Contract Fundamentals for Project Managers
I. INTRODUCTION AND OVERVIEW
In this segment, the course leader will provide a self-introduction and discuss the purpose of the course; what it will and will not do for participants, in light of various assumptions. The introduction will continue with a discussion of the overall Project Manager Training Program (PMTP), in terms of the courses available, how they are taught, the credential involved, and so on. (We assume that a PMTP brochure will be provided to each participant.)
We will advise participants that too much time will be lost to self-introductions, so they will be bypassed. We will ask for questions about any key concerns the participants have, more or less to get them warmed up.
II. EVALUATION QUIZ
Participants will be asked to take an “evaluation” quiz. The questions will be “semi-trick” in nature, each having a true/false answer. The quiz will comprise at least ten questions relating to the following types of issues:
oral agreements vs. written;
risk is inversely proportional to project size (small projects are those usually pursued without a signed agreement);
beginning work without the client’s signature on a written agreement; inclusion of uninsurable elements in an agreement;
contractual guarantees, including inadvertent guarantees;
indemnifications the client may seek to have the consultant accept; limitation of liability;
contracts as a device to establish realistic expectations; and contracts as risk management tools.
The answers to these questions will tend to go far beyond contracts, per se, showing how contracts relate to the overall issues of risk management, client relations, loss prevention, et al.
III. CONTRACTS AS RISK MANAGEMENT TOOLS
A key focus of the discussion in this section will be consideration of the contract as part of a process, as opposed to being an entity unto itself. The key element of the process is putting the contract together (scope of service, in particular) with the client. Discussion will begin with a review of common problems in professional practice, including
vulnerabilities identified in the review of ASFE case histories, as well as other problems (e.g., failure to collect for extras). Emphasis will be placed on the fact that 80%-90% of all claims are filed by owners and contractors; that contracts can be used to establish good relationships with owners, to make claims unnecessary, and noting, too, that through better relations one can derive better scopes that make contractor claims less likely, too. In most cases, once a contract is signed it is never reviewed again. What is important is the relationship.
IV. CONTRACT NEGOTIATION FROM A RISK MANAGEMENT PERSPECTIVE
In this section, the speaker will discuss the types of contracts likely to be involved, pointing out that, in many instances, clients will be satisfied to use the consultant's standard agreement. In some cases, however, the consultant may want to negotiate that agreement, or proffer an agreement that the consultant will need to negotiate. When negotiation is needed, the consultant should regard a contract in terms of its four basic elements; i.e., the scope of service, general conditions, schedule, and fee. The speaker will indicate how any given change in one area that increases risk usually can be countered with changes in one or more other areas, to help keep risk in balance.
V. HOW MUCH DO YOU REALLY NEED TO KNOW?
The discussion will focus on the fact that consultants do not have to become lawyers, but they do need to have intimate knowledge of several issues that perennially arise. Their biggest obstacle will be the client's or owner’s reliance on an attorney that does not really understand the issues involved. Several ASFE tools (provided as handouts) will be discussed in this respect. The speaker will emphasize that the client expects the
consultant to understand issues that should be near and dear to the consultant’s heart. The speaker will also point out that firms are in business and, as such, need to make business decisions.
VI. SCOPE OF SERVICE
We will point out how this can often be the most important contract element of all; that it needs to be detailed, especially in cases where certain services will be left out. We will point out how incomplete services, sometimes done as a favor, can lead to serious problems. We will discuss the related issue of change orders and the need to a) obtain them and b) tie them into the contract so that negotiated terms and conditions prevail. We will discuss contingency funds and other means, and the need for consultants to speak openly about the issue of change during the contract formation process.
VII. STANDARD OF CARE
We will provide guidance on what the standard of care is, noting the dangers that can arise when a consultant guarantees to comply with the standard of care (that cannot be known at the time the service affected by it is performed). We will point out the role of PLI, noting that it does not cover contractual liabilities. This will lead into discussion of client provisions requiring the consultant to perform at the “highest standard,” and why such language could result in a situation that is dangerous for the consultant and the client; i.e., by requiring performance at an uninsurable level, giving a PLI insurer an opportunity to claim that the claim derives from a contractual liability not negligence, etc. We will provide a hand-out in this regard (a reprint from CE News) and engage in an exercise where one table, playing the role of consultant, seeks to dissuade the client from pursuing this provision (suggested by the client’s attorney). Time permitting; we will explain another approach, by pointing out that the highest standard can be provided, but only at significant cost.
VIII. CLIENT-PROFFERED INDEMNIFICATIONS
We will address the three basic types of indemnities, explaining how the broad form and intermediate form can cause severe problems. We will discuss why the broad form or intermediate form can also cause problems for the client, in re loss of insurance coverage by the consultant, the insistence of the client’s insurer that the consultant be pursued by the client before receiving insurance proceeds, and/or applying defensive engineering to make problems less likely. We will also discuss use of insurability wording (through provision preface or separate clause), or making the indemnity contingent upon
insurability to be obtained later (at the client’s expense). We will also use some humor by discussing an alternative provision that puts into plain English what an indemnity really says. This section will feature an exercise through which each table identifies how it would respond to a client that asks for an indemnity. Then, one table will be asked to serve as client, another as consultant, with the latter attempting to obtain the
indemnity.
IX. CONSULTANT INDEMNITIES
We will review the typical types of indemnities consultants seek and why they are
appropriate. We will discuss how they often can be combined and grouped; how they can also be used to spur discussion of the issues, to broaden scope of service. This section will feature an exercise similar to the first two, through which one table, acting as the client, does not want to accept a proposed consultant indemnification in re information provided by others.
X. LIMITATION OF LABIALITY
We will discuss the public policy concepts behind professionals being unable to achieve full indemnity, and then provide details about the background of the LoL, from England to ASFE, and distribute ASFE materials (message brochures and LoL guide). We will review typical clauses, pointing out, as an aside, the need to be specific in contracts (i.e., identifying all causes rather than say “any cause whatsoever”). We will ask how many believe LoL is professionally inappropriate, and then discuss why it is appropriate, in that consultants are precluded from providing a full scope, thus increasing their risk while lowering their benefit. We will discuss several means of dealing with clients that are opposed, including higher limits, time-release plans, insurance tie-ins, etc. We will explain that, often, the biggest obstacle to acceptance of LoL is a prime design
professional that doesn’t seek it for itself. An exercise similar to the prior three will be used, with one table playing the consultant and another playing the reluctant client.
XI. CLIENT AS A NAMED INSURED ON PLI
We will explain why this is a foolish request and provide a hand-out in that respect (CE News reprint or ms pc). We will discuss various ways of handling the issue, including a provision that consultant will seek to have it done and client will pay any additional cost.
XII. SUBCONTRACT MANAGEMENT
We will discuss the concept of “Do unto others as you would have them do unto you,” and the need to select firms on a QBS basis, to help ensure that quality is held foremost. We will point out:
a. always deal with a written agreement,
b. always include a scope of service in the written agreement,
c. be certain to have effective general conditions, including a provision through which: the subcontractor holds consultant harmless for any losses resulting from subcontractor’s negligence, and the subcontractor retains sole responsibility for the safety of its own employees,
d. be certain that the subcontractor has appropriate insurance, including PLI, when warranted, and be sure to be a named insured on subcontractor’s CGL and
automotive (require copies of all such insurance agreements; require notification in the event of any change or cancellation), and
e. establish a schedule indicating when specific event should occur, and establish a checking procedure to help ensure that those events occur when they are supposed to.
XIII. SUMMARY
Time permitting, the leader will address any other issues mentioned at the beginning of the day and not since addressed, and provide answers or identify sources where answers can be obtained. Emphasize how this course ties in with other elements of the PMTP. Distribute evaluation forms and, as they are returned, provide a Professional
Development Hour (PDH) form. View schedule of events on next page.
Contract Fundamentals for Project Managers
Schedule
7:30AM – 8:00AM REGISTRATION, CONTINENTAL BREAKFAST
8:00AM – 8:15AM INTRODUCTION AND OVERVIEW
8:15AM – 9:45AM EVALUATION QUIZ 9:45AM – 10:00AM BREAK
10:00AM – 10:30AM CONTRACTS AS RISK MANAGEMENT TOOLS 10:30AM – 10:45AM CONTRACT NEGOTIATION FROM A RISK
MANAGEMENT PERSPECTIVE
10:45AM – 11:00AM HOW MUCH DO YOU REALLY NEED TO KNOW? 11:00AM – 11:30AM SCOPE OF SERVICE
11:30AM – Noon STANDARD OF CARE
Noon – 1:00PM LUNCH 1:00PM – 1:45PM CLIENT-PROFFERED INDEMNIFICATIONS 1:45PM – 2:15PM CONSULTANT INDEMNITIES 2:15PM – 3:00PM LIMITATION OF LIABILITY 3:00PM – 3:15PM BREAK
3:15PM – 3:45PM CLIENT AS A NAMED INSURED ON PLI
3:45PM – 5:00PM SUBCONTRACT MANAGEMENT
