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Understanding Contractually Assumed Obligations

20140220_123713Professional services agreements are an important risk management tool. They outline the responsibilities of both parties to the agreement and will include, at a minimum, what services the design professional will provide and what compensation, and when, the other party will pay in exchange.

So for all projects large or small, and for all types of scope of services from feasibility studies only, to full design and construction documents, to construction contract administration, it is important to have a professional services agreement. Equally important to having a professional services agreement is having one that allocates risk and responsibilities to the parties in the best position to manage those risks, and does not contractually obligate the professional beyond their professional standards.

Every professional liability policy that I am aware of has as an exclusion for contractually assumed obligations. The reason for this exclusion is obvious. The policy is written to cover your professional liabilities, not your contractually assumed ones. Exclusion B in the Schinnerer & CNA professional liability policy states in short that claims arising out of an oral or written contract or agreement are excluded except for liabilities that exist in the absence of such a contract or agreement.

So what does that mean? It may sound complicated but there are some easy examples.

Absent an expressed agreement in a contract, the law does not require design professionals to provide warranties and guarantee their professional services. So if a design professional contractually agrees to warrant or guarantee their professional services, that is an obligation that is beyond their professional obligation, and would be excluded.

Another example, and one that is fairly common but not as straightforward, is to contractually agree to review and respond to submittals within a set period of time. Most standard professional service agreements obligate the design professional to review and respond to submittals within a “reasonable” time frame. The applicable standard of care will define what is “reasonable.” However, some contracts may obligate the design professional to review and respond to submittals within a set number of days; for example, five days. If the design professional fails to review and respond to a submittal within five days, and the project owner or some other party suffers damages as a result, the first question will be: how many days does the standard of the profession require?

If it is determined through experts that are other professionals working under the same or similar conditions, i.e. the standard of care, that submittal review and response in this situation requires more than five days, then the design professional has not breached their professional obligation, but has breached their contractual obligation and may be liable for the damages.

So, when reviewing your professional services agreement, always review in light of what your professional obligations would be if there was no contract. And if there is a provision that obligates you beyond the standards of your profession, ask yourself: can I meet this contractual obligation and therefore minimize the chances of a breach of contract claim?

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