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Dissuade clients from insisting on obligations which cannot be insured against

An architect should point out that it will avail no one if an obligation is insisted upon which cannot be backed by insurance, writes Mark Klimt.

This article was first published in Architects Journal.

Reviewing architects’ appointment documents for getting on for 30 years has fuelled my view that there is nothing new under the sun and that negotiating characteristics move in and out of fashion. Uncompromising and entrenched negotiations that were perhaps a feature of the 1980s and 1990s gave way to a greater understanding between the parties as to what their respective needs were and an appreciation (at least on paper!) that it was better for parties to co-operate and work together in negotiations to arrive at an acceptable modus operandi.

This coming together of parties and a greater mutual understanding of what each can accept has in recenttimes given way once again to more polarised discussions with clients (particularly design and build contractors engaging design teams) seeking to pass on wholesale the obligations that they have assumed under their building contracts and third party agreements. Often some fairly onerous and absolute obligations such as blanket indemnities and compliance with programme or cost will be insisted upon by a client as a condition precedent to release of fees owed to the architect. The argument will be that the audit trail requires a signed contract before fees can be released.

Meanwhile, especially where these onerous terms may have been contained in a competitive request for proposal, the architect will not have wanted to spend a lot of money getting legal advice on all of the clauses’ implications and will have simply asked their insurer whether there is anything within the contract which will automatically place the architect outside the policy protection. While this is a prudent starting point, it is also a somewhat artificial question.

Firstly, many exclusions under a policy of insurance - such as those relating to indemnities or guarantees - will bite only insofar as they have exposed the architect to a liability greater than that which would otherwise apply in law. Therefore, until a claim is actually made, it is often not possible to determine with certainty the extent to which it does have insurance protection. Secondly, insurance is usually written on an annual basis and each policy year is a separate contract of insurance. A confirmation given by insurers, which is current when the contract is being negotiated, will only bind that year of insurance, and it may be a different set of insurers, subscribing to a separate contract, to whom any claim is notified.

How, then, can an architect conclude its contract discussion without being held to ransom by a client, and with some confidence that insurers will provide protection?

On the issue of dealing with uncompromising clients, an architect should try and make the client part of the problem, and point out that it will avail no one if an obligation is insisted upon which cannot be backed by insurance. Members of the architect’s team should be made aware of particularly onerous conditions and instructed to give early and repeated warning to the client if circumstances beyond the architect’s control threaten to embroil it in trouble.

Obviously, the architect should try and avoid significant fees accruing and having its negotiating position undermined as a result. If a paper trail is required by the client, perhaps work could begin pursuant to a letter of intent? If the architect is forced to sign, then perhaps the suggestion of duress could be introduced.

Sensible and prudent efforts, such as the above, to contain or manage liability will correspondingly both provide commercial benefit and make it less likely that insurers, whether current or future, will take issue with what the architect’s best negotiating efforts have achieved.

For further information please contact Mark Klimt, Partner on 020 7280 8802 or at mark.klimt@dwffishburns.co.uk.

By Mark Klimt

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.