Navigating contracts from public partners

One of the many challenges facing engineers in this economy are the onerous contracts that many public institutions are using for their design professional. In the current economy, in which many engineering firms are literally desperate for any work, governments are taking advantage of the situation to transfer unmitigated amounts of risk and responsibility to the design professional. So much so, in fact, that our insurance carrier, XL Insurance, issued an e-mail bulletin on the matter.

Recently the claim department of the Design Professional group of XL Insurance has seen an up tick of onerous public contracts. Public entities are using tough new contracts as a way to transfer inordinate amounts of project risk onto design professionals’ shoulders, jeopardize their insurance and make demands that design firms cannot reasonably fulfill.

Best advice: Read the contract. It sounds obvious, but many A/Es assume that the contract for a new project is the same one they received from the same entity on the last project. Onerous clauses and phrases that you negotiated out of one contract have a way of finding their way back into another.

In many contracts, engineers are accepting risk that their insurance will not cover. Worse still, many engineers don’t realize what they’ve done. It’s important, as an industry, to negotiate out those portions of the contract that transfer risk and responsibility to the engineer that the engineer has no control over. Often times this includes statements such as taking responsibility for the contractor’s actions, even if construction administration is not part of the contract. By accepting these unreasonable provisions in contracts, engineers are setting precedent for bad terms that will be carried forward in the future.

XL Insurance even makes the following strong statement regarding municipal contracts:

Public agencies have tremendous power and many delight in using it. [Emphasis added] However, persistence, reason and the knowledge that you were chosen based on your track record can get you past more than a few government attorneys. When you’re tempted to sign on the dotted line, think about your exposure to serious liability for circumstances you’d be rendered powerless to control. As tough as it may be to get a good public contract, it’s even more difficult to defend yourself under a bad one.