Deal Makers and Deal Breakers

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1 This article is an excerpt from XL Catlin s Contract eguide Professional Services Agreements: A Primer. Primer articles aim to provide a high-level summary of the foundational concepts design professionals need to understand in order to develop, negotiate and execute equitable contracts. Provided exclusively to our customers, the online Contract eguide is the centerpiece of our loss prevention and risk management program, and is known as the industry's gold standard by many architects, engineers and their attorneys. More than paper. Partners. Find out more contact an XL Catlin Broker in your area Deal Makers and Deal Breakers Some contract clauses are so important that they should be included in every professional services agreement you enter into. In this eguide, we call these provisions Deal Makers. (For example, a clause that has your client indemnifying you for claims arising from hazardous materials discovered on his or her own property is a Deal Maker.) Conversely, some clients will try to impose on you certain clauses that are so onerous or unfair that you must never agree to them. (A clause that asks you to warrant the quality of the contractor s work, for instance.) We call these provisions Deal Breakers. There are several important provisions that, depending on how they are written, can be either Deal Makers or Deal Breakers; a clause in which the standard of care is properly defined might be a Deal Maker, but a clause that raises or otherwise changes your standard of care could become a Deal Breaker. In an otherwise acceptable agreement, rarely will a single provision cause you to turn down a project. Contract negotiation is usually not that black and white. Instead, you may be faced with a number of lessthan-fully desirable provisions that, individually or collectively, you might be willing to accept. In addition to these, however, there may lurk a truly onerous provision, say one that asks you to indemnify and defend the client for the client s own negligence, or one that calls for liquidated damages from you. This provision becomes the Deal Breaker, the one that causes you to put your foot down. We sometimes have to draw the line when making agreements. And it s important to decide in advance where that line is. Having the courage of your convictions and knowing when to say no will keep you from stepping into too many bear-trap agreements. This eguide identifies some of the clauses we consider Deal Makers or Deal Breakers. However, because no two firms have the same appetite or tolerance for risk, and because each project is different with varying degrees of risk and reward, you must carefully consider and develop your own list of Deal-Maker and Deal- Breaker provisions your own bottom line on risk and then use it in your negotiations. (For a suggested list of Deal-Maker and Deal-Breaker provisions, see Exhibits 2 and 3 and the related chapters.) Recognize that even if you terminate negotiations, you may not necessarily lose the job. Often, clients with whom you are unable to come to terms will be sufficiently impressed by your professionalism and rethink their own position. On the other hand, you may never hear from that client again. And that may be the best loss prevention measure of all.

2 Deal Makers and Deal Breakers 2 Exhibit Exhibit 2 Deal Makers Exhibit 3 Deal Breakers Assignment Certifications, Guarantees and Warranties Condominiums Dispute Resolution Fast Track Projects Hazardous Materials Indemnities Insurance Limitation of Liability Liquidated Damages Multiple-Prime Design Contracts Ownership of Instruments of Service Prototype Designs Renovation and Remodeling Scope of Services Right to Reject or Stop Work Termination Third-Party Beneficiaries

3 Deal Makers and Deal Breakers 3 Exhibit 2 Deal Makers Certain contract clauses are so important to the protection of your firm that you want them included in each agreement you sign. We call these clauses Deal Makers. If your client won t agree to these vital provisions, you may want to seriously consider whether to accept or decline the project. Your practice and your clients are different from those of other firms, and you may find that what constitutes your level of acceptable risk varies from project to project. As a starting point, here s our list of suggested Deal Makers. (Please refer to the specific chapters for more discussion as well as suggested language.) > > Dispute Resolution (defaulting to an alternative dispute resolution (ADR) method, such as mediation) > > Hazardous Materials (disclaiming your responsibility for unknown site/building conditions) > > (disclaiming your responsibility for jobsite and worker safety and for construction means, methods, techniques, sequences and procedures) > > Limitation of Liability (limiting your liability to an agreed-upon amount) > > Ownership of Instruments of Service (clearly defining ownership, protections for transfer, criteria for reuse, limitation of transfer and use of electronic media) > > Scope of Services (detailing responsibilities of all parties) > > (properly defining so that you do not elevate the standard) > > Termination (establishing your right to terminate with cause) > > Third-Party Beneficiaries (rejecting third-party beneficiaries to the contract) Of course, not every clause will apply to every project. And depending on the particular project, other important clauses in this eguide may become Deal Makers. This eguide includes some additional Deal-Maker clauses to consider if your project includes these risks or elements: (See the related chapter for suggested clause language.) > > Condominiums > > Fast Track Projects > > Multiple-Prime Design Contracts > > Prototype Designs > > Renovation and Remodeling Bear in mind, this is our suggested list. It is important to think about and determine your firm s philosophy and standards regarding risks what you feel is the appropriate level of risk to take and what risks you should not take and then develop your own list of must-have Deal Makers. Review the Table of Contents of this eguide. It may suggest additional clauses to add to your list, either for certain types of projects or for all of your agreements.

4 Deal Makers and Deal Breakers 4 Condominiums Dispute Resolution Fast Track Projects Hazardous Materials Limitation of Liability Multiple-Prime Design Contracts Ownership of Instruments of Service Prototype Designs Renovation and Remodeling Scope of Services Termination

5 Deal Makers and Deal Breakers 5 Third-Party Beneficiaries Exhibit 3 Deal Breakers A Deal Breaker is a client-written clause that is so onerous and risk laden that you must insist it be deleted from any agreement. If your client refuses to delete or substantially modify such a clause, you ll need to seriously consider refusing the project. Here is our list of Deal Breakers. You may want to modify it or add other clauses, based on your experience, your firm s standard contract procedures and the advice of your legal counsel. For example, one attorney suggests that a clause calling for arbitration without discovery should be a Deal Breaker. (See the related chapters for specific language and additional information.) > > Assignment (of your rights without your consent) > > Certifications, Guarantees and Warranties (by you of virtually anything) > > Indemnities (not limited to your negligence or that require defense of the client) > > Insurance (with unattainable or unreasonable requirements) > > (which holds you responsible for construction means, methods, techniques, sequence or procedures, and/or safety precautions and programs) > > Liquidated Damages (in excess of actual damages) > > Right to Reject or Stop Work (not merely the right to reject portions of the Work) > > (that alters or elevates the standard to which you will perform) Assignment Certifications, Guarantees and Warranties Indemnities Insurance Liquidated Damages Right to Reject or Stop Work Design Professional unit The information contained herein is intended for informational purposes only and does not constitute legal advice. For legal advice, seek the services of a competent attorney. Any descriptions of insurance provisions are general overviews only. THE INSURANCE POLICIES, NOT THIS DOCUMENT, FORM THE CONTRACT BETWEEN THE INSURED AND THE INSURANCE COMPANY. The policies contain limits, exclusions and conditions that are not listed in this document. All coverages are subject to individual underwriting judgments and to state legal requirements. XL Catlin is the global brand used by XL Group Ltd s insurance subsidiaries. In the US, the insurance companies of XL Group Ltd are: Catlin Indemnity Company, Catlin Insurance Company, Inc., Catlin Specialty Insurance Company, Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., XL Insurance Company of New York, Inc., and XL Specialty Insurance Company. In Canada, coverages are underwritten by XL Specialty Insurance Company Canadian Branch. Coverages may also be underwritten by Lloyd s Syndicate #2003. Coverages underwritten by Lloyd s Syndicate #2003 are placed on behalf of the member of Syndicate #2003 by Catlin Canada Inc. Lloyd s ratings are independent of XL Catlin. Not all of the insurers do business in all jurisdictions nor is coverage available in all jurisdictions. Information accurate as of November Published by the Design Professional unit of XL Catlin 30 Ragsdale Drive, Suite 201, Monterey, CA x xlcatlin.com/dp 100 Yonge Street, Suite 1200, Toronto, ON M5C 2W1 Canada x8682 xldp.communique@xlcatlin.com xlcatlin.com/dp-ca 2016 X.L. America, Inc. All rights reserved. XL Catlin, the XL Catlin logo, and Make Your World Go are trademarks of XL Group Ltd companies. XL Catlin s Contract eguide for Design Professionals