qualified by training or experience

b) Bylaw 14(a)(6) requires that engineers keep themselves informed in order to maintain their competence

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• Requirements in the industry standards are often incorporated into

consultant agreements by way of supplementary conditions.

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What is the Consultant’s Role?

1.Pre-Design: Project budgeting and management, site selection, space relationships and environmental studies

a) Budgeting is key

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2.Design Stage: Project budgeting and management, site selection, space relationships and environmental studies

a) Schematic design – design concept/proposal for feasibility of the project

b) Design development – furthering design with consideration of building code/obtaining development permit

c) Construction documents – reducing design to specifications, plans and drawings

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3.Bidding & Tendering: The consultant represents the owner and acts as the owner’s agent in preparing and issuing tendering documents and supervising the tendering process

a) Beware of the very low bid

b) Use supplementary conditions to reduce risk

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4.Construction Contract Administration:

a) Field reviews– Substantial or general conformance?

a) Change orders

b) Payment Certification

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The Role of the Consultant – Field Review

APEGBC BYLAWS – SECTION 14(b)

• Under this section entitled “Quality Management”, members are required to establish and maintain documented quality management processes for their practices, including:

documented field reviews; and

documented independent review of structural designs prior to construction to evaluate the construction documents in order to determine if the structural systems appear complete.

• Requirement for retention of complete projection documentation for minimum of 10 years.

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4.Construction Contract Administration:

c) Impartial adjudicator of disputes under CCDC 2

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5.Post-Completion Inspection: Inspections to ensure the work was constructed as required by the contract documents.

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• Defined by consultant agreement

• CCDC GC 2.2.7


DOCUMENT 6C

Between Client and ConsultantFebruary 2007

General Comments on Document 6C

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Document 6C - Three Parts

1. AIBC Standard Form of Contract 6C Between Client and Consultant

2. Schedule of Consultant’s Services

3. Supplementary Conditions: 6C – H to AIUBC Standard Form of Contract 6C Between Client and Consultant

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Document 6C - General

• For engagement of the Consultant to provide professional services in one of the four stated disciplines:

• Architecture

• Structural Engineering

• Mechanical Engineering

• Electrical Engineering

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• One of the Consultants is indicated as the Managing Consultant – duties under GC1.5

• This contract is considered “pro architect”

• Owners often require a contract with more protection for themselves by modifying the contract through supplemental conditions or having a unique contract drafted that is specific to the project itself

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• Endorsed by AIBC, Fraser Health Authority, Northern Health Authority, Vancouver Coastal Health, Vancouver Island Health Authority, Consulting Engineers of B.C., Interior Health Authority, Provincial Health Services Authority, Quantify Surveyors Society of B.C.

• Endorsement familiarity with terms

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Copyright:

• A notice appears on every page of Document 6C 2007

• The use of a copy of Document 6C 2007, in which there is a discrepancy between the copy and the master Document 6C on the AIBC website, is a breach of copyright.

• Use supplemental conditions or a “new” contract

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Document 6C - Five Sections

1. Contract Form A1-22

2. Definitions

3. General Conditions

4. Schedule of Consultant’s Services

5. Schedule of Client’s Responsibilities

CONTRACT FORM

The Articles

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Document 6C - Notice Requirements

• In writing

• If hand delivered to individual, firm members or officer by registered post, then considered received by addressee on date of delivery

• If regular post, then considered delivered within 5 working days

• Email or FAX – not considered official notice

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Document 6C - The Articles

• Must know Project and Construction Budget (Articles A5 and A6)

• Anticipated construction procurement (Article A7)

• Anticipated Project delivery model (Article A8)

• Anticipate method of construction pricing (Article A9)

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A7. The anticipated method of constructionprocurement is _________________.

• If the method of hiring a builder is not known at the time of execution of the Contract, then the architect should warn the client that certain methods of procurement will result in increased professional services and fees.

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• Architect may be required to prepare tender documents

• Must ensure that information in the tender documents is accurate

• Inaccuracies may led to a claim by a contractor/bidder for negligent misrepresentation

• Architects may also have a duty to warn if the Architect knows of inaccuracies

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A.10 Schedule of Architect’s Services:

• Consultants should be aware that they must accept a minimum level of involvement and cannot contract out of this level of involvement - set out in GC1

• In addition to industry association requirements

• Must add supplementary conditions here

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A.10 Schedule of Architect’s Services:

•Important to have a thorough and complete list of Consultant’s Services listed as these services will be included in the architect’s fees payable as set out in Article A14

•If service is not listed under A10, then it will be an Additional Service usually at elevated fee rates

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•Article A11 – Client Responsibilities – Supplementary conditions here if responsibilities in addition to GC2

•Articles A12 & A13 – specifies consultants which Managing Consultant must coordinate

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•Article A14 - methodology for computing services listed in Article A10 – ie. not Additional Services

•Articles A15 to A16 – Reimbursable Expenses – GC 14.9 –

• Administrative charges

• % set out

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Article A17 to A19 – Payment

• Client’s obligation to pay an invoice only if submitted as per requirements of the Contract

• Ensure interest amount is fair

• Note retainer amount now required

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Article A20 – Supplementary Conditions

• Common law duties should be added

• Standard of care required of an architect / engineer:

Common law: duty to exercise the skill, care and diligence which may reasonably be expected of a person of ordinary competence, measured by the professional standard applicable at the time the work is being carried out.

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Suggested SC:

In carrying out its services under this Contract, the Consultant shall act with reasonable care and competence, and shall apply the knowledge, skill and judgment which is ordinarily applied by architects / engineers currently practicing in the province of British Columbia.

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Suggested SC:

In carrying out its services under this agreement, the Consultant shall undertake to perform professional services which it is qualified, together with those whom the Consultant may engage as consultants or agents, by education, training and experience in the specific areas applicable to this Project.

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Suggested SC:

In carrying out its services under this agreement, the Consultant shall take into account all applicable federal, provincial and municipal building laws and regulations.

In particular, the Consultant shall ensure that all services and work products created by the Consultant under this agreement comply with the requirements of all applicable federal, provincial and municipal building laws and regulations.

DEFINITIONS

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Document 6C - The Definitions

“Construction Cost”

• Important because Consultant’s percentage fee is calculated based on Construction Cost.

• The contract prices of all Project elements designed or specified by, or as a result of the coordination of, the Consultant, including cash allowances, building permit fees, changes, construction management fees or other fees, and all value-added taxes, whether recoverable or not.

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“Construction Cost”

• Where there is no contract price for all or part of the Project, the Construction Cost will be the statement of the probable cost of construction as determined by or agreed to by the Consultant.

This entails some risk to the Client

• For the Consultant’s fee, Construction Cost will be at market value even if Client furnishes labour and material at below market cost.

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“Construction Cost” also provides . . .

“In the event that the Client furnishes labour or material below market cost, or recycled materials are used, the Construction Cost for purposes of establishing the Architect’s fee includes the cost of all materials and labour necessary to complete the Work as if all materials had been new and as if all labour had been paid for at market prices at the time of construction”

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Bylaw 31.3

Except as permitted under Bylaw 32.7 [disclosure of interest], an architect shall not solicit or accept compensation or benefit from material or equipment suppliers in return for specifying or endorsing their products.

GENERAL CONDITIONS

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Document 6C - The General Conditions

GC 1.3.1

•Consultant is not required to make exhaustive or continuous on-site reviews.

•However, the Architect must:

1. attend the site at all critical junctures of the work;

2. inspect all critical points of the work or when problems may be anticipated due to specialized design details; and

3. turn their mind to the timing of such reviews and their overall purpose.

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GC 1.3.2 and .3

•Consultant is not responsible for the acts or omissions of the contractor or subcontractors or is not responsible for their performance of the Work.

•However, consultants have a duty to act reasonably - if a Consultant is aware of the acts or omissions of others working on the Work, then the Architect must act reasonably by:

1. taking reasonable steps to ensure that the error is corrected; and / or

2. warning the Client.

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GC 1.5

•Note that the Managing Consultant has the authority for the overall general direction and coordination of all Consultants, including coordination of services listed in A12 and A13.

•All notices, directions, instructions, requests, application claims or other communications shall be made by or through the MC

• Issue and delay if MC not properly coordinating

• Does not promote direct contact between Client and its Consultants who are not the MC.

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GC 1.5 – Cont’d

•MC given authority to make interpretations and decisions on all matters and claims under the Contract.

•If Contract in question is not with the MC, then the Contract purports to impose obligations on a non-contracting party – the MC.

•Client must therefore ensure MC and all other Consultants use same form of consultant agreement – Document 6C or compatible

document (GC 2.3.5 compatibility requirement)

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GC 2.3.4

•Client is required to immediately notify the Consultant in writing if the Client observes or otherwise becomes aware of any fault or defect in the Project or any nonconformity with Contract requirements.

•Owners should ensure the Project team and, in particular, the Project manager is aware of this obligation.

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GC 2.3.6

•Client is required to ensure all Consultants engaged under A13 and specialist consultants obtain and disclose professional liability insurance compatible with GC 8.

•GC 8 – limitation of Consultant’s liability for any claim in contract or tort related to performance of services under the Contract is limited to $250,000 unless otherwise specified.

•Risk management – ensure the Consultant has E&O insurance which matches the limits of the Consultant’s liability

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GC 2.3.6 – Cont’d

•Owners should consider adding terms to the contract regarding consultant’s insurance:

• Require the Consultant to obtain and maintain E&O insurance after completion of the Project

• Require direct written notice from Consultant’s insurer before cancellation of E&O insurance

• Obtain addition project specific insurance or wrap up insurance

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GC 4.1

•The issuance of a Certificate for Payment constitutes a representation by the Consultant to the Client that the Work observed during the course of General Review/Field Review is in “general” conformity with the Contract Documents.

• Change to “substantial” conformity with the Contract Documents

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GC 4.2

•The issuance of a Certificate for Payment shall be a representation that the Consultant has made an examination to ascertain how and for what purpose the Contractor has used the monies paid on account of the contract price, or that the Contractor has discharged the obligations imposed on the Contractor by law, or requirements of Worksafe BC, or applicable statute, which may render the Client personally liable for the Contractor’s default.

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The Consultant should require from the Contractor with each application for payment:

1. a statutory declaration that all accounts have been paid;

2. a Worksafe BC certificate; and

3. a waiver and release of all claims to the date of the application for payment.

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GC 8.1

•This clause requires the Client to agree that any and all claims, whether in contract or in tort, against the Consultant shall be limited to an agreed upon amount or, if no amount is specified, then to $250,000.

•For most projects, a limit of liability of $250,000 does not represent the Consultant’s actual risk. It would be poor risk management for an owner to agree to this limit.

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GC 8.2

•This clause calls for the Client to indemnify the Consultant in the event of a claim by a third party resulting from a claim by the Client against that third party who then claims against the Consultant, up to the limit of liability agreed to in GC 8.1.

•This clause limits the Consultant’s exposure under this Contract to the limit of liability in GC 8.1.

•Could increase owner’s risk in a multi-party claim situation as the said third party is prevented from claiming over against the Consultant even if damages caused by Consultant.

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GC 8.3

• This clause entitles the Consultant to rely upon the published product information from manufacturers to relieve themselves from liability.

• This clause may fall below either of the required common law standard of care or the standard of care set out in Bylaw 30.1, requiring an architect to act with reasonable care and competence…

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GC 8.3 – Cont’d

Accordingly, an owner should:

1. eliminate the clause; or

2. require an additional clause be added that the Consultant at all times, notwithstanding any provision in the Contract, must perform its duties and responsibilities to the standard of a reasonably prudent architect / engineer practicing in British Columbia during the current time period.

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GC 10 – Termination

• Either party can terminate the Contract with 7 days’ written notice if the other party is failing substantially to perform in accordance with its terms through no fault of the other party

Could be difficult to establish

• Client can terminate with 7 days’ written notice if Consultant abandons

• Otherwise Contract terminates one year after earliest of substantial completion or abandonment.

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GC 10 – Termination – Cont’d

• Termination period of one year could be too soon if:

• Mandatory HPO warranty

• Contract warranty

• Extended warranty

• Owners should therefore consider extending the Contract period

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GC 14.2

• No deductions shall be made by the Client from amounts payable to the Consultant on account of penalty, liquidated damages, or other sums withheld from payments to Contractors, or on account of the cost of changes in the Work other than those for which the Consultant is proven to be legally responsible or has agreed to pay.

• But note the Owner’s right of set-off at law…

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• Owner’s right of set-off…

• This clause does not permit an owner to set off damage claims against the fees owed to the Architect.

• Owners have a right of set-off unless excluded by the contract.

• An owner may want to amend this clause to allow a claim for set-off.

ACEC DOCUMENT 31 - 2009

Engineering Agreement Between Client And Engineer

GENERAL COMMENTS ON

ACEC DOCUMENT 31 . . .

• Contract is drafted by and for engineers

• That means the document is “pro engineer”

• Owners may want supplemental conditions or a unique contract

• Copyrighted

• Somewhat simpler than Document 6C but duties of the Client and Engineer are more thorough

ACEC 31 - 2009

The Components of

the Agreement…

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ACEC 31 2009 - Five Sections

1. Agreement – Articles A1 to A8

2. Definitions

3. General Conditions

4. Schedule A – Engineer’s Scope of Services

5. Schedule B – Fees & Reimbursable Expenses

THE ARTICLES…

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ACEC 31 2009 – The Articles

A1.2

•Services are as set out in Schedule A Engineer’s Scope of Services

•Any change to scope of Services must be made by written order signed by both parties and identifying the change plus any adjustments to the Engineer’s Fees and Reimbursable Expenses

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A3

•Engineering Agreement documents – ensure list all schedules and lists or plans relevant to the agreement

•Here is where you insert any supplementary conditions

• SC – similar recommendations to Document 6C in this presentation

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A4

•Fees for Services are set out in Schedule B Fees and Reimbursable Expenses

A5

•Payment – contemplates that Engineer will issue monthly invoices

•Invoices are due when presented – interest starts running after 30 days - SC required to ensure proper delivery of invoice to Client

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A8 – Notices

• Personal delivery, receipted courier or FAX

• Delivery deemed on first Working Day after actual delivery

• Email is not effective notice.

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ACEC 31 – 2009

THE DEFINITIONS

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ACEC 31 2009 – Definitions

• “Consultant” shall mean registered/licensed professional

• Note requirement under s. 22 of EGA requires that the Engineer be licensed and a member of APEGBC

• Under sections 29 to 32 of the EGA - contravention of the EGA or the Bylaws or incompetence, negligence or unprofessional conduct may result in an investigation by the E & G investigation committee and possible subsequent disciplinary action.

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ACEC 31 – 2009

GENERAL CONDITIONS

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ACEC 31 2009 – General Conditions

• GC 5.1 – Engineer is bound by the legislation governing its profession and this Engineering Agreement does not derogate from an engineer’s legal obligations at law

Cannot contract out of legal obligations

• GC 5.2 – Common law duty for Engineer to provide Services in accordance with care, skill and diligence normally provided by engineers in performance of comparable services in similar projects.

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Part 10 – Termination

•Engineering Agreement is terminated when all Services are performed, when Engineer dies or becomes incapacitated to perform.

•If Engineer is in material default in performance of its obligations and does not correct default with 30 days after Notice, Client may terminate.

Without prejudice to Client’s rights at law but Client must pay for Services & RE to date – but note owner’s right of set-off

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Part 10 – Termination

•If Client is in default, Engineer can give notice and Client has 30 days to correct default, failing which Engineer can terminate. Client then must pay promptly.

•If Client does not want to proceed with Project, it can give 30 days’ Notice and then must pay Engineer for Fees & RE plus Suspension Expenses or Termination Expenses.

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Part 10 – Termination – Recommendations

•30 days’ notice may be excessive for a Project – it would cause delay in the schedule.

•A mutual right of termination clause with a shorter notice period is more practical.

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Part 14 – Insurance & Liability

•Requires Engineer to carry $250,000 per claim limit and $500,000 aggregate limit per year…

•Maintained from commencement of Services until 2 years after completion of the Services.

Limit of liability per claim likely too low for most substantial projects.

2 years post completion is likely too short a period of time for most deficiency claims.

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•Requires Client to obtain wrap up insurance and property broad form / builders risk policy.

•Engineer is an insured under the wrap up liability policy.

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Article 7.2

•This clause allows the Engineer to get

•paid even if the construction does not proceed

•Both parties may want to negotiate on the mechanics of how the Engineer is to be paid in such a circumstance and may confine such payment to work done to date.

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•Limitation of liability – claims against Engineer limited to:

Claims brought within limitation period or 2 years of completion or termination of Services, whichever is sooner.

BC limitation period is two years from the date from which a Client knew it had a cause of action.

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•Limitation of liability – quantum of claims against Engineer limited to:

Re-performance of Services; or

Amount insurance available to Engineer as per the Engineering Agreement; or

$250,000

•Very engineer friendly term which owners should revise by supplementary conditions.

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•Limitation of liability – limits liability to corporation or partnership and removes right of claiming against any member personally.

•This term presents a risk management issue for the owner if there is insufficient insurance behind the firm / corporation for the claim, and unduly limits an owner’s claim particularly in the context of one man shops and claims for misrepresentation.

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•Limitation of liability – limits claim to direct damages only, and so a Client cannot claim for consequential damages or loss of profit.

•Severely limits a Client’s rights at law with respect to delay and impact claims.

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Consultant Agreements - Concluding Comments

1. Neither the Document 6C nor the ACEC 31 has all of the requisite terms for a full and balanced contract. Supplementary conditions are required.

2. The goal should always be to achieve a balanced contract which is fair to and protects the rights of both parties.

3. The contract must make sense for the project in question in terms of any contractual limitation of liability and requisite insurance.

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Consultant Agreements - Concluding Comments

4. A contract is only a useful risk management tool if the parties know the terms and follow them.

5. Disputes under a contract should be dealt with expressly and openly through effective communication.

6. Risk management must involve not only considering the project during the performance of Services but also afterwards, particularly given the claims made nature of insurance policies.

These materials are necessarily of a general nature and cannot be regarded as legal advice. Clark Wilson LLP will be pleased to provide additional details on request. Inquiries or comments concerning these materials should be directed to Samantha Ip.

Clark Wilson LLP900 – 885 West Georgia Street

Vancouver, BC V6C 3H1Fax: 604.687.6314www.cwilson.com

Samantha IpDirect Tel: 604.643.3172Email: [email protected]

(351489.1)

D/NJT/506264.1

consultant agreements and the role of the consultant

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