Purpose: I am curious to know how other small architecture firms manage contract agreements with their clients.
Background: We are a small architecture firm with 2 architects and 8 intern architects. The Principal Architect typically makes verbal or email agreements for services with clients, and the office manager is then responsible for creating the AIA contracts.
The issue: AIA contract preparation is time consuming; we try to be as thorough as possible in describing our services and we almost always hit bumps in the road with software and other issues. Also, at the rate we take on new jobs, we fall more and more behind on the contracts to go with them, leaving our firm at risk if issues arise.
Questions:
Do you create a contract for every project, big or small?
Do you use AIA software for all of your contracts? If not, what else do you use?
How do you prepare and deliver contracts in a timely manner?
How inclusive or evasive are your contracts in terms of what services you do and do not include in your Fixed Fees or going rates?
How do you define "Extra Services" and how they will be charged?
How do you manage contract preparation with clients whom you have multiple projects with?
Would love some to gain some insight into these questions and/or other relevant issues from the architect community.
1) You are breaking the law in many states if you do not have a contract in place as a professional architect working on a project.
2) No - free form at times - look at what subcontractors/consultants use - it can be as simple as a one page agreement - better have an attorney review boiler plate CYA conditions. Can also break up the contract into scopes - one for schematic, a more formal contract if the project moves forward to be constructed.
3) make them simple for simple projects - less time - more complicated projects involve more sophisticated clients and they know they are in for the long haul - waiting for a contract to be written is the least of their concerns.
4) depends on how you come to a fee - fixed rate not to exceed? hourly sky is the limit? be honest - "evasive" sounds bad - just put it all out there to the best of your knowledge.
5) write out a scope and price - if the scope creeps - extra services, notify the owner when this starts to happen.
6) different contract for each project.
Also - try to get a feel for your clients - contracts can be drastically different for decent human beings or caustic developers.
You are breaking the law in many states if you do not have a contract in place as a professional architect working on a project.
I have never heard of such a thing. Where is a contract required? I mean it would be very very stupid if you did not have a contract, but how in the world is it illegal?? Show me- I want to see.
1. Do you create a contract for every project, big or small?
Yes, with a few exceptions, but those are stupid and risky and I shouldn't do it. I do only small to mid size residential projects, with a couple of drafters helping me.
2. Do you use AIA software for all of your contracts? If not, what else do you use?
No, I wrote my own contract, incorporating language from various sources, and had a lawyer review it and add some language of their own. I put a lot of effort into making the contract a communication tool, so everything needs to be easily understood, well presented and fair to all parties.
3. How do you prepare and deliver contracts in a timely manner?
A lot of it is boilerplate, describing the end product of each stage of design, payment and termination terms, etc. I try to minimize the amount of "custom" language for each contract to a brief synopsis of the program and estimates for each stage of design. I often email the contract, as I often work remotely from the client, but prefer to review it in person when possible. As a rule I do not start a project until I have a contract and deposit in hand, so if I want work, I need to get the contract out the door. I'm currently sending out contracts for work to start in four weeks. I broke my rule on a current job, and am doing SD's without a contract, because it's a job I really want. When we meet to review the SD's, if they don't sign a contract, I'm done working with them.
4. How inclusive or evasive are your contracts in terms of what services you do and do not include in your Fixed Fees or going rates?
I typically charge hourly with a not-to-exceed price for a given scope of work. If the scope of work changes, so does the cost, on an hourly basis. I've worked at places that simply charge hourly for everything and I don't think it's fair to put the burden of management onto the client--that's my job. I also don't think fixed-price is always good for all parties. I list what they will get at each stage of design, inform them when we are off track, and write a change order if necessary.
5. How do you define "Extra Services" and how they will be charged?
I list out aspects of design that are included and also list things they may want but that are not included, such as interior design or energy modeling. I usually charge hourly for work outside the contract, or sometimes fixed price for something like an energy model. The change order should spell out payment terms.
6. How do you manage contract preparation with clients whom you have multiple projects with?
Every project gets a new contract. The only exceptions are a couple of guys who I often do very small projects for on short notice, like a few hundred dollars worth of shop drawings or a bathroom design, and I trust them, so managing the risk with a contract is not worth the time. That said, one guy is late on a $700 payment right now so I might have to rethink my position....
Ok- that's fascinating... I am licensed in NY and I guess I havn't gotten to that part of the CA licensing exam that deals with this in my studies. Thanks!
Most everything has already been addressed…would only add that I called our small project agreements a “Memo of Understanding”….the AIA contracts, in all forms, are way too long & complicated other that for large & long engagement projects…I’ve finished projects before client lawyers ever got around to approving boilerplate AIA agreements.
Was at it for 40 years…everything from car wash's to major hospitals…all you need is to get paid on time and throw in some exit language…all AIA contracts provide are more pages for attorney’s to wipe their ass’ with. Jiffies’ Law is: When you think you need a lawyer (or a contract) it’s already too late. Believe that. Cover the basics on a single page, get paid and move on.
Another thing I learned is that clients don’t even read single page contracts and don’t consult lawyers before signing them…“Memo of Understanding” keeps it soft & easy….but having nothing doesn’t “commit” and is illegal in some States.
Thank you all for your feedback so far, this is great food for thought and leads me to more questions:
How do your contracts/agreements quantify and/or limit the amount of design changes that will be included in your Fixed or Not to Exceed Fees? i.e. How do your descriptions of scope and extra services account for clients who request design changes over and over?
Similarly, how do your contracts quantify and limit coordination with outside consultants? For example, when consultants mess up and the architect subsequently has to spend more time than accounted for in the scope/Fixed Fee, do you just end up eating that time? Or do you bill it to the Client for falling outside of the scope?
1. Be as detailed as possible in the scope description and add a time provision to all contracts. Work beyond X months will be billed as additional services.
2. Assume the worst in all contracts. If your fee doesn't have the cushion to account for consultant fuck ups, then you fucked up on your fee. Also, see 1.
Told by a wise sage middle career "Make your deal, put it in a drawer, do the work and don't complain." You control the fee by controlling what you do not by controlling what the client does... it's a chess game, you have to let the small stuff go... if he pushes you over on design, pull back on something else... no client really understands the deliverables... you have to be good at getting even and all clients understand if they add floors it's extra... and all hate being nickel-dimed, don't you?
The smartest insurance plan I ever saw was an architect that only & always did CA hourly...when the budget was expended the drawings went out the door no matter what and they just finished them during construction with mountains of supplemental drawings... firm is today a top 100 firm and never loses money.
I do a 4 page proposal contract. 2 pages are understanding of the project and sales language. 1 page is costs and add services. Last page is fine print. AIA contract misses a lot of things in my opinion.
Do you create a contract for every project, big or small? Not always. Small projects under $10k in fees, I had a ‘work order’ sort of 5 page contract. Repeat clients, small job, … just a handshake and a signed proposal letter. Big projects, AIA long form and attachments. Multiple job repeat clients I trust, a handshake and nothing else; (they know my hourly rate and pay what I bill when I bill sorts).
Do you use AIA software for all of your contracts? If not, what else do you use? See above
How do you prepare and deliver contracts in a timely manner? Easy… they accept the proposal, you write the contract and have them sign while it’s hot.
How inclusive or evasive are your contracts in terms of what services you do and do not include in your Fixed Fees or going rates? Use the AIA forms and a well written proposal stating what you will include and specific things you know they will probably want or need that are not included. With bad vibe clients, I am extremely careful in wording and may even include the anticipated hours of firm effort included.
How do you define "Extra Services" and how they will be charged? See #4. If it wasn’t in the proposal or is one of those defined Additional Services; refer to my hourly rates. For ‘grey area’ I simply decide whether or not to toss it in depending on profitability, repeat client potential, risk assessment, etc.
How do you manage contract preparation with clients whom you have multiple projects with? Very, very easy… use the same one and just change only what needs to be changed. With the handshake or work order, I’ll reference the terms of the previous contract and project as applicable for the terms and conditions of the agreement. Example; you do a ground up for them 5 years ago and used a full length AIA contract. Now they want a remodel. In your proposal, you give them a fee and just reference the previous agreement contract terms are applicable to this…
gruen, you said, "AIA contract misses a lot of things in my opinion." What is it missing? Can you elaborate?
Carrera, you take almost the opposite stance, "the AIA contracts, in all forms, are way too long & complicated other that [sic] for large & long engagement projects." What would you have the AIA take out for projects that aren't large & long engagement?
I'm not trying to pit you two against each other, I'm genuinely curious. I review a lot of contracts for a lot of projects, and by far the cleanest, most concise, and most complete contracts have been AIA contracts.
^ My point is that AIA Contracts read like legalese….written by lawyers to lawyers. In some ways AIA contracts are not unlike getting someone to sign a prenuptial agreement…the language makes it sound like something is going to go wrong.
It would be argued that you need the legalese, language that has been tested in courts, but my position is that most architects can’t afford a court fight in the first place, so on the small stuff why get all lawyered up? A memo of understanding won’t scare the bunny and send them off to his lawyer to hear tell how architects screw people…not a great way to start…you just need a written commitment and understanding, not a piece of legislation.
Why have an agreement that the client won’t read & refer to from time to time? The object is to get the client to behave, not prepare him for the electric chair.
^ Correct...Written about this before to deaf ears. What is the purpose of EO insurance? To pay lawyers! No case gets to a courtroom unless someone dies…all cases are arguments about money and if you don’t have any then there’s no argument.
40 years of practice, billions in work and only purchased it on an as-needed basis when required by big clients…then we made them pay for it. Believe me I had plenty to worry about, but our firm didn’t even own the office chairs we sat in…nothing to get, nothing to argue about.
So Carrera, if I'm understanding correctly, you'd take out Articles 8 and 9; Claims and Disputes, and Termination or Suspension. Is that about right? The rest seems pretty straightforward for anyone trying to understand the agreement:
Initial Information: Set the background information, we won't even write it here, we'll just incorporate it by reference. We want to start construction by this time and be finished by this time.
Architect's Responsibilities: Here is what I'm responsible for as an architect.
Scope of Architect's Basic Services: Here is what I'm going to do for you at a minimum.
Additional Services: Here are things I can also do, but you'll need to pay me extra.
Owner's Responsibilities: Here is what you are responsible for as the owner.
Cost of the Work: I'm designing to your budget and this is how we figure that out.
Copyrights and Licenses: I keep my copyright and give you license to use the documents I'm going to create for you.
Claims and Disputes: Take it out, nothing goes wrong and we won't disagree on anything.
Termination or Suspension: Take it out, you'll pay me and you won't run out of money or need to stop the project for any reason.
Miscellaneous Provisions: BTW, the law in this jurisdiction governs, terms have a specific meaning, and we won't transfer this agreement to others unless we tell each other and we agree to. Plus some other stuff like what happens when we find asbestos in your building, I want to use photographs of your building in my portfolio, and if you want me to keep something secret I will, if you'll do the same for me.
Compensation: You are going to pay me.
Special Terms and Conditions: We'll leave this blank, your project isn't special. But if you think it is, we can put something here.
Scope of the Agreement: This is two paragraphs of legal stuff saying we aren't going to change the agreement unless we actually change the agreement and the agreement encompasses everything we list here. Oh, and we sign and date it here also.
What's the basic outline for your memo of understanding?
All said and done, a standard B101 comes out to something like 18-20 pages. So many words to read and understand. Keep in mind we are more than willing to produce hundreds of sheets of drawings where the equivalent of probably 2-3 sheets of drawings have even worse legalese than what you'll find in any AIA contract in the form of General Notes or Sheet Notes. Specs are probably even longer and worse offenders because they were most likely just copied from the last job and barely updated. Who knows what is being carried over from some overly cautious spec writer in the past.
^ First, contract drawings and specs are for the protection of the client, it’s a contract with a contractor, no foul there, but the agreement with the client is different, it needs to speak to the relationship and to getting-along…it should reduce to writing what was exchanged verbally leading up to the contract and shouldn’t be all-over what happens if things go south, because in reality you can’t afford to head “south”. A memo of understanding is simply what each party is saying they will do for the other and needs to be light on what happens if they don’t…a simple line on your right to terminate and agreement to arbitration is all that’s needed. Sounding litigious makes people get litigious.
So we don't value brevity when it comes to the contractor because we don't want the owner to get along with the contractor?
Thing is, I don't find AIA documents to be written in a way that is litigious. Rather, they are written so that you can solve any disputes before it gets to litigation, or you can take it off the table entirely. The standard in the agreement is to resolve disputes through mediation (if you can't just figure it out like adults) and then the agreement allows the parties to agree to litigation or arbitration.
Additionally, there are things in there like agreeing to waive consequential damages arising out of a dispute. AIA's commentary explains, "By mutually waiving claims for such unanticipated and even remote damages, the parties remove a source of inflated claims and needless litigation."
Even with all of that, I'd argue that if the two parties are really intent on getting along, they will anyway, regardless of whatever the contract says. After all, who reads and follows these things anyway ... am I right?
BTW, if anyone is intent on using AIA contracts and wants a more collaborative style of agreement, look at the Integrated Project Delivery family of documents. You can make it so everyone has skin in the game so if things go south, no one wins, and if things go well, you all benefit. My experience though, is everyone is willing to do it ... until you start talking about signing the contract or forming a joint venture. The thing is, everybody likes to talk like they are team players, but when it actually comes to winning and losing as a team, everyone wants to be able to get something more than someone else, or at least sue someone else ... YMMV.
Of course the opposite of my penultimate paragraph also applies: If someone is intent on being litigious, they are going to find a way to sue, regardless of what the contract says (or doesn't say).
^ That’s fine, not in a campaign against AIA Contracts, just sharing my experience.
The part about “After all, who reads and follows these things anyway ... am I right?” creates some pause…and points to the problem with “these things”. The only time the party’s read these things shouldn’t be when things are at an impasse...they should be simple enough to refer to along the path to help avoid the impasse…clients too often get off the path with their expectations and they shouldn’t have to hire a lawyer with a magnifying glass to figure that out…just something to think about.
Everyday Intern, I wonder why you would reference construction start and completion dates in an owner/architect contract:
Initial Information: Set the background information, we won't even write it here, we'll just incorporate it by reference. We want to start construction by this time and be finished by this time.
As the architect, you don't have much control over the permit review/approval timeline, and even less over the construction schedule. Seems to create an obligation that is largely out of your hands.
Carrera, I agree with your sentiment that we shouldn't only refer to the contracts when there is some sort of impasse. I do tend to think the AIA documents are simple enough, and don't require a lawyer's magnifying glass to read them. I like the idea of simpler and cleaner contracts ... I really do. I'm curious as to how you've managed with your memo of understanding, but I suspect it has less to do with the memo and more to do with your disposition and approach to a project. Though I'm sure the memo helps to set the client into that same disposition and approach as well.
jeiffert, it's not my idea but rather the AIA's. My glib paraphrasing of the paragraph is slightly misleading. Really the owner is stating their anticipated dates for commencing construction and substantial completion. It becomes important as initial information because the architect needs to be able to establish an initial schedule for their services and establish a time after which basic services become additional services. Review the commentary on AIA B101 paragraph 1.2 for more information. Note that 1.3 establishes that this information can change (after a long permit review/approval for example ... assuming it isn't because of the architect's negligence) and the schedule, etc. can be modified appropriately.
Should also note something here. When there is no contract, at least in Colorado, the terms of the AIA contracts have been held up as the "Standard of Care" as far as responsibilities, roles, processes, etc. for the industry.
Depends on the client and project, of course, but I'm with Carrera, especially for residential work. AIA contracts are minefields - full of all sorts of things that can make the client think twice and cause lots of problems (typically starting with renegotiation after the contract is read).
To memorialize a verbal agreement I use a single page letter that lays scope of work and general responsibilities of each party. This is probably pretty close to Carrera's "memo of understanding".
Contracts are only as good as how much lawyer you can afford (see Jaffe's Second Law). So hone your sense of smell to avoid bad clients and do everything you possibly can to make the project a success for everyone. You don't need a piece of paper to do that, and having one is no guarantee of anything.
Chigurh, any Corp or LLC will provide a shield to your private assets (house etc.), but I learned the hard way to be sure that you only act behind that shield, even a handwritten note sent on your home stationary without your logo can be a problem…people can’t sue anything except the shield and the shield needs to be worthless.
Why does a firm need to be worth anything if it’s not on the stock market, or not being sold?
Trouble comes when the firm borrows money or leases things and personal signatures are required…that would drift the discussion into issues of near or actual bankruptcy…that’s mainly where “hide the money” comes from. One needs to never sign personally for things, but it’s pretty hard to do. On the other side of the same coin is the risk that the shield does get penetrated…which once they discover the shield is worthless that will be their next step…to devise arguments that would allow them to sue you personally…a double reason to hide personal assets….just makes the law suits drift away.
Everyday, I started doing the memo’s about mid-career after someone had me sign one…it just worked better on the smaller stuff, people were more incline to sign them quickly, seemed to make things less adversarial, set a friendlier tone that I found worked…never used them on big stuff. Would add that they do work on big stuff, as a way to get potential projects off the market…as preliminary agreements…something about signing something that keeps people from shopping around.
You said you never used your memo of understanding on big stuff: "I started doing the memo’s about mid-career [...] it just worked better on the smaller stuff, [...] never used them on big stuff."
What did you use on the big stuff? And how big did a project need to be before it was big?
I like your point about preliminary agreements. Lock that puppy down before they have a chance to change their mind.
^ Too long ago to remember exactly, maybe $1 Million…used them with all consultants at all levels…most architects don’t write agreements with them, mainly to lock down time schedules with penalties. Man I could go on about those guys, what a racket.
I used AIA agreements on larger work.
Learned the "lock-down" from a car dealer friend...."just sign the offer and give me a dollar...."
Miles, Saying AIA contracts are minefields implies that there are things that are hidden (mines) in the contracts. It's all written in black and white in an organized, logical manner. If anything is hidden it's because someone wasn't reading it, paying attention to it, or just didn't comprehended the meaning. I can't make someone read the contract if they don't want to, I can't make someone pay attention to it if they don't want to, nor can I make someone understand the meaning if they aren't trying. I can however, help them do all these things if they want it. I do see your point and Carrera's about a simple memo or document. I'm not saying those things don't have a place. But even Carrera acknowledges that AIA agreements have their place as well ... or at least they did for larger work.
When I bought my house I had a realtor who was willing to sit down with me and all the paperwork and explain it all to me and elaborate if I had any questions. Can't architects take that sort of thing on and guide our clients through the paperwork? First it requires us to understand the paperwork though, and that's probably the failure. What happened to that thread where someone was bragging about not reading a single AIA document while taking the ARE? I wonder if the firm they work for uses them, or does something more like Carrera's memo?
gruen, you said, "AIA contract misses a lot of things in my opinion." What is it missing? Can you elaborate?
Woah man!!! Just about to land my first large contract (what I think is large any way) and made the rookie mistake of dropping a 30 page contract on the client. We went through part of it, but he totally lost interest and seemed annoyed. I rewrote the thing and got it down to 8 pages... probably still too long... but I have lots of white space. We were able to walk through the whole thing in 45 minutes. He would have signed except for two key disagreements on payment milestones and ... me using pictures of the property for marketing, etc... Go figure.
Anyways, I'm supposed to edit and come back for a check and signing next week.
I had originally given him a 2 page proposal outlining the meat of the agreement. If I had put a signature line on it, I'm pretty sure he would have signed it a month ago.
I might be coming at this from a different side but I do a lot of work for a GC, mostly residential work. He shows me a project and I shoot him an email proposal, about a page long. Its normally a copy/paste from the previous one, outlining all the required stuff in contract- scope (deliverables), schedule, fee, additional services, termination. Most importantly, it details what I am not responsible for. This is the closest thing I can find to a MOU that still allows room for special conditions for certain projects. It might be applicable to new clients, so long as the brevity doesn't cause them pause.
^^ 3 meetings to sign a contract = 3 opportunities to change his mind...even if you go long get a signature on a proposal or a set of initials…”agreed pending formal contract”…now he’s got a big question mark floating over his head…”30 pages? 8 pages? Does this guy know what he’s doing? How about no pages?” You made a mistake and you haven’t even started. I’d do a mea culpa 2 pager and end it.
Miles, you're assuming wurdan was using an AIA contract. That was never given. Even then...
"We went through part of it, but he totally lost interest and seemed annoyed."
^ that's a key take away from wurdan's story.
"I can't make someone read the contract if they don't want to, I can't make someone pay attention to it if they don't want to, nor can I make someone understand the meaning if they aren't trying. I can however, help them do all these things if they want it."
^ that's a key point from my previous statement. Sounds like the issue isn't with the AIA contract (if wurdan was even using one) ... rather it sounds like wurdan didn't know the client or their expectations for the contract very well. Client didn't want to understand the 30 page contract; he lost interest and was annoyed. wurdan rewrites the contract to better meet the client's expectations for what the contract should be and things seem to go better. Good for wurdan. Doesn't mean that AIA contracts are full of mines.
Still doesn't mean AIA contracts are full of mines. But keep telling yourself whatever makes you happy. The other part of the key phrase you note is the client's expectations, there are things you can do to manage them. They are less likely to recoil when you give them 30 pages if they are expecting 30 pages.
For those of you that do write your own contracts ... are you writing them from scratch? Do you copy specific portions from standard forms, maybe changing a phrase here and there, mostly leaving out what you think is unimportant from the standard forms? Are you paying a lawyer to write them from scratch?
“Writing from scratch” reminds of something else…a negative. Found sometimes that clients were wary of nonstandard documents…you know that feeling you get when you walk into someplace and there’s no price list on the wall? While the bullet points were specific I started making mine “look” like business forms…had a printed fee schedule on small stuff for the same reason…”this is what I charge everybody….” Just something to think about.
Think what Miles is driving at is valid…when you’re doing a contact with new clients it’s at a fragile time in the relationship….no real trust yet…not a good time to wrangle over words & numbers and AIA “Lingo” can open up cans of worms….thus “minefields”….especially when you get to that part about who owns the drawings….now’s there’s a real showstopper.
The scope of work I wrote the contract for was CM as Agent. This is to build a spec home so not design and not AIA docs. I started with the Consensus DOCs 831 (30 pages) as I really liked the spirit of the contract. Quickly realized that it was too much and while using some of the key points from the contract rewrote with my services.
Page 1 is agreement - between me and him.
Page 2 is Services - I will provide
Page 3 is fee schedule - paid to me, how much and when
Page 4 is Insurance - what kind and how much
Page 5 is Termination - how and why
Page 6 is Legalese - I won't sue you and you won't sue me... mediation... binding arbitration
Page 7 is contract documents - plans, spec, etc.
Page 8 is signatures.
Good news is I will have this ready for the next one and will be able to provide less opportunity for the client to change their mind. Maybe I get rid of the legalese... Maybe I get rid of the insurance too...? What do you say Carrera? Although this client insisted on it.
I think for the scope of work, the contract is fairly streamlined and professional. I have seen other builders contracts that run the gamut from one page hand written scope of - "i will build you a house for $x" to 30 pages of legal speak "I will build you a house and no matter what goes wrong it's not my fault.." and most recently I've talked with a builder who is building two houses for a developer with no contract!!! It's the wild west out here in Denver right now. My potential client has built 14 homes and has signed some very bad contracts that he has shared with me. He has been appreciative of my efforts and was aware that I would be creating this contract from scratch so to say. Point of my story was I definitely made some of the mistakes Carrera and Miles were alluding to with long, drawn out contract language. Keep it simple stupid.
For design work I've done in the past, I've always used a one page contract. Pretty simple, but then again, my design contracts have been pretty small. $500-$10k
A construction contract, IF you are at risk, is an entirely different story….true CM is no different than architecture, it’s a service. Around here the builders use a single page, maybe two…the little said the better with these guys, but you need a little snake oil in your blood to play cowboy like those guys.
What kind of insurance? Insure what? E&O for a house? If he wants it and you have the money built in to pay for E&O just give it to him at this point, but leave it out in the future. What competitor (builder) is giving out E&O? If it has anything to do with the building or property it’s completely out of bounds.
Just go with the 8, but in a round 3 situation I wouldn’t get too whiny about anything, just get it done…you have to realize that you need to walk with a little wiggle room and if something comes up you can always do a sit-down…even the Constitution got amended.
Carrera - That's a great point and one that I've confused with my prior employment were I was doing mostly CMAR as opposed to this contract where I am merely providing CM services. This contract probably should be the 2 page proposal I had originally penned with a signature line.
Since I'm acting in a capacity where I am providing recommendations on means and methods, sequencing, materials and subcontractors... the E&O was for errors in my professional recommendations as advisor. Also general liability for me and builder's risk for the Owner.
I've already made the minor changes and just have to coordinate a date for signing, targeting Tuesday. Will leave it at the 8 pages at this point.
I'm thinking page 1, 2, 3, 7 and 8 could probably be reduced to 2-3 pages for future work.
General liability is fine (personal injury/auto), but builders risk under CM is not. You’re not owning any materials, you don’t own any tools or equipment…have done tons of these and the owner, because he owns the property, has liability and needs to buy property insurance anyway for fire/vandalism etc.…you don’t own anything, how can you insure something you don’t own? All he needs is a builders risk rider added to his homeowner policy...it’s cheap as a rider, he needs it under his name anyway for any pass-through losses. Tool & equipment losses are protected by your sub’s insurance, they own the tools & equipment, any material that gets dropped off is on his property and belongs to him the minute it hits the ground…he only needs builders risk as a backstop in case a sub forgets to pay his premium or any material gets stolen. Might want to talk to your insurance guy about this on Monday.
I think you’ll learn as you wade into this, what is important & what’s not.
Mar 13, 16 1:46 am ·
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Owner/Architect Contract Agreements
Purpose: I am curious to know how other small architecture firms manage contract agreements with their clients.
Background: We are a small architecture firm with 2 architects and 8 intern architects. The Principal Architect typically makes verbal or email agreements for services with clients, and the office manager is then responsible for creating the AIA contracts.
The issue: AIA contract preparation is time consuming; we try to be as thorough as possible in describing our services and we almost always hit bumps in the road with software and other issues. Also, at the rate we take on new jobs, we fall more and more behind on the contracts to go with them, leaving our firm at risk if issues arise.
Questions:
Would love some to gain some insight into these questions and/or other relevant issues from the architect community.
Thanks!
1) You are breaking the law in many states if you do not have a contract in place as a professional architect working on a project.
2) No - free form at times - look at what subcontractors/consultants use - it can be as simple as a one page agreement - better have an attorney review boiler plate CYA conditions. Can also break up the contract into scopes - one for schematic, a more formal contract if the project moves forward to be constructed.
3) make them simple for simple projects - less time - more complicated projects involve more sophisticated clients and they know they are in for the long haul - waiting for a contract to be written is the least of their concerns.
4) depends on how you come to a fee - fixed rate not to exceed? hourly sky is the limit? be honest - "evasive" sounds bad - just put it all out there to the best of your knowledge.
5) write out a scope and price - if the scope creeps - extra services, notify the owner when this starts to happen.
6) different contract for each project.
Also - try to get a feel for your clients - contracts can be drastically different for decent human beings or caustic developers.
This is a good topic, and important. More insights would be very beneficial.
You are breaking the law in many states if you do not have a contract in place as a professional architect working on a project.
I have never heard of such a thing. Where is a contract required? I mean it would be very very stupid if you did not have a contract, but how in the world is it illegal?? Show me- I want to see.
Cmedici- study for the ARE and you will find answers to many of your questions... but please- read AIA document B101 first...
http://www.cab.ca.gov/licensees/written_contract_requirement.shtml
1. Do you create a contract for every project, big or small?
Yes, with a few exceptions, but those are stupid and risky and I shouldn't do it. I do only small to mid size residential projects, with a couple of drafters helping me.
2. Do you use AIA software for all of your contracts? If not, what else do you use?
No, I wrote my own contract, incorporating language from various sources, and had a lawyer review it and add some language of their own. I put a lot of effort into making the contract a communication tool, so everything needs to be easily understood, well presented and fair to all parties.
3. How do you prepare and deliver contracts in a timely manner?
A lot of it is boilerplate, describing the end product of each stage of design, payment and termination terms, etc. I try to minimize the amount of "custom" language for each contract to a brief synopsis of the program and estimates for each stage of design. I often email the contract, as I often work remotely from the client, but prefer to review it in person when possible. As a rule I do not start a project until I have a contract and deposit in hand, so if I want work, I need to get the contract out the door. I'm currently sending out contracts for work to start in four weeks. I broke my rule on a current job, and am doing SD's without a contract, because it's a job I really want. When we meet to review the SD's, if they don't sign a contract, I'm done working with them.
4. How inclusive or evasive are your contracts in terms of what services you do and do not include in your Fixed Fees or going rates?
I typically charge hourly with a not-to-exceed price for a given scope of work. If the scope of work changes, so does the cost, on an hourly basis. I've worked at places that simply charge hourly for everything and I don't think it's fair to put the burden of management onto the client--that's my job. I also don't think fixed-price is always good for all parties. I list what they will get at each stage of design, inform them when we are off track, and write a change order if necessary.
5. How do you define "Extra Services" and how they will be charged?
I list out aspects of design that are included and also list things they may want but that are not included, such as interior design or energy modeling. I usually charge hourly for work outside the contract, or sometimes fixed price for something like an energy model. The change order should spell out payment terms.
6. How do you manage contract preparation with clients whom you have multiple projects with?
Every project gets a new contract. The only exceptions are a couple of guys who I often do very small projects for on short notice, like a few hundred dollars worth of shop drawings or a bathroom design, and I trust them, so managing the risk with a contract is not worth the time. That said, one guy is late on a $700 payment right now so I might have to rethink my position....
Ok- that's fascinating... I am licensed in NY and I guess I havn't gotten to that part of the CA licensing exam that deals with this in my studies. Thanks!
Most everything has already been addressed…would only add that I called our small project agreements a “Memo of Understanding”….the AIA contracts, in all forms, are way too long & complicated other that for large & long engagement projects…I’ve finished projects before client lawyers ever got around to approving boilerplate AIA agreements.
Was at it for 40 years…everything from car wash's to major hospitals…all you need is to get paid on time and throw in some exit language…all AIA contracts provide are more pages for attorney’s to wipe their ass’ with. Jiffies’ Law is: When you think you need a lawyer (or a contract) it’s already too late. Believe that. Cover the basics on a single page, get paid and move on.
Another thing I learned is that clients don’t even read single page contracts and don’t consult lawyers before signing them…“Memo of Understanding” keeps it soft & easy….but having nothing doesn’t “commit” and is illegal in some States.
Thank you all for your feedback so far, this is great food for thought and leads me to more questions:
1. Be as detailed as possible in the scope description and add a time provision to all contracts. Work beyond X months will be billed as additional services.
2. Assume the worst in all contracts. If your fee doesn't have the cushion to account for consultant fuck ups, then you fucked up on your fee. Also, see 1.
Told by a wise sage middle career "Make your deal, put it in a drawer, do the work and don't complain." You control the fee by controlling what you do not by controlling what the client does... it's a chess game, you have to let the small stuff go... if he pushes you over on design, pull back on something else... no client really understands the deliverables... you have to be good at getting even and all clients understand if they add floors it's extra... and all hate being nickel-dimed, don't you?
The smartest insurance plan I ever saw was an architect that only & always did CA hourly...when the budget was expended the drawings went out the door no matter what and they just finished them during construction with mountains of supplemental drawings... firm is today a top 100 firm and never loses money.
The AIA contract is also structured by a PR moron. The structure of it is such that it invites people to want to change shit.
Good thread, interesting comments so far.
gruen, you said, "AIA contract misses a lot of things in my opinion." What is it missing? Can you elaborate?
Carrera, you take almost the opposite stance, "the AIA contracts, in all forms, are way too long & complicated other that [sic] for large & long engagement projects." What would you have the AIA take out for projects that aren't large & long engagement?
I'm not trying to pit you two against each other, I'm genuinely curious. I review a lot of contracts for a lot of projects, and by far the cleanest, most concise, and most complete contracts have been AIA contracts.
^ My point is that AIA Contracts read like legalese….written by lawyers to lawyers. In some ways AIA contracts are not unlike getting someone to sign a prenuptial agreement…the language makes it sound like something is going to go wrong.
It would be argued that you need the legalese, language that has been tested in courts, but my position is that most architects can’t afford a court fight in the first place, so on the small stuff why get all lawyered up? A memo of understanding won’t scare the bunny and send them off to his lawyer to hear tell how architects screw people…not a great way to start…you just need a written commitment and understanding, not a piece of legislation.
Why have an agreement that the client won’t read & refer to from time to time? The object is to get the client to behave, not prepare him for the electric chair.
if you have E&O, your carrier likely requires that you have contracts
^ Well there’s another thing you don’t need, but I'll leave that for another thread.
huh? for reals? are you putting yourself in a position to get totally screwed should something go wrong if you don't have insurance?
carrera totally agree on your AIA contract breakdown.
i think he's said in the past that, if you hide the money, there isn't anything to come after
^ Correct...Written about this before to deaf ears. What is the purpose of EO insurance? To pay lawyers! No case gets to a courtroom unless someone dies…all cases are arguments about money and if you don’t have any then there’s no argument.
40 years of practice, billions in work and only purchased it on an as-needed basis when required by big clients…then we made them pay for it. Believe me I had plenty to worry about, but our firm didn’t even own the office chairs we sat in…nothing to get, nothing to argue about.
So Carrera, if I'm understanding correctly, you'd take out Articles 8 and 9; Claims and Disputes, and Termination or Suspension. Is that about right? The rest seems pretty straightforward for anyone trying to understand the agreement:
What's the basic outline for your memo of understanding?
All said and done, a standard B101 comes out to something like 18-20 pages. So many words to read and understand. Keep in mind we are more than willing to produce hundreds of sheets of drawings where the equivalent of probably 2-3 sheets of drawings have even worse legalese than what you'll find in any AIA contract in the form of General Notes or Sheet Notes. Specs are probably even longer and worse offenders because they were most likely just copied from the last job and barely updated. Who knows what is being carried over from some overly cautious spec writer in the past.
^ First, contract drawings and specs are for the protection of the client, it’s a contract with a contractor, no foul there, but the agreement with the client is different, it needs to speak to the relationship and to getting-along…it should reduce to writing what was exchanged verbally leading up to the contract and shouldn’t be all-over what happens if things go south, because in reality you can’t afford to head “south”. A memo of understanding is simply what each party is saying they will do for the other and needs to be light on what happens if they don’t…a simple line on your right to terminate and agreement to arbitration is all that’s needed. Sounding litigious makes people get litigious.
So we don't value brevity when it comes to the contractor because we don't want the owner to get along with the contractor?
Thing is, I don't find AIA documents to be written in a way that is litigious. Rather, they are written so that you can solve any disputes before it gets to litigation, or you can take it off the table entirely. The standard in the agreement is to resolve disputes through mediation (if you can't just figure it out like adults) and then the agreement allows the parties to agree to litigation or arbitration.
Additionally, there are things in there like agreeing to waive consequential damages arising out of a dispute. AIA's commentary explains, "By mutually waiving claims for such unanticipated and even remote damages, the parties remove a source of inflated claims and needless litigation."
Even with all of that, I'd argue that if the two parties are really intent on getting along, they will anyway, regardless of whatever the contract says. After all, who reads and follows these things anyway ... am I right?
BTW, if anyone is intent on using AIA contracts and wants a more collaborative style of agreement, look at the Integrated Project Delivery family of documents. You can make it so everyone has skin in the game so if things go south, no one wins, and if things go well, you all benefit. My experience though, is everyone is willing to do it ... until you start talking about signing the contract or forming a joint venture. The thing is, everybody likes to talk like they are team players, but when it actually comes to winning and losing as a team, everyone wants to be able to get something more than someone else, or at least sue someone else ... YMMV.
Of course the opposite of my penultimate paragraph also applies: If someone is intent on being litigious, they are going to find a way to sue, regardless of what the contract says (or doesn't say).
^ That’s fine, not in a campaign against AIA Contracts, just sharing my experience.
The part about “After all, who reads and follows these things anyway ... am I right?” creates some pause…and points to the problem with “these things”. The only time the party’s read these things shouldn’t be when things are at an impasse...they should be simple enough to refer to along the path to help avoid the impasse…clients too often get off the path with their expectations and they shouldn’t have to hire a lawyer with a magnifying glass to figure that out…just something to think about.
Good discussion, everyone.
Everyday Intern, I wonder why you would reference construction start and completion dates in an owner/architect contract:
As the architect, you don't have much control over the permit review/approval timeline, and even less over the construction schedule. Seems to create an obligation that is largely out of your hands.
mind=blown
Carrera, what business structure did you have set up to protect your personal assets, assuming corporation?
Carrera, I agree with your sentiment that we shouldn't only refer to the contracts when there is some sort of impasse. I do tend to think the AIA documents are simple enough, and don't require a lawyer's magnifying glass to read them. I like the idea of simpler and cleaner contracts ... I really do. I'm curious as to how you've managed with your memo of understanding, but I suspect it has less to do with the memo and more to do with your disposition and approach to a project. Though I'm sure the memo helps to set the client into that same disposition and approach as well.
jeiffert, it's not my idea but rather the AIA's. My glib paraphrasing of the paragraph is slightly misleading. Really the owner is stating their anticipated dates for commencing construction and substantial completion. It becomes important as initial information because the architect needs to be able to establish an initial schedule for their services and establish a time after which basic services become additional services. Review the commentary on AIA B101 paragraph 1.2 for more information. Note that 1.3 establishes that this information can change (after a long permit review/approval for example ... assuming it isn't because of the architect's negligence) and the schedule, etc. can be modified appropriately.
Should also note something here. When there is no contract, at least in Colorado, the terms of the AIA contracts have been held up as the "Standard of Care" as far as responsibilities, roles, processes, etc. for the industry.
Depends on the client and project, of course, but I'm with Carrera, especially for residential work. AIA contracts are minefields - full of all sorts of things that can make the client think twice and cause lots of problems (typically starting with renegotiation after the contract is read).
To memorialize a verbal agreement I use a single page letter that lays scope of work and general responsibilities of each party. This is probably pretty close to Carrera's "memo of understanding".
Contracts are only as good as how much lawyer you can afford (see Jaffe's Second Law). So hone your sense of smell to avoid bad clients and do everything you possibly can to make the project a success for everyone. You don't need a piece of paper to do that, and having one is no guarantee of anything.
Miles, echo that.
Chigurh, any Corp or LLC will provide a shield to your private assets (house etc.), but I learned the hard way to be sure that you only act behind that shield, even a handwritten note sent on your home stationary without your logo can be a problem…people can’t sue anything except the shield and the shield needs to be worthless.
Why does a firm need to be worth anything if it’s not on the stock market, or not being sold?
Trouble comes when the firm borrows money or leases things and personal signatures are required…that would drift the discussion into issues of near or actual bankruptcy…that’s mainly where “hide the money” comes from. One needs to never sign personally for things, but it’s pretty hard to do. On the other side of the same coin is the risk that the shield does get penetrated…which once they discover the shield is worthless that will be their next step…to devise arguments that would allow them to sue you personally…a double reason to hide personal assets….just makes the law suits drift away.
Everyday, I started doing the memo’s about mid-career after someone had me sign one…it just worked better on the smaller stuff, people were more incline to sign them quickly, seemed to make things less adversarial, set a friendlier tone that I found worked…never used them on big stuff. Would add that they do work on big stuff, as a way to get potential projects off the market…as preliminary agreements…something about signing something that keeps people from shopping around.
You said you never used your memo of understanding on big stuff: "I started doing the memo’s about mid-career [...] it just worked better on the smaller stuff, [...] never used them on big stuff."
What did you use on the big stuff? And how big did a project need to be before it was big?
I like your point about preliminary agreements. Lock that puppy down before they have a chance to change their mind.
^ Too long ago to remember exactly, maybe $1 Million…used them with all consultants at all levels…most architects don’t write agreements with them, mainly to lock down time schedules with penalties. Man I could go on about those guys, what a racket.
I used AIA agreements on larger work.
Learned the "lock-down" from a car dealer friend...."just sign the offer and give me a dollar...."
^ thanks Carrera.
Miles, Saying AIA contracts are minefields implies that there are things that are hidden (mines) in the contracts. It's all written in black and white in an organized, logical manner. If anything is hidden it's because someone wasn't reading it, paying attention to it, or just didn't comprehended the meaning. I can't make someone read the contract if they don't want to, I can't make someone pay attention to it if they don't want to, nor can I make someone understand the meaning if they aren't trying. I can however, help them do all these things if they want it. I do see your point and Carrera's about a simple memo or document. I'm not saying those things don't have a place. But even Carrera acknowledges that AIA agreements have their place as well ... or at least they did for larger work.
When I bought my house I had a realtor who was willing to sit down with me and all the paperwork and explain it all to me and elaborate if I had any questions. Can't architects take that sort of thing on and guide our clients through the paperwork? First it requires us to understand the paperwork though, and that's probably the failure. What happened to that thread where someone was bragging about not reading a single AIA document while taking the ARE? I wonder if the firm they work for uses them, or does something more like Carrera's memo?
gruen, you said, "AIA contract misses a lot of things in my opinion." What is it missing? Can you elaborate?
Woah man!!! Just about to land my first large contract (what I think is large any way) and made the rookie mistake of dropping a 30 page contract on the client. We went through part of it, but he totally lost interest and seemed annoyed. I rewrote the thing and got it down to 8 pages... probably still too long... but I have lots of white space. We were able to walk through the whole thing in 45 minutes. He would have signed except for two key disagreements on payment milestones and ... me using pictures of the property for marketing, etc... Go figure.
Anyways, I'm supposed to edit and come back for a check and signing next week.
I had originally given him a 2 page proposal outlining the meat of the agreement. If I had put a signature line on it, I'm pretty sure he would have signed it a month ago.
I might be coming at this from a different side but I do a lot of work for a GC, mostly residential work. He shows me a project and I shoot him an email proposal, about a page long. Its normally a copy/paste from the previous one, outlining all the required stuff in contract- scope (deliverables), schedule, fee, additional services, termination. Most importantly, it details what I am not responsible for. This is the closest thing I can find to a MOU that still allows room for special conditions for certain projects. It might be applicable to new clients, so long as the brevity doesn't cause them pause.
^^ 3 meetings to sign a contract = 3 opportunities to change his mind...even if you go long get a signature on a proposal or a set of initials…”agreed pending formal contract”…now he’s got a big question mark floating over his head…”30 pages? 8 pages? Does this guy know what he’s doing? How about no pages?” You made a mistake and you haven’t even started. I’d do a mea culpa 2 pager and end it.
Intern, wurdan freo describes the beginning of a walk through the minefield.
wurdan, trim that sucker down to the essentials of the specific project.
I don't even require a signature, the retainer check is the client's acceptance of the agreement.
wurden - reference AIA standards, state acts, etc.. in the small print at very end.
Your client should be able to see the fee within 2 pages and have a clear outline of it on payment schedule, the rest is just gibberish.
Miles, you're assuming wurdan was using an AIA contract. That was never given. Even then...
"We went through part of it, but he totally lost interest and seemed annoyed."
^ that's a key take away from wurdan's story.
"I can't make someone read the contract if they don't want to, I can't make someone pay attention to it if they don't want to, nor can I make someone understand the meaning if they aren't trying. I can however, help them do all these things if they want it."
^ that's a key point from my previous statement. Sounds like the issue isn't with the AIA contract (if wurdan was even using one) ... rather it sounds like wurdan didn't know the client or their expectations for the contract very well. Client didn't want to understand the 30 page contract; he lost interest and was annoyed. wurdan rewrites the contract to better meet the client's expectations for what the contract should be and things seem to go better. Good for wurdan. Doesn't mean that AIA contracts are full of mines.
Key phrase: writes the contract to better meet the client's expectations
Not a standard form. But if it works for you, knock yourself out.
Still doesn't mean AIA contracts are full of mines. But keep telling yourself whatever makes you happy. The other part of the key phrase you note is the client's expectations, there are things you can do to manage them. They are less likely to recoil when you give them 30 pages if they are expecting 30 pages.
For those of you that do write your own contracts ... are you writing them from scratch? Do you copy specific portions from standard forms, maybe changing a phrase here and there, mostly leaving out what you think is unimportant from the standard forms? Are you paying a lawyer to write them from scratch?
“Writing from scratch” reminds of something else…a negative. Found sometimes that clients were wary of nonstandard documents…you know that feeling you get when you walk into someplace and there’s no price list on the wall? While the bullet points were specific I started making mine “look” like business forms…had a printed fee schedule on small stuff for the same reason…”this is what I charge everybody….” Just something to think about.
Think what Miles is driving at is valid…when you’re doing a contact with new clients it’s at a fragile time in the relationship….no real trust yet…not a good time to wrangle over words & numbers and AIA “Lingo” can open up cans of worms….thus “minefields”….especially when you get to that part about who owns the drawings….now’s there’s a real showstopper.
The scope of work I wrote the contract for was CM as Agent. This is to build a spec home so not design and not AIA docs. I started with the Consensus DOCs 831 (30 pages) as I really liked the spirit of the contract. Quickly realized that it was too much and while using some of the key points from the contract rewrote with my services.
Page 1 is agreement - between me and him.
Page 2 is Services - I will provide
Page 3 is fee schedule - paid to me, how much and when
Page 4 is Insurance - what kind and how much
Page 5 is Termination - how and why
Page 6 is Legalese - I won't sue you and you won't sue me... mediation... binding arbitration
Page 7 is contract documents - plans, spec, etc.
Page 8 is signatures.
Good news is I will have this ready for the next one and will be able to provide less opportunity for the client to change their mind. Maybe I get rid of the legalese... Maybe I get rid of the insurance too...? What do you say Carrera? Although this client insisted on it.
I think for the scope of work, the contract is fairly streamlined and professional. I have seen other builders contracts that run the gamut from one page hand written scope of - "i will build you a house for $x" to 30 pages of legal speak "I will build you a house and no matter what goes wrong it's not my fault.." and most recently I've talked with a builder who is building two houses for a developer with no contract!!! It's the wild west out here in Denver right now. My potential client has built 14 homes and has signed some very bad contracts that he has shared with me. He has been appreciative of my efforts and was aware that I would be creating this contract from scratch so to say. Point of my story was I definitely made some of the mistakes Carrera and Miles were alluding to with long, drawn out contract language. Keep it simple stupid.
For design work I've done in the past, I've always used a one page contract. Pretty simple, but then again, my design contracts have been pretty small. $500-$10k
A construction contract, IF you are at risk, is an entirely different story….true CM is no different than architecture, it’s a service. Around here the builders use a single page, maybe two…the little said the better with these guys, but you need a little snake oil in your blood to play cowboy like those guys.
What kind of insurance? Insure what? E&O for a house? If he wants it and you have the money built in to pay for E&O just give it to him at this point, but leave it out in the future. What competitor (builder) is giving out E&O? If it has anything to do with the building or property it’s completely out of bounds.
Just go with the 8, but in a round 3 situation I wouldn’t get too whiny about anything, just get it done…you have to realize that you need to walk with a little wiggle room and if something comes up you can always do a sit-down…even the Constitution got amended.
Carrera - That's a great point and one that I've confused with my prior employment were I was doing mostly CMAR as opposed to this contract where I am merely providing CM services. This contract probably should be the 2 page proposal I had originally penned with a signature line.
Since I'm acting in a capacity where I am providing recommendations on means and methods, sequencing, materials and subcontractors... the E&O was for errors in my professional recommendations as advisor. Also general liability for me and builder's risk for the Owner.
I've already made the minor changes and just have to coordinate a date for signing, targeting Tuesday. Will leave it at the 8 pages at this point.
I'm thinking page 1, 2, 3, 7 and 8 could probably be reduced to 2-3 pages for future work.
General liability is fine (personal injury/auto), but builders risk under CM is not. You’re not owning any materials, you don’t own any tools or equipment…have done tons of these and the owner, because he owns the property, has liability and needs to buy property insurance anyway for fire/vandalism etc.…you don’t own anything, how can you insure something you don’t own? All he needs is a builders risk rider added to his homeowner policy...it’s cheap as a rider, he needs it under his name anyway for any pass-through losses. Tool & equipment losses are protected by your sub’s insurance, they own the tools & equipment, any material that gets dropped off is on his property and belongs to him the minute it hits the ground…he only needs builders risk as a backstop in case a sub forgets to pay his premium or any material gets stolen. Might want to talk to your insurance guy about this on Monday.
I think you’ll learn as you wade into this, what is important & what’s not.
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