Engagement, Clients & Fees

Category: Engagement, Clients & Fees

Pro-bono jobs are done without a fee. Or perhaps at some concessional fee such as meeting basic costs but not time and labour. Do not assume that because you are gifting your skills and resources, those that might make a claim against you will take an equally charitable approach. Your responsibilities are the same, and the other risks remain the same, regardless of whether fees are paid or not.

“PJs” (private jobs) are a time-honoured way that employees widen their experience or carry out work for friends and family. An employee acting in the “normal course of their employment” would generally be protected by the employer’s PI cover: that would exclude PJs. An employee doing work on their own account will be carrying the risk, and it is up to them whether they are insured or not.

But the problem is that in the event of a claim, the employer – even if unaware of the project – is likely to be in the claimant’s cross-hairs. Employers should deal with these matters in their staff terms of engagement. Written consent of the directors should be a precondition for staff to engage in related business interests, and all subsequent arrangements should be in writing: a congenial/collegial chat is not sufficient.

The employer, if allowing staff to carry out PJs, should:

Remind such staff of the risks of carrying out professional work without the protection of insurance; and of the necessity to meet the requirements of the NZRAB Code of Ethics.
Insist that the client is made aware that the practice is not involved in the project – perhaps by drafting a letter to the client – and should keep a written copy of that communication.
Make clear that there must be no use of office reputation and/or intellectual property, materials, addresses, details, resources, staff, or management.
Confirm that using your firm in any way comes as a cost to the firm which could either be classed as stealing or employee benefit, as may be agreed (or not).
Watch out for watermarks on prints, email signatures, digital files, timesheet records, etc..
Require that any and all communications in respect of the project should be through a job-specific email address, and not refer to or be recorded in or be part of the office system.

The better course of action may be to encourage the employee to bring the project into the office, along with whatever arrangements might be required in respect of fee-sharing or rewards, including the level of responsibility within the firm for that job. The firm still needs to take care in monitoring actions and communications between employee and client: there is the likelihood some will be “informal” and outside usual office circumstances.

Do agreements for engagement need to be in writing?

Don’t for a moment think that you (or your client) might be “off the hook” because an agreement or contract has not been signed.

A contract can exist even if it isn’t necessarily in writing
There may be a difficulty in enforcing terms which are referred to, but not actually provided to the client.
Having something in writing is clearer and contractually stronger (and a specific requirement of NZAB ethics Rule 58A)
Having something in writing that is signed by both parties deals with an evidential issue and so is stronger again

NZACS has had ongoing involvement in the NZIA terms of engagement as they evolve, and recommends that members use them.

If there is a difficulty in getting the client to respond, then you should set out the necessary information in writing and indicate (for example) “… confirming our conversations yesterday when you instructed that we were to – etc etc – we are now proceeding on the basis of these terms and conditions unless or until you advise otherwise …”

If there has been some discussion about the terms and conditions (or several variations of them), make sure that it is clear which version is to apply. You might also refer to them in your first invoice, in which case payment of that invoice may confirm acceptance.

Pro-bono work and PJs

The employer, if allowing staff to carry out PJs, should:

Remind such staff of the risks of carrying out professional work without the protection of insurance; and of the necessity to meet the requirements of the NZRAB Code of Ethics.

Insist that the client is made aware that the practice is not involved in the project – perhaps by drafting a letter to the client – and should keep a written copy of that communication.

Make clear that there must be no use of office reputation and/or intellectual property, materials, addresses, details, resources, staff, or management.

Confirm that using your firm in any way comes as a cost to the firm which could either be classed as stealing or employee benefit, as may be agreed (or not).

Watch out for watermarks on prints, email signatures, digital files, timesheet records, etc..

Require that any and all communications in respect of the project should be through a job-specific email address, and not refer to or be recorded in or be part of the office system.

Collecting Fees from Reluctant Clients

Collecting Fees from Reluctant Clients

Prevention is often the best medicine for many things in life, and this includes collecting fees from reluctant clients. It is far more efficient (and less stressful) to put systems in place that encourage timely payment of fees than it is to constantly chase clients for late payment.

Here are some ideas to consider when reviewing your approach to invoicing and collecting fees:

Communication:

Be clear about your payment terms at the time of engagement. Don’t be afraid to discuss these at your initial client meeting and make sure your invoicing and payment terms are stated upfront in your Offer of Service. Ensure you have a signed contract in place (preferably a standard NZIA AAS) that outlines conditions relating to payment of fees, suspension of services and management of disputes.

Transparency:

Most people want to understand where their money is going, particularly when large sums are involved. It’s helpful if invoices have a breakdown of the services or tasks provided. Consider how you can align your Offer of Service, the contract, and the structure of your invoices so that clients have a better understanding of the services they are being provided and what they are being charged for with each invoice.

Frequency:

Whilst traditionally architects charged by stage, invoicing on a regular basis (e.g. monthly) has a number of benefits:

It’s better for your cashflow. Regular payments are the lifeblood of your business helping you to keep on top of your own regular payments (salaries, rent, licenses, etc.)

It’s better for your client’s cashflow. No one likes a surprise large bill. Smaller, regular payments are typically easier to digest for most clients. Developing a regular pattern of invoicing also sets some expectation about payment of your fees.

If a client is unhappy with an invoice or with work carried out, your exposure is more limited if the bill covers a shorter period of time (e.g. a month as opposed to the entire detailed design phase!)

Managing Expectations:

Almost inevitably, the fees set at the outset of a project will change as the project changes, and/or there will be a mis-match of perceived progress versus fees invoiced:

In compiling the initial fee proposal, take at least as much effort (if not more) to explain what is NOT included as what is included. Alert your client to the prospect of fees for other consultants and regulatory approvals.

Educate your client about the reasons fees may change, before they change. Where the project scope or timeline changes, alert your client to the potential fee implications.

Put the effort into explaining the scope of work, progress achieved, resources expended and any other verification required to indicate to the client that each fee invoice is appropriate to the work done (ie the fees are a reflection of “value” provided). This is particularly important where the work varies from the initial fee agreement.

Maintain ongoing communication between fee invoices, with regular client updates to discuss the project and to demonstrate the work that the work is proceeding as expected, or if not, why not.

Suggestions for recovering late fees:

Send a reminder: A gentle reminder with the accompanying invoice or statement of account is often sufficient to induce payment from a client who has forgotten to pay the bill.

Pick up the phone: Good communication will resolve many issues in the practice of architecture and a friendly phone call is often the best way to get to the bottom of why a client has not paid your account. The reasons could range from dissatisfaction with the services provided to more personal reasons (such as cashflow) on their side. Use your problem solving skills to reach a solution that is acceptable to both parties.

Escalate to formal action: It’s business, not personal: maintain your objectivity. Before escalation, swap positions: put yourself in your client’s shoes and bear in mind that what for you is “business as usual”, for them may be a stressful strange and uncertain process with real tax-paid dollars at stake. Or perhaps they are hardened commercial bargainers who routinely put pressure on all whom they deal with. They may have misunderstood something, or may have genuine gripe which you have yet to accept, or they may just be generally nasty. Whichever the case, don’t do anything until you can understand their side, and your potential worst case outcome. Consider the value of your fees in arrears against your likely time costs and stress of recovering them. Consider whether pressure applied will be returned with a vengeance. Then – perhaps – convert those assessments to a (generous) discount on the fee applicable only if paid by a date certain. Failing that:

The General Conditions of NZIA AAS map out a clear process for disputes resolution and this covers fees too (Clauses D7 and D12).
Any payment claims under the Construction Contracts Act 2002 can use the dispute provisions under the Act.
The Disputes Tribunal (Small Claims Court) can be used to settle small claims up to $30,000. It’s a good idea to seek legal advice first to provide guidance on the outcome you might expect and how best to present your claim.
To escalate a debt recovery issue further, you should consult a lawyer experienced in debt recovery to discuss options.

In summary

Put systems in place to encourage timely payment of fees. These will include:

clear payment terms in your Offer of Service and contract
structured invoices that detail a breakdown of services and fees
invoicing on a regular basis
ongoing communication

When payments are late:

follow up with a reminder once an account is overdue
call your client and keep the dialogue friendly and professional
be prepared to “do a deal”
understand your options for taking formal action and consider the likely outcome, time, costs and stress involved.

Further reading

On managing debtors, refer to the NZIA Practice Note PN 3.212 Getting Paid: Managing your Debtors and Reducing Financial Risk.

There are several relevant articles on the NZACS website, in particular:

Get your fees and scope agreement agreed and signed

A Sad Tale about Fees

Outstanding Fees: Will a Fee Claim Dispute Lead to a Negligence Claim?

Fee recovery – a real-life example

Over the past 18 months or so, the Editor decided to test the actual process of fee recovery, as a learning process: certainly not as an economic exercise! All figures are “rounded”.

Background

The original fee was $3900. There was no doubt or quibble about the services delivered, or potential for a counter-claim: the client (a company) was just a classic non-payer, and refused to “engage”, presumably reckoning that there was no prospect that recovery action could be economically justified. Whilst I could have written it off, I was not inclined to do so!

When my fee claim was not paid after several emails and promises, I served a CCA Payment Claim for that sum plus the contract rate of interest to that date. There was no response, so I compiled a Summary Judgement application from the helpful information and templates on the Justice Dept website, seeking judgement on the original sum, plus interest, plus the lodgement/uplift costs of $450. The client did nothing in response, and after I appeared in Court a few months later and the client failed to respond, I got my judgement, now at $4900. But that is the easy bit: you still have to get the money!

I then instructed a lawyer who assured me all his costs would be met from the recovery from my client: no recovery = no legal fees. This took another few months, filing fees of $540, and miscellaneous disbursements of about $200 which I paid out in the hope of recovery. My client hedged and dodged, but the lawyer was ruthless (presumably to get his $2400 fees!), I waived some of the accumulated interest, and the client paid up – now $8200 – the day before being put into liquidation.

Lessons learnt:

My (unpaid) time for all this was about 15 hours, and if I had been realistic, or stressed about the issues, that would be significant in assessing whether it was all worth the effort.

The contract rate of interest is the leverage you have for recovery, but there have been legal cases which have decided that interest could not be applied because the client’s specific attention was not drawn to it at the outset.

The usual response to an assertive fee recovery is for the client to counter-claim damages for your alleged failings: if this is even remotely possible, you must tread very carefully! NZACS has had plenty of claims where architects have commenced Summary Judgement proceedings with the belief that it will be a sure bet for fee recovery, only to have the debtor respond with a counter-claim. In such instances, the claim will be declined judicially.

Generally speaking, it is better to seek legal advice before seeking a Summary Judgement, and if you do enter into negotiations with the debtor, try to maintain some “wriggle room” instead of locking yourself into a course of action you may later regret.

Observation

Observation

Our website has several articles on “observation”. When claims are based on building failures, inevitably the role of observation comes under scrutiny. This article is the combination of thoughts from four NZACS Directors: Peter Marshall, Alec Couchman, Michael Davis, and Colin Orchiston.

Observation versus Contract Administration

The current standard forms of engagement and contract intermingle observation with contract administration, and whilst they are interdependent, they are also separate. This separation of roles is likely to increase, and the NZIA is actively involved in current MBIE consultations around establishing the contract administration role as a stand-alone.

If you are engaged for observation you can report on what you have observed, but the duty to administer the contract – including ruling on variations, certifying payments and completion – rests with the contract administrator.

A consequence of separating the roles might be that rectification needed as a result of the observation role cannot be enforced because the leverage obtainable by with-holding payments is at the discretion of the separate contract administrator.

The role of Observation by the Architect primarily arises out of the terms of engagement between the Principal and the Architect. The role of Contract Administration arises out of the (building) contract between the Principal and the Contractor. If a building contract provides for independent observation (as does NZIA SCC at 8.8 and NZS3910 at 6.4) then those terms will provide the scope and rights/obligations applicable. If the building contract does not provide for independent contract administration or observation, and/or is inconsistent with the architect’s terms of engagement, the scope and terms will need to be agreed elsewhere, failing which they will be uncertain.

In a larger practice, the roles of designer, contract administrator and observation can be parcelled out to different staff, and the bigger projects suggest repetition of some site activities; when the same person does all three roles, the familiarity with the project suggests that critical aspects for observation should be known.

Partial Observation is a high-risk option

Any hint that the terms of engagement include observation will lead to assertions that building failures are the result of the architect failing to correct the work at the time it was done.

This makes the provision of “partial services” or “limited observation” or “site attendance on request only” or some fixed (eg weekly or monthly) site visit frequency a risky proposition which should be resisted. These arrangements may remove or diminish your control over the sufficiency of your observation, and yet you may still be held responsible for the full weight of “proper” observation.

It would be nice to just say “don’t do it” but the reality in the market is that it is necessary to view it as an unwelcome option that requires careful risk management.

Who is to say what you could or should have seen when you went on site?
Or whether you were on site sufficiently?
Or for the right reasons or at a critical point in time?

Our website has several articles on “Partial Services” and they are not the focus of this article, but it is difficult to defend an allegation of inadequate observation on the basis that only “limited” oversight was intended, or was possible.

One of the early WHRS claims considered the defence offered by a Building Inspector that he was over-worked and the available resources provided by his employer meant that he could not adequately carry out the level of inspection necessary: unsurprisingly the Court took the view that the regulatory duties were not diminished because of management failures by the provider!

Against that background, there has to be a very thorough defence to justify why an architect engaged for observation did not – or could not –instruct rectification of observably defective work.

The Observation role should be whole-hearted, with attendances as and when required, with fair and commensurate fees, and with scope and fees sufficiently flexible to deal with changes in the circumstances of the project.

How much is “enough”?

The Project Architect should assess the level of observation and the frequency of site visits at time of agreeing the terms of engagement. It is (possibly) more important to set out what you won’t do, than to say what you will do; and essential to provide for changes to reflect the changing circumstances of the project. The architect’s risks are compounded if the level of observation as agreed in the original terms of engagement does not correlate with the level of observation later required or sought.

In smaller projects this may arise because the client removes observation and contract administration from the architect’s scope during the procurement process.

In larger projects it would not be unusual for the architect to be appointed early in the process and then later a project manager arrives who then appoints and instructs the consultants; the architect is removed from the contractor procurement process; contract administration is undertaken by others; the architect’s role is limited to clarifying the documentation and restricted site access for monthly reporting; the consultants remain responsible for observation but do not have the power to obtain rectification; yet on completion the funding agencies look to the architect to certify completion.

Engineers have a structured approach to determining the level of observation and frequency, but it does not take into account the issues we face as architects carrying out observation. It is not really about how often one visits the site, but whether the site visits capture the critical issues: that suggests that the project architect should be keeping an eye on the site progress, identifying what issues are likely to be critical if not performed as required, and planning site visits around those issues. Subject to ongoing review, an initial assessment might be on the following basis:

OL1 Intermittent Site Visits: small & simple projects fortnightly visit

OL2 Periodic Site Visits: medium complexity & size weekly visit

OL3 Regular Site Visits: larger or more complex twice weekly visit

OL4 Constant Site Visits: major complexity and scale every second day

This may or may not suit the project, the potential risk, or the fee, and is complicated by:

Construction activity varying over the duration of the project, from site mobilisation and excavation through to a myriad of trades finishing works.
The skills and experience of the contractors and sub-contractors, which may require more observation to mitigate risk.
Progress on site varying from programme or expectations.
Sufficiency accuracy and reliability of design and as-built documentation, and the level of co-ordination between consultants, may lead to more on-site queries and site visits.
Substitutions or redesign sought by contractors; client and/or project manager changes, demands, expectations; similarly, from incoming occupants/owners and their funders, and overlaps with fitout requirements.
Critical technical and programme issues, specific design complexities, perhaps where the risk of non-compliance varies disproportionally in relation to cost, scale and complexity.
The need to exhibit to the contractor and client that you are “on top of things”
The number of site visits not reflecting the duration of the visit, eg 1 hour; 3 hours, etc.

There is also a “bell-curve” which is typical: for smaller projects especially, a lot of attendance is necessary at the start of the job while the builder is grappling with what is required (and the architect is gauging how much hand-holding or vigilance may be required); in the middle of the project when there is a lot of repetitive work the only reason to visit might be for the purpose of valuing a progress claim; at the closing stages monitoring of finishing items may be to the level necessary to keep the client happy.

Observation does not mean inspection, or supervision

Lawyers and the courts do not appear to recognize the fine hair-splitting implied in this statement, and lawyers seemingly make no distinction between undertaking one site visit a month as opposed to a permanent site presence when it comes to blame. But that doesn’t make the distinction incorrect. It suggests that we need to do more to communicate the distinction.

Supervision is the control and direction of the work; Observation is a review of the work done.

Observation of a typical installation versus every installation

We are judged against what is deemed to be the actions of a reasonable architect in those circumstances at that time.

If you observe a representative quantum of a particular aspect of work to confirm that it matches your documentation and make the assumption on reasonable grounds that the remainder of that work will be similar, those are the actions of a reasonable architect. If a client wants more than that they need a clerk of works, and even then there’s no guarantee of perfection.

It is reasonable – in absence of evidence to the contrary – that an Architect assume that the contractor is competent: if a typical item of work is acceptable, and there was nothing to suggest that the remainder of that type of work would be executed any differently, then those other instances of that work may be assumed to also be acceptable.

But if a window is leaking because of an obvious and observable fault, and the architect did not notice the poor installation when there was the opportunity and need to do so, then they will be dragged into the issue, regardless. To claim that inspecting one window is sufficient for all windows would be a weak defence if 90% of the windows subsequently leaked (even if the one window the architect did inspect was perfect).

If you review an item of construction in detail and it is aligned with the documentation and complies with NZBC you can accept it, but you cannot then step back and not carry out observation of those repeating elements. At the very least you would need to review the repeated elements to the extent necessary to conclude that they were consistent with the item reviewed in detail. If the review of several such items revealed a variation in installation quality, the conclusion would be that site quality control is lacking, and more follow-up is required.

The question is whether what was observed was representative of that part of the construction: inspecting a window “type A” may or may not inform about the installation of types B,C etc. If there are 100 similar items then a reasonable assessment has to be made whether to observe in detail 1,10, or any number of them to be satisfied that the work is being done as required. Were they installed by the same persons at a similar point in time? By skilled or unskilled staff? What quality controls were in place? What are the consequences of failure? Who is likely to respond – and how – in the event of failure? For marginally acceptable items, how does the installed item compare to independent benchmarks or to supplier’s requirements?

Be very wary of providing any sort of statement as to quality/completion/compliance

Your observation role is to report on whether the work done complies with the contract requirements; your reporting can only be on the basis of what you have seen, and what you can reasonably infer from what you have seen. Your reporting will be dependent on the conditions under which the observation took place: the weather, the available access, whether the item was complete or in progress, and what information was provided to you by those on site who directed the work. If your reporting is based on assumptions, make those assumptions known.

Your observation reports will be used for two purposes: to inform the contract administrator about the progress and compliance with the contract requirements, and to provide ammunition to those who want to pin liability on you for subsequent shortcomings.

Covid or Supply-Chain Costs and Delays

Most of us will be aware of the problems builders are having in getting materials onto sites at reasonable times and costs. This will have a consequential risk for design practices: your Risk Management should be looking beyond the short term and thinking about the effect that these problems will have in the future.

If you had any doubt about the seriousness of these issues, take a look here: https://www.eboss.co.nz/supply-chain-report-2021/background

https://www.corelogic.co.nz/news/construction-costs-rise-22-three-months-june-fastest-quarterly-growth-record#.YTASCo4vNPZ

These issues will impact on client/designer/builder/funder relationships. The material cost changes of 5% to 25% in the past year or so are the harbinger of more upward movement. Labour costs are being driven up by tight labour resources and contractors well booked into the future. The supply chain problems are disrupting site progress, leading to project delays and pressure on contractors’ margins.

The problems are not ours alone: America and Europe are also troubled by shortages of materials and labour, slow and expensive shipping and varying lockdown measures. Covid is driving up inflation generally, and the size of our economy (and construction industry) means we have ineffective leverage on material supplies.

Clients with projects at design stage may be unable to accommodate these costs and delays within their budgets. Others will continue but with resentment adding stress to the project. Still others will be looking to continue but with cost cuts which may compromise the design and add to design costs. Procurement strategies may favour early contractor design involvement, movement away from lump sum contracts to an arrangement which redistributes the risk of delays and cost increases, staged consenting and contracting, and design-stage identification and ordering of items requiring long lead times.

Projects under construction will come under stress if builders cannot complete within the time and cost parameters understood when the project was priced. If increased costs cannot be recovered, performance on site is at risk or perhaps may be abandoned. Where costs can be recovered, they will not be welcomed by clients. Arguments from delays beyond those directly related to Covid lockdowns will be unpleasant. All of those circumstances represent increased risk to you: both additional (and perhaps unrecoverable) attendances, and the potential for dispute and negligence claims. In order to manage those risks, please take the time to assess how these issues will affect all the projects you have underway, in particular where reliance has been placed on pre-Covid cost/time estimates, and to communicate appropriately with each client.

Does the 10 year longstop still apply?

Not so long ago, in our Communique article “How long to keep records” we said

“The warm fuzzies induced by the 10 year longstop on liability under the Building Act have been under threat from cases brought to Court. So far, so good. But it would be unwise to biff out everything related to a project as soon as the longstop is reached”

Alas, in May 2021 the decision on the October 2020 hearing of BNZ Branch Properties Limited v Wellington City Council [2021] NZHC 1058 has made good on that threat. There may be the possibility of an Appeal, but currently, the position is that if (for example) the owner makes a claim on the contractor at 9 years and 364 days, that contractor would have another two years to seek a contribution from you as a “third party”.

The case arises out of the BNZ building on the waterfront in Wellington, which was damaged in the 2016 Kaikoura earthquake and later demolished.

In August 2019, BNZ sued the Wellington City Council for negligence in respect of granting the building consent, inspecting during construction, and issuing a CCC. A month later, Council sued the engineers, Beca, as a negligent third party, seeking a contribution in accordance with s17 of the Law Reform Act. Beca argued that it had provided its engineering services in March 2008, more than 10 years before Council filed its claim, and thus the claim was time-barred by s393(2) of the Building Act.

The issue before the court was not whether or not Beca was negligent, but whether – in consideration of the limitation issues – they were liable.

The Building Act s393(2) states

“….no relief may be granted in respect of civil proceedings relating to building work if those proceedings are brought against a person after 10 years or more from the date of the act or omission on which the proceedings are based.”

In simplistic terms, the understanding has been that you are not liable for your actions (as a building designer) beyond 10 years from the date on which your actions may have given rise to the alleged problems.

NZ case law has confirmed that in respect of primary claims between plaintiffs and defendants; but the position has not been so clear in relation to third party claims. This was a test case for that issue, with about $100 million at stake.

Beca argued that the use of the words “civil proceeding” in s393(2) of the Building Act was intended to include “every form of civil proceeding regardless of its source or makeup”.

The High Court, after a detailed consideration of the relationship between s393 of the Building Act, s17 of the Law Reform Act, and s34 of the Limitation Act 2010, held that the term “civil proceeding” in s393 of the Building Act refers only to a primary claim between a plaintiff and defendant, and does not include a claim for contribution.

Third party claims – such as the Council’s claim against Beca – must be initiated within a two-year period provided for in the Limitation Act 2010. This judgement establishes that so long as a claim is made on a party within the Building Act 10 year longstop, that party would then have two years in which to make a claim against third parties.

NZACS has previously suggested that the WHRS timelines justify keeping your documents 12 years, not just 10: such things may (almost) be in the past, but this new case reinstates that recommendation. Those “warm fuzzies” are now facing the reality of winter.

Non-Standard Terms Of Engagement (2).

Non-Standard Terms Of Engagement (2).

Use NZIA/AAS or CCCS terms

The short point is: the NZIA or CCCS terms are “neutral” and built up from many years of experience in projects of all types and sizes, so you should be VERY AFRAID of attempts by others to reinvent the wheel, with the prospect of unexpected and potentially unwelcome outcomes.

The frequency with which clients dream up new terms of engagement is wearying, and often unnecessary. The NZIA suite of AAS, and the CCCS, are well-accepted engagement terms for architects which apply to all but a few projects. They are the product of wide and knowledgeable input, written in the mutual interests of architect and client, based on verified legal interpretation and case law, insurable, and flexible enough to deal with most issues.

Some clients or projects will have special requirements, but these should be accommodated by specific terms, rather than specific contracts. Wherever possible, you should object to clients attempting to impose their own creations which may later create uncertainty as to meaning and insurability. Both NZIA and NZACS (with input from Aon) are able to provide general non-legal advice, and an appraisal of insurability; but non-standard terms of engagement are a commercial and legal matter, and you should take legal advice accordingly. The separate article “Non-Standard Terms of Agreements (1)” provides some guidance on the words and terms which may be problematic.

For several years – and ongoing – government departments and larger local authorities have developed agreed terms with professional bodies including NZIA, NZACS, IPENZ, ACENZ and others. There is a strong move within government to achieve consensus and coherence, and support for the use of CCCS, even acknowledging some particular (government or local body) needs which are not present in the commercial world. NZIA is keen that the AAS scope schedules are also adopted. We expect this effort to prevail, but meanwhile some clients just don’t “get it”.

2020 Government Model contracts

MBIE’s website states (Feb 2021): These contract templates are not intended for construction, ICT or social services related contracts because they are generally not low risk or lower value.

The GMC is intended for products and supply rather than professional services contracts, which have different needs and requirements. We understand that when MBIE refers to construction, they include architectural and engineering design.

Engagement as a subcontractor, or under NZS3910

DO NOT sign up for a project on the basis of being a party to a construction contract or a supply contract or a purchase order.

BEWARE of being trapped into the situation of being a subcontractor (or sub-consultant) to a design-build contractor. They are known for spreading risk across their subbies: this may come in the form of a grandfather clause which overtakes the usual and acceptable terms of a professional services contract.

NZS3910 (or a variant of it) is NOT an appropriate contract for professional services, and exposes an architect to the risk of PI cover not responding in the event of a claim.

Housing NZ

A recent enquiry to Aon from a member was in relation to a Housing NZ project, where HNZ was seeking a statement that “ …. XXXX Architects:

(1) warrants to HNZ that all work will be carried out in a good, professional and workmanlike manner (and in accordance with the provisions of the Contract) ;

(2) will be required to repair all defects in their works; make good and indemnify HNZ for all direct losses to the works arising from any defect in their works;

(3) will carry out any repair work for which they are liable under the warranty.

(4) if they do not do so within 14 days after receiving notice by HNZ, then HNZ may undertake the work and recover all costs;

(5) indemnifies and holds HNZ harmless for any costs, claims, liabilities etc for which HNZ may become liable arising from failure by the architect.”

This wording was all in relation to a Subcontractor Deed of Warranty sought from the Architect. It is not appropriate to a professional services contract; it is likely to impose terms and conditions beyond those covered by the PI policy.

When contract terms shift the risks and responsibilities

When contract terms shift the risks and responsibilities

The majority of respondents to a 2018 survey by Russell McVeagh lawyers in our industry thought that there had been more disputes over the past two years, and it would get worse in the next two. That prognosis was more strongly reflected in responses from contractors than from principals. The survey cited those trends arising out of skill shortages, risk allocation and contract terms. To that should be added poor communication and lack of comprehension.

Other recent media reports have highlighted the problems arising when contract terms shift the risks and responsibilities from where they might reasonably fall. Some government procurement bodies and large developers are doing – at a larger scale – what homeowners often do through a lack of understanding: assuming that in appointing an architect (or a contractor) they will devolve all risk onto them.

Stick with NZIA conditions of engagement and contract terms if you can! It is the NZACS experience that cost savings in consulting fees or truncated services bear an inverse relationship to the potential for later disputes. Designers are not motivated to provide thorough documentation at punitive fees, and an underpaid contractor is less likely to provide glowing performance. The designer’s absence from the construction phase seems to result in less documentation (when really it may require more) and contractors are at increased risk if the documentation is not adequate, or is adequate but not understood.

The principal may assume that contract observation and administration by the designer is a waste of money. Then, when it proves it was needed, their view is that the design documentation was deficient. The time to resolve problems is usually as soon as the information is available to do so, but in such cases the contractor is reluctant to call in the designer because that would end up costing him and/or the principal money. So the problem festers, and probably escalates.

In the alternative, if the designer is involved in contract administration, the uniformed principal conflates the role with contract management, and the contractor’s defaults become the designer’s failures.

Yes of course NZACS members already know all this! But what is routine for us is not routine for our clients: prudent risk management requires us to think about things from their perspective, and to communicate with them in such a way that the designer’s – and the contractor’s – risks and interests are recognised and accommodated.

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