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Tools for Small Firms: Simple Business Practices that Reduce Risk
By Rena M. Klein, FAIA
Small firm practice is riddled with stumbling blocks and pit falls. Not the least of these are legal troubles caused by ignoring simple business practices that minimize risk. In a seminar held by the AIA Seattle Small Firm Roundtable, attorney Douglas J. Green of Green & Yalowitz PLLC, outlined the top five “stupid things architects do.”
#5 – Not documenting advice given or decisions made during conversations with the client. Write a memo recording the key points in the conversation, send it to the client, and file it with other job documents. Email is OK as long as a copy is filed and easily retrievable.
#4 – Not using a written agreement.
Be sure to have a written agreement (a contract) signed by the client that defines the fee and scope of services. Also state what the architect will not be doing. If the architect does not articulate exactly what services the firm is not going to provide, the client may assume the firm’s scope includes construction administration, cost estimating, or other unnamed services.
According to Green, a Letter of Agreement is not good enough. The exception to this rule may be for pre-design services or schematic design intended to define the scope of the work to follow. Although many small firm practitioners believe a full contract to be off-putting to clients, Green stated that this is a myth and that most clients expect to have a formal business relationship with their architects.
Without a formal contract, there is a danger of confusion as to who owns the work product. This may become an issue if the project does not continue, or if it is continued by another design professional. Green warns that although firms may not be able to prevent clients from using copies of the work a firm gives to them, it is important to be protected from any future liability that may arise from that work. While it is unlikely that there will be liability issues arising from preliminary or pre-design work, it is prudent to stamp all such work with something similar to “NOT FOR PRICING; NOT FOR CONSTRUCTION.”
#3 – Beginning work before having a signed written agreement.
It is a risky business practice to launch into work before a written agreement is signed. There is the obvious possibility of financial loss if the client decides to cancel the project after firm resources have already been expended. Besides this exposure, there is the possibility that the client will challenge the terms of the contract – the fee, scope of work, limits to liability, etc. – leaving the firm with less leverage in negotiating a satisfactory agreement.
Green suggests a contract signing process that will provide architects with maximum security. The architect sends the client two unsigned copies of the contract, asks the client to sign both copies and send them back. The architect then signs the documents and sends one copy back to the client. This procedure will give the architect the last look before signing to insure that nothing has been changed.
#2 – Not following the written agreement once it is in place.
AIA contract documents call for “construction contract administration (CCA)” not construction administration (CA) which is the job of the contractor. Be clear as to the scope of the CCA duties – whether construction observation is to be done weekly, at critical points, or if it will be “on-call.” An architect attendee at the seminar described a difficult situation that arose when she missed a critical construction observation point due to not being notified of changes to the construction schedule. Be sure it is clear who is responsible for communicating the construction schedule to the architect, notifying the architect of changes, and calling the architect if services are to be rendered “on-call.”
Green emphasized the importance of knowing the difference between construction “inspection” and “observation.” He cautioned that the AIA contracts still use the word “inspection” in error – architects never conduct inspections, only observations – and that it is important to alter this language when using these contract documents.
If CCA is not part of the scope of work defined by the agreement, Green suggests that it is important to include a clause in the agreement that states that you are not responsible for any changes, alterations to the plans, or decisions made during construction. Green also recommends that if you do all the rest of the design phases as a stipulated sum, then CCA should also be done on that basis. Because the price is known up front, the client is more likely to agree to have the architect involved in the construction phase. Being on site and being involved in construction decision making (which is documented) is an important risk management practice.
The less obvious aspect of not following your contract is doing additional services without adhering to the terms of the contract regarding additional services. Make sure to get the clients agreement in writing or by following whatever process is outlined in the written agreement. This helps to avoid disputes, misunderstandings, and unpaid project hours.
#1 – Taking any job that walks through the door
Most architects have difficulty turning away projects, however choosing clients carefully may be the most effective risk management tool available to small firm owners. According to Green, it is wise to pay attention to any internal discomfort present when first meeting a client. He advises architects to refuse to work for clients that are openly contentious or impart bad feelings.
Taking on the design of an unfamiliar building type can also be risky and potentially costly, depending how steep the learning curve and how enticing the potential benefits. The risks and benefits need to be assessed on a case-by-case basis before being tempted by something new
Being smart about using formal agreements, documenting decisions, and choosing clients carefully will help to mitigate risk in small firm practice. Although these practices do not guarantee immunity from legal action, they move a giant step in that direction.
Rena M. Klein, FAIA, principal of R.M. Klein Consulting, in Seattle, Washington, is a member of the Soloso Editorial Content Review Board and serves as the Subject Matter Expert for Practice.
Keywords: Practice, Small firms, Firm management, Risk management, Contract documents, Letters of agreement, Fact sheet