Risky Business The Shift From Standard-Form Contracts

By Susan Lightstone
Architecture, RAIC/IRAC Architecture Canada, Winter/Spring 2015 Edition, Pages 17-21

Doug Corbett, RAIC, a Winnipeg-based practice leader at Architecture 49, tells of a custom contract prepared by a large Manitoba institution. “It contained a clause stating that we were liable if anyone was killed on the job site. That clause had nothing to do with our design work. We tried to get them to change it, but this is what was implied: ‘suck it up if you want the work’.”

Increasingly, institutional clients are turning away from the standard contracts for architectural services produced by various governing architectural bodies across Canada. As a result, architects find that more risk is being pushed their way—with little opportunity to negotiate terms.

“Whoever has the money structures the contract,” says Corbett.

Perkins & Will’s Design Director, Andrew Frontini, MRAIC, agrees: “It’s a changing landscape,” he says. “We’re getting work in a different way and defining our clients in different ways.”

Contracts are being created to suit the many ways clients want to structure projects, including variations on P3. Architects are now hearing terms such as Design/ Build, Design/Build/Finance/Operate/ Maintain/Transfer, Buy/Build/Operate and Enhanced Use Leasing.

“It means architects’ liability will be much broader,” says Frontini, who is based in Toronto. “The big challenge is understanding this and then getting yourself properly insured if you decide to take the work.”

There’s no point crying “it’s not fair”. The courts will show little sympathy following a 2010 Supreme Court of Canada decision (Tercon Contractors Ltd. v. British Columbia). Although the case involved a procurement dispute, it has wide-ranging implications for all types of contractual disputes.

The Supreme Court concluded there is “a public interest in leaving knowledgeable
parties free to order their own commercial affairs”. That means contracts negotiated by sophisticated commercial parties—such as architects—will ordinarily be enforced according to their terms. You’re expected to know what you’re signing, regardless of the size of firm.

As Frontini points out, contracts that architects are being asked to sign often don’t conform to the conventional owner/architect relationship. Gone are the days when a large institution contracts directly with an architect, using a standard contract. Many institutional clients want the ease of one-stop shopping. They want to contract with only one body—a project-delivery contractor—who will take on the responsibility for everything from designing, building, financing and operating to maintaining a project.

Glenn Ackerley, a construction lawyer with the Toronto law firm, WeirFoulds LLP, explains that this approach comes from the purchasing field and relates to bulk purchasing of commodities such as furniture, photocopiers and hospital equipment.

But how does this “one-contract” approach work when an architect is part of one of these omnibus purchase orders, given the significant  ifferences between buying a carpet and buying a building design?

According to Ackerley, the “onecontract” approach adds directly to the liability profile an architect assumes. He lays out the following structure: there is one “head” contract, typically between the institutional client (and possibly their funding partners) and the project-delivery contractor. What follows is a cascade of contracts falling out of that single agreement.

Instead of contracting directly with the institutional client, the architect becomes part of that cascade. The architect works under the head contract, but contracts directly with the project-delivery contractor, becoming part of the contractor’s “team”.

The obligations—and, thus, range of potential liabilities—have naturally expanded for that architect.

In addition to being liable to design a building that serves its intended purpose, the architect now has a duty of care to
the project-delivery contractor to ensure that the contractual demands the contractor has agreed to with the client are also met.

Here’s how it works: the contractor has committed to the client to deliver a building on time for an agreed price. If the architect has missed something in the design process that affects the contractor’s abilities to deliver the project, the contractor will be looking to the architect to share the cost and effort of fixing the problem. A risk that once might have been assumed solely by the contractor has been spread—via contract—to the architect.

(Ackerley notes that where the contracting model is a traditional one, for instance in the design of a custom home and between owner and architect, standard-form contracts still typically serve as the basis for agreement between the parties.)

Maura Gatensby, MRAIC, practice advisor with the Architectural Institute of British Columbia, notes that AIBC regularly issues cautions informing members when an RFP does not meet AIBC’s mandatory criteria for proposal calls. “We’re not in there to negotiate on behalf of an architect,” she says, but advisories from regulators at least alert architects of dangers ahead.

It is recommended that architects contact their insurer and lawyer to analyze the risks they might be taking by signing such a contract.

If you don’t inform yourself, “you might as well go to the casino and gamble,” says Toon Dreessen. He is a member of Council of the Ontario Association of Architects representing Eastern Ontario and a partner with Ottawa’s Farrow-Dreessen Architects Inc.

Lyne Parent, managing director of l’Association des Architectes en pratique privée du Québec, suggests architects be aware of guides and publications prepared by insurers. She mentions for example, a guide prepared by the Fonds des Architectes in Québec that advises architects that any penalties set in advance in a contract as liquidated damages will not be covered by insurance.

Though one-stop shopping combined with the tyranny of the lowest price will continue to pose challenges for architects, there are hopeful signs.

For example, Ackerley, the construction lawyer, says he is slowly seeing more interest in the Qualification-based Selection (QBS) method of selecting architects. In QBS, emphasis is placed on competence and professional qualifications in addition to price.

Gatensby, of the AIBC, points to a recent RFP issued by the City of Vancouver. It called for “architectural oversight” of the design and construction phases of a social housing project, providing quality-assurance services through the life of the project. She sees this as a positive step—a move away from seeing a contract for architectural services as something akin to buying a photocopier.

Susan Lightstone is a Toronto lawyer and author. She is currently editing a book on public inquiries in Canada and writing a short history of selected courthouses in Ontario.