Emerging contract issues

We also have a podcast on negotiating the dreaded indemnity agreement with Colleen Palmer, Risk Manager for Beazley, and another podcast on negotiating contingencies with Sue Yocum from Yocum Law. If you haven't listened to those podcasts I would suggest you do. These can be found along with our other Willis A&E education offerings in the Education Center of our website at www.wtwae.com.

So back in June, we held our annual Willis A&E Large Firm Convocation at the top of the Willis Tower in Chicago and one of the segments we covered was on emerging contract issues. Mark Blankenship, Director of Risk Management for Willis A&E moderated a panel discussion on this topic with a panel of in-house counsel attorneys from some of our Willis A&E clients. I wanted to talk to Mark about this, and I have Mark with me here today. Hello, Mark.

MARK BLANKENSHIP: Hello, Dan.

DAN BUELOW: So Mark has been working with design professionals for most of his career and has been on the claims, underwriting and broker side of this business, completing his nerd trifecta as he likes to say. As Director of Risk Management for Willis A&E, Mark sees a lot of contracts. And while not an attorney and as a broker we do not provide legal advice, with that said, I don't know many people that understands these professional agreements more than Mark.

Also with us today is one of our panelists that joined us for that discussion on emerging contract issues back in June, Mr. Lou Gale, general counsel for SCB. Hello, Lou. Welcome to Talk to Me About A&E.

LOU GALE: Well, hi, Dan. Hi, Mark. Happy to be here. Glad to add myself to the pantheon of your guests.

DAN BUELOW: So aside from the fact that Lou has a great podcast voice, I thought it would be great to have him here because he did have a lot to say in our panel discussion. And Lou again is general counsel for SCB, a Chicago-based architecture interior design and planning firm that practices nationally from offices in Chicago, San Francisco, Boston and Seattle. Lou, will you tell us a little bit about your background?

LOU GALE: Sure. Happy to do so. I'm an attorney. I've been licensed since 2005. And I've practiced in the construction and business law arena that entire time. Before that, though, I was actually a structural engineer as well. I have an engineering degree. And I practiced that for years before I went back and got my law degree.

So I bring both a design professional perspective and my law perspective to my in-house counsel role. And it's a great position where you get to help and advise your clients in-house in a way that will hopefully lead them to good agreements and make their business stronger.

DAN BUELOW: Yeah. This is great having Lou with us because again, it's nice to get that practitioner's perspective here in this discussion. So, Mark, let's start off with you if you would provide a full list of the emerging contract issues that you reviewed with our panelists back in June at our convocation.

MARK BLANKENSHIP: Well, it's quite a list, Dan. It includes withholding of fees, which Lou is going to speak to momentarily here. The requirement to notify the client in the event of claims on other projects, which I think is an invasion of your privacy and a potential violation of confidentiality agreements. A requirement to restore depleted limits of liability from claims on other projects, which is something I wish we could do but we can't.

Informed consent, which relates to climate change issues and value engineering and some other issues. Retaining ownership of documents, which is a leverage issue in business negotiations. Unionization and antitrust issues. Indemnification, including and especially the defense obligation. Getting a limitation of liability, establishing appropriate design contingencies, and getting additional insured status on the contractor's general liability policy.

DAN BUELOW: You just listed off those four topics that we'll be talking about today, specifically withholding of fees, retaining ownership of documents, informed consent, and getting named as an additional insured on the GC's GL. So let's begin with withholding fees.

Lou, I know this topic is near and dear to your heart. Can you give us a recap on what the issue is and what the owner is looking for and why this is a problem?

LOU GALE: Happy to do so. And it is because one of the first contracts I had to negotiate when I joined SCB almost 10 years ago involved this very issue and then it evolved into a subsequent problem on the project. And so it became something I really learned a lot about and got very in-depth about in terms of how to address it.

It comes in many flavors but a couple of forms. One is that clients will ask for contractual language that says you're going to have to continue to perform during any dispute on the project. And then another form it comes in is language that says the owner is only obligated to pay us for undisputed amounts with respect to our services.

And the issue for that is, of course, we want to be paid and need to as a business to be compensated for what we do. It's hard to have a positive cash flow when your clients are allowed in contract to simply not pay you. And then, of course, it also is a problem because, on the insurance side, which ties into what Willis provides, this becomes an uninsured liability. It becomes a contractual obligation for which insurance cannot cover.

And so if there is a subsequent claim down the road and a client says, well, OK, we'll just keep the fee we retained and we'll call it even, well, the architect is out that and there's no ability to use the insurance that they've had to pay for. So that's how it works.

And then I just wanted to add, owners want this because they don't want their project delayed. This is usually the argument they make when you have the discussions. They say, I don't want to be in a situation where you architect hold me hostage. And of course, it's the opposite for us. We don't want to be in a situation where we have to continue to perform but we're not being compensated.

DAN BUELOW: So you mentioned it's uninsurable and that certainly is a very important point. Any professional liability policy will include wording that excludes the failure or refusal of a client to pay money that's due to the insured or for return of fees paid to the insured.

And so it certainly is important that we don't agree to this wording that essentially allows a set of, but also to be prepared in the event that even if you have been successful striking any such language if the insured client, in this case, the design professionals client agrees to a set of.

We've seen scenarios like, hey, we'll do you a favor and we won't sue you, but we won't pay you the $400,000 that we owe you. And so our advice is if that happens before you agree to that, that you might want to definitely talk to your broker and your carrier to see if you can maybe get some pre-claim assistance and some advice and engage the carrier because if you unilaterally agree to that, it's not going to be covered.

So that's an important point. And, Lou, as we get into this, what can you do about it? So what are your options, if you will, and how you negotiate this?

LOU GALE: I've developed four different things to try. The first one is to just try a level of logic and persuasion, to try to convince a client not to do it in the first place. Owners always have the right. Anyone has the right under a contract. If a party fails to perform to not be obligated to perform on your end, that's basic contract law.

And so if the design professional has not provided a set of design development documents, you as the owner have every right to not pay and say, you haven't performed, I don't have to perform. Unfortunately, clients tend to not find that persuasive. I do also try to tie in and say, look, this poisons the project. We're negotiating now. This is the honeymoon phase.

Here, we are getting along, let's start the project. And you're already planning, how you're going to withhold money from us down the line? Don't we get along? Don't you like us? Then of course, the owners then have their horror stories that they relate, but that's always where we try first.

MARK BLANKENSHIP: Lou, at the conference, you made a comment to me about how architects as a profession accept this where no other profession will. Maybe elaborate on that.

LOU GALE: Absolutely. Yes. I have often been confused by design professional's willingness to accept something like this. I as a lawyer if someone came into my office and said, OK, Lou, I'm going to hire you as my lawyer. But, by the way, if at some point along the line I'm not happy about your services, I'm going to stop paying you but you're going to continue to be my lawyer and go to court and go to the depositions and take discovery.

And I would say, there's the door. It was nice meeting you. Go see if someone else will agree to those terms. Same for a doctor, same for an accountant. But we are a-- architects are a profession. We're collaborative. We like to work with people. We like to get along and do these designs that we're hired to do. And so I think we are much more willing to accept that. Oh, I understand. I get it.

DAN BUELOW: Part of the creative process.

LOU GALE: Right. Right. But I do think that as a profession, we should be a little stricter on this and say, look, there's all kinds of other terms and conditions and contracts and things we can do, but look, the basics are we perform a service for which we should be paid. That's table stakes.

MARK BLANKENSHIP: Right. And if you have a dispute, there's an indemnification clause.

LOU GALE: Right. There's all kinds of other terms and conditions and clauses that protect all of the parties. But we need to have that very basic of, you know, we perform a service and that includes our time. We've spent time and that's what for which we are paid, not necessarily just the physical drawings. And so I've spent the time and I should be paid.

DAN BUELOW: OK. And what's option two?

LOU GALE: Well, let me first say, the option one, usually, you go through that but you move quickly to option two. Very rarely have I found that persuasive. So option two is I found this to be maybe the most elegant solution I've been able to come up with and you just set a dollar amount. And it's based on what your tolerance is.

Any business-- and design professionals are, of course, a business, there's always going to be clients that don't pay. Well, what is the point where you say, wait a minute, we've got an issue. What are the internal checks you may have? What is your own sort of maybe not written down but general threshold where you say, OK, there's a problem? We're not getting paid, why are we not being paid?

So what you want to try to do is figure out that amount in your own mind and then say we're going to insert language that simply says, if there is a dispute below this amount, you can withhold, if there's anything above this amount, you cannot. Or even more elegantly, the owner may not withhold more than x. And that's it.

DAN BUELOW: And how do you go about setting that dollar amount?

LOU GALE: It's a little bit science, a little bit art. We think about it in the context of the client relationship, we think about it in the context of the project, and we think about it in the context of what our pressure point is. At what point would we decide that's too much dollar withholding for us as a business, and given this project and given this client?

And so it's not an exact formula. And I do have numbers in my head. I don't want to reveal them here.

DAN BUELOW: Sure.

LOU GALE: But that's how we go.

DAN BUELOW: But you look at it on a case-by-case basis. Maybe you have more experience with a given client, maybe it's a certain type of project or the size of the project probably has some bearing in that consideration.

LOU GALE: That's right. And it's a negotiation point. I mean, you should start low. If you're going to use this technique, you start low. And you say, oh. I don't know. How's $5? I mean, I'm being-- but you want to start low and then have the owner come back and say, well, what about x? And then you can--

DAN BUELOW: You've had some practical experience with this method?

LOU GALE: Yes. Yes. And it has again, I've found it to be maybe the one that works the most often and the simplest because when you have that first discussion about, well, look, we don't want to be held hostage, well, we don't want to be held hostage either, this gives everybody a little bit of what they want.

The owner has some leverage over us, but it's not unlimited.

And we're not then finding ourselves in a form of indentured servitude where we're just redesigning and redesigning and reworking and reworking because the owner has decided there's some dispute among the parties and you obligated yourself via the contract to continue to perform during that dispute.

DAN BUELOW: And you are in this balancing act, if you will, where you want to preserve the client relationship, but at the same time, you need to be paid to be able to continue to service this project, and you also want to avoid the potential of a delay issue that can result in this as well. So you're balancing a lot there, aren't you?

LOU GALE: That's right. Yeah. You are trying to balance the schedule and being paid and the relationship, and also not giving away your greatest piece of leverage, which is the ability to actually stop work because you're not paid. A standard AIA contract or almost any kind of service agreement says we're to be paid. And if you're not, you have the right to then terminate.

DAN BUELOW: So you said you had four options. Those are two. What's your third option?

LOU GALE: So yeah, number three would be, OK, the owner says, look, I don't want to have some arbitrary line. So now you say, OK, let's move into a rapid dispute resolution process or an expedited dispute resolution process.

But you, the owner, you're going to have to put down in writing what are the issues, what are the amounts, when did it start, who's responsible, and basically create a framework in which the owner has to come to the design professional and lay all this out. Here's the dispute, here's the problem so that then you can start to try to solve it.

And then you can put in there, meet and confer requirements as tight of a timeline as you'd like in order to try to get to a resolution so that this doesn't hang out there for months and months, a quarter or two quarters or even longer. The issue with that is, of course, it doesn't have an endpoint, unlike the dollar cap.

You can go through that whole process and if you and the owner still cannot reach agreement, well, then you haven't. The hope is though, through that process, the parties will come together and reach some resolution to keep the project going forward and get you paid in some part.

DAN BUELOW: So, Lou, this seems like it could be a little messy where you're going to have a separate arbitration or mediation resolution required in this. Why not just rely on the typical dispute resolution process?

LOU GALE: Yeah. I think it is an option. The issue with relying on it is that the traditional dispute resolution process is lengthier. The parties have to maybe meet and confer for 30 days or 60 days, give notice, then select a mediator. It's just a much more drawn-out process, whereas while our fee is withheld that's a much more critical-specific.

And the idea is also to try to elevate what information they've got to give you, whereas a normal dispute resolution process just says, hey, there's a dispute, whereas, in this instance, you'd want to enumerate what they should have to give you, which gets me to-- do you want me to just roll into option four?

DAN BUELOW: Option four. Yeah.

LOU GALE: So option four is you just accept it. I mean, this happens with large institutional clients or clients that just have a lot of leverage. You just accept that this language is going to be in your contract and now you have to watch your receivables like a hawk. You've got to make sure your project manager is aware, your principal or whatever partner is at a higher level responsible for the project than you. If you're in an in-house role, you're just watching it very closely.

And so at the first sign of trouble, you want to be on top of the people on the other side saying what's going on? Why are we not being paid? What's the issue?

DAN BUELOW: That happens, obviously. You have situations where it's a take it or leave it proposition and you're in that unfortunate situation where you're not able to negotiate as you would like to an agreement so you are left to assume and control this risk. And I would say that that's another great reason to certainly share the terms of these contracts with the project team.

As we like to say, have a dramatic reading of that contract with the project team at least around the scope. How can you manage scope creep if everyone's not privy to the scope? And to your point, how do you watch it like a hawk? And so I think that's great advice.

MARK BLANKENSHIP: Let me ask, what excuses do clients give for not wanting to pay your fees?

LOU GALE: During the design phase, there's often a sort of a generic, "You're not done." I put that in quotes. You've promised to provide us a design development set or a 50% CD set and we know as the owner what that's supposed to look like. Here's what you've given us, we just don't agree that you're done. So please continue until you're done and then we will pay you what we promised. We just don't think you've delivered.

And it's difficult. We're not as design professionals-- it's not like a car sale. Here's the car, give me the money. Here's the set of documents and the owner goes, no, no, I don't think so. So that's one.

Another is there are issues later on in the project-- RFIs. Change orders, subsequent problems and the owner says, look, I'm starting to lose my shirt. The contractor's contingency is being drawn down and there's too many change orders, there's too many RFIs. These are design-related problems. I need to start hedging against that risk, and so I'm going to start withholding some of your fee to do so.

And of course, if you've got this contractual language that says the owner can do that, we're stuck. You have to continue to perform, and you have no bargaining point on the other side and say, look, I have performed, you're not performing, and I'm going to have to stop performance until we get this resolved. So those are the two main arguments I hear from owners.

MARK BLANKENSHIP: So one of them is you didn't perform services as expected. But the other is really hedging against claims. It's really what it is. So if we could eliminate that second category from the agreement, I would have a big comfort zone because if you start talking about insuring against future claims, we could be talking numbers that exceed the fee, actually.

LOU GALE: Right. And I have to say I would suspect I have not gotten that in-depth with owners in negotiations, but it seems to me that's the area of their greater concern. They are very much trying to mitigate their risk with respect to claims down the road. And that's where it often happens because it is very subjective on here's your construction documents, but during the construction phase, it's a lot more dollars and cents, and owners at that point go, I think maybe we're done paying you for a while, and that's problematic.

DAN BUELOW: So next on our list of emerging contract issues I want to talk about is retaining ownership of documents. So it's reasonable for owners to own things. Mark, what's the problem here? What is the issue that you and the panelists were addressing?

MARK BLANKENSHIP: Well, the issue is one of business leverage. This relates very closely to withholding of fees. But under the AIA scheme, the design professional or the architect retains ownership of the instruments of service and gives the owner a limited license to use those documents for the construction and maintenance of the project. And if the owner fails to fulfill their obligations i.e., make payment, then the design professional has the right to terminate the license to use those documents.

I consider it to be a nuclear option, but it is very effective. I have seen it used to a very good effect in securing payment. So it's really very much an issue of business leverage. There's two related issues, one of which is if you're giving up the copyrights to your documents, you're giving up copyrights to everything in those documents and you probably have a library of standard details that you want to retain ownership of.

So I would like to write into the work-for-hire clause an exception that the design professional still retains ownership of its standard details. And the second thing is I think ownership should only transfer upon full payment. Here we are, back to that theme. We want the architect to get paid.

DAN BUELOW: If you have any leverage, here it is, right?

MARK BLANKENSHIP: Exactly. Yeah.

DAN BUELOW: And there's also an issue we've run into as far as the reuse of these documents without consent and to have some of your own indemnity wording perhaps included in this.

MARK BLANKENSHIP: That would be useful.

DAN BUELOW: How about you, Lou? How do you address this? I'm sure you see this quite often.

LOU GALE: Yeah. I do. And Mark's points are spot on. And what I do see happening is that owners come, and they say, I understand the standard AIA language but we would like full ownership of the documents. And that has become pretty typical with more sophisticated developers. They come and they say that clause of the AIA document is completely removed and there's brand new language that says we're going to take full ownership of the documents.

So you do want to make sure as Mark said, one, you can take full ownership upon payment. Two, we're going to retain our standard details. But also three, you're going to use these drawings on this project only. That's an important clause because if they are taking ownership, they're taking ownership. And if they want to use that same design somewhere else, they can unless there's a clause.

But then there's another wrinkle here that's important to also recognize. Owners draft that language exceptionally broad. And so they're taking ownership of everything, all of your instruments of service, and sometimes they'll even be a laundry list of things. This could include your BIM model. This could include all that digital data that you've got.

And so what you need is to also think about, do I have clauses there or in other parts of the agreement that say, look, you can't rely on that digital data to the same extent as you can on drawings or specifications? You need to have language that says you use that as is unless there are other agreements in place because the risk is someone will take an earlier version of a BIM model and try to reuse that and say, well, but, architect, this is your design. What's the issue?

And you go, no, no, no. You can rely on my drawings, the plans, the details, the specifications, the sections. You cannot take my Revit model, reproduce it somewhere else, and then try to rely upon that.

DAN BUELOW: Excellent advice. So our next emerging contractual issue is on informed consent. So, Mark, we've really run into this issue a lot more recently around the issue of climate change, haven't we?

MARK BLANKENSHIP: That's where it's popping up. Just recently I heard the Midwest claim manager say we're seeing a lot more wind damage claims than we ever used to. And in Texas, in particular, we're seeing claims filed as a result of flooding damage from hurricanes. Even where the design professional met the then-current codes, the allegation is, well, you should have known, you should have anticipated that a stronger storm was going to occur, and this flooding was going to happen.

And so the idea behind informed consent is that the owner decides how much money they're going to spend on the project, to what degree of resilience and adaptability it's going to have. And we want some documentation that basically keeps the risk of doing the project at a less expensive standard with the owner. And, Lou, I don't know if you've run into that as an issue in your design practice yet, but it certainly here for civils, I think.

LOU GALE: Yeah. We've not had the specific or I have not seen anything specific with respect to climate change. But I would say on the issue of informed consent, we do need to make our design professionals aware that you need to be communicating with your client throughout the project and making sure they understand what we are asking them to agree to so that we don't subsequently have them go, well, I didn't understand that, I didn't know because I can tell you in the claims process further down the road, often you hear from clients and owners saying, well, you never explain that to me. You're the expert. I'm relying on you. How can you come back and then say I was the one that decided? I didn't know.

And so it's important to communicate clearly and document it as well. This is the lawyer in me now. Just make that paper trail of the client was made aware. You had the communication. They understand what they're buying and what they're getting into.

MARK BLANKENSHIP: Well, counselor, I have some examples in mind of where documented informed consent would be beneficial. One of them would be if the owner decides to fast-track the project. I will say the biggest claims that I experienced as a claims adjuster and an underwriter involved fast-track projects. In both those cases, mechanical equipment wouldn't fit into the rooms that were already built. So they became very substantial cost overruns on a magnitude of 25%.

So that's one example. Can you maybe share some other examples of situations where gee, I wish we had the owner's informed consent?

LOU GALE: Yeah. I think, one, we do have fast-track language that we have included. So that's good work on Willis's part in the past to have educated us on that. I have found the issues of things like delegated design and/or design-build components that are part of the design process to be issues where owners sometimes aren't quite understanding what they've signed up for.

I have had during contract negotiations and subsequently down the road during claims owners say, well, what is this delegated design? Aren't you my designer? And we say, well, yes and no. There are certain components, elements of a building that look, a contractor or a subcontractor or a material supplier they have this stuff on the shelf, and they install it.

They know of the loads. They know where it goes. They know how to do it. It's far more efficient. It's far better. Your contractor and subcontractor should know all this and that's what's in our specifications.

And it's making sure the client knows that and is informed of it and even having some documentation saying, look, we're going to have these elements that will be delegated design, and/or even something that may be design build with respect to the mechanical system as well so that they understand, look, we're going to give you a performance specification that then will be handed off to the contractor to then price and then build.

MARK BLANKENSHIP: Other examples of delegated design I can think of would include roof trusses, perhaps, or the precast design. So you would actually disclose this to the client at what stage of the project? Is this in the contracting stage?

LOU GALE: I think my advice to my designers would be yes, during the contract negotiation phase and when you're discussing scope, explaining to the client what is in your scope and what you're going to be delegating to others so that they understand and they know and are not then caught unawares when there is this delegated design piece to the project and they're like, well, what happened to this?

Well, this was delegated to your contractor and it's in your specifications and they should have taken care of it as opposed to us. And it is a more cost-effective solution in many instances. We don't do this because we don't want to design it. Of course, we'd want to design it and be paid for it. It's just owner this is better, and this is the right way to do it.

MARK BLANKENSHIP: One more example of where informed consent would come in handy I think is in value engineering. For instance, I can remember a case where there was a design of a grain silo, and the original foundation design was sturdy. And the owner came back and said, "Can you make it cheaper?" And we did. We made it smaller and cheaper. And they said, "How about cheaper still?"

And so we went around, too, and guess what? It failed. And I'm thinking at what point do you issue a warning and what is that warning look like?

LOU GALE: Yeah. So I think any kind of documentation on your part via letter via email, even if it's a conversation that then you memorialize in a memo to self or a memo to your file so that you have a record that we have pushed this to the very edge of the standard of care and what we think is acceptable for the design and it's been at the owner's request and here's where we're at. That way now you have that paper trail after the fact to use in your argument when a client comes and says, oh, we've got a failure.

And of course, I mentioned the standard of care because that is important. At no point should you ever allow an owner or any other party to push you beyond what you think is the standard of care because, ultimately, as a design professional, you cannot just shirk the responsibility and say, oh, well, the owner told me to do it that way. Well, wait a minute. You have ethical and professional responsibilities and that should always be your guiding value when you're dealing with value engineering or other issues.

MARK BLANKENSHIP: Right. And I can add one more story to show how this can all work out well in the end. A civil engineering client of ours was doing a wastewater treatment plant for a municipality. They said, "You know what? We really can't afford to have a geotechnical investigation done beforehand so just design it," and we did. But we did the warning. We said, yeah, we really recommend this. We can't guarantee what you're going to find once you start construction.

And guess what? They hit obstructions and soft soils. And in the meantime, also the board changed. So there legitimately was no collective memory on the part of the client. But fortunately, we had the documentation, and it remained the owner's problem.

DAN BUELOW: Great points. And I think, again, on this topic of informed consent there's the question of what you can and should be considering to have in your contract. Lou, you mentioned as an architect, I think you're probably often faced with the challenges of-- as all design professionals from the beginning of time, managing innovation. The client wants something, cutting edge, and perhaps less tried and true processes and even materials. What can you do to add to your agreement about informed consent that would help mitigate some of the risks of the design professional?

And then there's the ongoing need for documentation as Mark pointed out around value engineering. If you don't agree with or you have some reservations about what your client wants to do based on perhaps a contractor's advice sometimes that worst response would be a tacit response. You're going to want to put something out there that would lay out your position or any concerns that you might have I think is some good points on all this.

So our last emerging risk that we're going to talk about today is getting additional insured status. And so, Mark, I want you to talk to us about this because this is something very important. And what's frustrating is we do know that there are certain clients, including DOTs that have a real issue with this, but we really think and have seen how important this is, isn't it, for some of our clients to really push for getting named as an additional insured on the contractor's GL's policy. Can you explain this a little bit?

MARK BLANKENSHIP: Sure. Well, let's start with context. And the larger context is social inflation. In our recent WTW A&E survey, professional liability carriers, the leading concern for them was social inflation. And it is hitting infrastructure projects hard. And it's really the ever-increasing verdicts that we're seeing in personal injury cases that are driving this concern.

And to put it in context, the average auto fatality went from $2 million in 2010 to over $5 million in 2020. And so that rate of inflation is way ahead of the general rate of inflation. Some credit this to the successful deployment of Reptile Theory by plaintiffs' lawyers who are tapping into the emotion of fear to drive larger and larger verdicts.

So what can we do about personal injury cases? It's a two-fold strategy. And the first aspect of it is contractual. You always want to say that you're not responsible for means or methods. And you want to be additionally insured on the contractor's policy because the contractor is supposed to manage that exposure. Part of managing that exposure is ensuring that exposure.

The second part of the equation is living within the terms of your contract. But that's a podcast for another day. So with regard to getting additional insured status, if you are sued on a job site case, it's going to fall to your professional liability carrier. Supervision of the job site or alleged supervision is considered a professional service for design professionals.

So what that means is at a minimum, you're spending your deductible to defend this claim that you shouldn't even have in the first place because you don't control means or methods. This is supposed to be managed by the contractor. So to insulate yourself from the financial implications of just being named in such a lawsuit you have to be on somebody else's policy as an additional insured.

I think this is wholly fair and just. Do you want to be additional insured on a primary and non-contributory basis? Meaning that the contractor's policy comes first before yours is involved, and yours does not contribute. Those are magic words. They have legal meaning. So please include them in your contract.

The other thing that you need to do in your contract is to specify how much coverage will be available to you from the contractor's policy. Pick a number. $2 million, $5 million. Full limits of the contractor's policy, but modern additional insured endorsements require you to state how much coverage you are seeking.

DAN BUELOW: Great points, Mark. I think you sum that up nice. The bottom line again is that the responsibility for this coverage should be with that party that controls the risk. In this case, it's the contractor.

And it's important to note that most contractors GL's policies have in fact an additional insured by contract provision, allowing you to get named as an additional insured on a primary non-contributory basis at little or no cost, meaning if the design professional is named on the GC's GL, that policy will respond to these job site injuries or these third-party claims often.

And ideally, the prime negotiates this on behalf of themselves and all subconsultants. And they need to know how to negotiate this through an a A201 or similar contractual vehicle. And we're not really asking for anything more than what the owner is getting, right, Mark? I mean, the owners are getting named as an additional insured on this.

And sometimes if they want to negotiate, well, we'll add them onto your policy. We'll go for it. You make it mutual if you want. It's your business to bought policy or what have you, package policy. To Mark's point, the coverage this is going to fall down to in the absence of getting named as an additional insured will fall to the professional liability policy, which is very costly given the self-insured or the deductible obligations.

And lastly, I would advise get a certificate from the contractor. If you succeed in this, they owe you a certificate evidencing that you have this coverage. And I would get it every year of the project and so that it doesn't fall off.

MARK BLANKENSHIP: The interesting part is this that design professionals are asked for this all the time and we provide it. We provide it all the time. We issue a lot of certs. We give additional insured status, primary non-contributory basis to whoever you want. Fine. Just tell us who.

But when it comes to asking from the contractor, we get a lot of pushback. And, Lou, I know you're on the front lines of this battle. Maybe you could tell us a little bit about some of your experiences.

LOU GALE: Absolutely. So first off, we do get a lot of pushback. But I will tell you that the response comes in two pieces. One, the owner is who we're usually negotiating with because typically, it's an owner-architect agreement and then we're asking the owner to go make sure the contractor is naming us as an additional insured. And owners will often say, well, look, I can't guarantee that. I don't know what's going to happen when I'm negotiating with them. I don't want to promise to you and then not be able to deliver.

But then also what flows back to us is the statement of, yeah, yeah, I get you're going to name us on your CGL. Your CGL is in case like what? Somebody is at a meeting at your office, and they slip and fall? Whereas our CGL is providing for the construction of the project where people are much more likely to get hurt because it's a construction site.

So it's really a disproportionate ask that you're making. So it's not a one-for-one trade. But then what I do is I spin into the arguments you guys have expressed here, which is that look, we don't have control over site safety, that's you. Means and methods, that's you. If we get pulled into a claim because someone slipped and fell during construction, that's what your policy is for.

And in fact, I have had the very good fortune of-- we had a project many years ago in which there was an injury on site. It was a laborer working for a subcontractor who then brought a claim against the GC, the owner and the architect, and we were named as the additional insurers. And we simply tendered it to the general contractor—

DAN BUELOW: A beautiful thing.

LOU GALE: It was a beautiful thing. And it was very quick. Our part was simple because we had no responsibility. No one was at site. It's not like, I think the guy literally tripped over a wheelbarrow. And we didn't say, like, hey, walk over there and trip over that wheelbarrow. We weren't even on site. And so it was really just nuisance value. But it saved us the deductible or even would have probably been well within a deductible.

So those are the arguments. But then you have to make a business decision when you're having this fight with the owner. And you have to look at the other contractual clauses you've got and see whether or not how hard you're going to push for it. And sometimes where we've come down is we have the owner endeavor to get us named as an additional insured with the general contractor.

But we also sometimes-- to swing it another way, we often put in our agreements and ask that the contractor will not only name us as an additional insured, they'll indemnify us as well. That's a much harder ask, but if you ask for both, maybe you trade the indemnification for being named as the additional insured since, as Dan pointed out earlier, it doesn't cost you anything anyway. You're already going to be able to do it under your policy.

DAN BUELOW: If the pushback is ever that the contractor does not have the additional insured provision in their agreement, you have to push back on that to ask-- a question really is the contractor's quality of their coverage. I mean, what they're eligible for because again, it's in most of these policies.

LOU GALE: Right. Right.

DAN BUELOW: Mark, do you have something to add?

MARK BLANKENSHIP: I'll let you in on a dirty little secret about me. Before I represented architects and engineers and their professional liability, I represented lawyers in their professional liability claims. And I represented some of the major plaintiff's counsel here in Chicago. And what I learned was a little bit about the standard of care of an attorney, which in a personal injury case is to sue all potentially responsible parties within the statute of limitations.

That's their exposure if they fail to name a potentially responsible party. So that's why we get sued. But it is still beyond our control, whether that accident happens. If it does happen, there is a likelihood, I would say, that everybody on the site is going to get named if the injury is serious. So this exposure belongs with the party best able to control it, which is the contractor.

DAN BUELOW: Right. So that's the root of the problem here in all of this is the standard of care of a plaintiff attorney is to sue everyone in the nearest railroad, right, Mark? Is that what you're telling us?

MARK BLANKENSHIP: That's basically what I'm telling, Dan.

DAN BUELOW: That's basically it. OK. We could go on and on I think on contractual issues that's for sure that are challenging the design community, but all good things must come to an end. I want to thank my guests, Mr. Mark Blankenship and Lou Gale for joining me today on this very important topic. Thanks, Mark.

MARK BLANKENSHIP: Thank you, Dan.

DAN BUELOW: It's great to have you with us and all of your knowledge and wisdom as well as Mr. Lou Gale. Thank you, Lou.

LOU GALE: You're very welcome, Dan. It was great chatting with you, guys, and hope to do it again soon.

DAN BUELOW: Good discussion. And again, we've had a number of conversations around this important topic of contracts. And to recap a few things on this whole contract discussion here, keep in mind that agreements really are the very best vehicle that the design professional has in establishing expectations in educating their clients. So do not skip this process. Remember a verbal agreement is worth the paper it's written on.

And also that's more difficult to negotiate these terms of the agreement after the work has started. So you want to really be adamant with your client about getting a signed and executed agreement in place and know your agreements and make sure your staff does. As I mentioned, it's important to talk to your staff and even share and review these contracts with the project team and have that dramatic reading of the contract with the project team.

And remember, it's in nobody's best interest to have an uninsurable agreement, especially your client. A design firm's professional liability is arguably the only asset an owner can look to their professional liability policy in the event of an A&O claim on their project. There are no assets with the typical design professional firm that they can look to or bonding.

So when the design professional is asked in this insurance agreement to carry millions of dollars in professional liability insurance in one clause and then have other clauses that are uninsurable, it's in no one's interest, nobody's best interest. So again, engage your broker, engage counsel to work with and negotiate these agreements to make sure they're fair and insurable.

So that concludes our program today. And I want to thank again Mark and Lou for joining me, and I want to thank you for joining us for another episode of Talk to me about A&E. Again, I'm Dan Buelow, and I will talk to you soon.

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