Practice Management Member Conversations

I am interested to learn if other mid-size firms (50+) have instituted a signature policy for proposals and contracts. Also, if others have instituted a policy, would you be willing to share some information regarding the structure and content of your policy? Do you know of a web based resource which may be a good reference?

Here are just a few of the questions I am working to address:

1. How to arrive at a reasonable and effective tiered structure to provide adequate freedom to our Project Directors and also enterprise risk management. I was thinking of possibly three levels of oversight each depending on the value of the contract.

2. How to arrive at a reasonable and effective dollar value for each tier, defining thresholds prior to requiring additional review/approval by either/or COO / CFO / President.

Thanks in advance for your consideration and response!  

-------------------------------------------
Neal Rinella AIA
Principal / COO
TAYLOR
Irvine / San Francisco / San Diego, CA
-------------------------------------------

Neal, I'm sure you will get constructive ideas re: tiers... but allow me to offer a thought from a somewhat different perspective.

The risks a firm undertakes when performing professional services is not necessarily directly correlated to the fees involved (size of contract).  Even on a relatively small contract, one negligent act on a small job can expose the firm to the same potential 'damages' as those on a large project.  With that in mind, exercising a lesser degree of oversight on small contracts (to save some admin time/costs) may be penny-wise but pound-foolish. 

I understand that performing the same review for all size projects means you will be devoting a larger percentage of admin cost to smaller projects... but that is simply a part of doing business.  In all types of business the overhead can be the same for both large and small 'projects', and this has to be factored into the business model.  Small jobs equal higher cost per unit, due in part to larger overhead per unit.

I have seen firms exposed to very large dollar claims on projects both large and small.  Be careful out there.

Howard

-------------------------------------------
Howard Littman AIA
Forensic Architect, Expert Witness
Howard I. Littman, AIA
Agoura Hills CA
-------------------------------------------

Yes - it is wise to review each project and each contract individually as opposed to applying a blanket rule.  The notion that risk isn't necessarily tied to project value is indeed accurate.

We also put far too much emphasis on signing contracts and not  enough on monitoring performance.  All to often, we believe the written document itself is the "contract".  To the contrary - the written document isn't the "contract" - the agreement is the contract - the written document is just evidence of the contract.  Modern courts employ the objective theory of contact formation - no more of that subjective "meeting of the minds stuff".  To determine what the contractual agreement may really be, a court will look to the conduct of the parties as a significant indicator, because conduct of course is objective.   If the parties behave as if there is a contract, that is objective evidence and a court will likely find that a contract exists, writing or no.  By extension, where parties exchange a written document and the Architect begins performance but later argues a specific clause in the writing isn't applicable because the document wasn't signed, they run the risk that a court will nevertheless find the occasioned on the behavior (beginning performance) the parties do have a contract on the terms offered as set forth in the writing. 

It is a common oversight, but one way a contract offer can be accepted is by signing the proposed document.  Another way is by exchanging the document and then beginning performance.  How many times has your firm started performance before a contract was fully negotiated but after writings have been exchanged?  That practice does entail risk, most if not all firms have done it (some routinely) and it should also be evaluated and limited or eliminated.

Don't get so hung up on whether an actual signature on a piece of paper forms the contract - it is one way that can occur - but only one way.  Many astute owners take advantage of that understanding, and in my experience it has bitten more than a few Architects.

-------------------------------------------
Frederick Butters FAIA, Esq.
Frederick F. Butters, PLLC
Southfield MI
-------------------------------------------

Thanks Fred for this very valuable information.  This is an example of how the legal nuances of the business landscape change over time.

-------------------------------------------
Michael Malinowski AIA
AIA Director - California Region
Applied Architecture, Inc.
Sacramento CA
-------------------------------------------







Original Message:
Sent: 02-17-2014 17:33
From: Frederick Butters
Subject: Mid-size firm signature authority policy

Yes - it is wise to review each project and each contract individually as opposed to applying a blanket rule.  The notion that risk isn't necessarily tied to project value is indeed accurate.

We also put far too much emphasis on signing contracts and not  enough on monitoring performance.  All to often, we believe the written document itself is the "contract".  To the contrary - the written document isn't the "contract" - the agreement is the contract - the written document is just evidence of the contract.  Modern courts employ the objective theory of contact formation - no more of that subjective "meeting of the minds stuff".  To determine what the contractual agreement may really be, a court will look to the conduct of the parties as a significant indicator, because conduct of course is objective.   If the parties behave as if there is a contract, that is objective evidence and a court will likely find that a contract exists, writing or no.  By extension, where parties exchange a written document and the Architect begins performance but later argues a specific clause in the writing isn't applicable because the document wasn't signed, they run the risk that a court will nevertheless find the occasioned on the behavior (beginning performance) the parties do have a contract on the terms offered as set forth in the writing. 

It is a common oversight, but one way a contract offer can be accepted is by signing the proposed document.  Another way is by exchanging the document and then beginning performance.  How many times has your firm started performance before a contract was fully negotiated but after writings have been exchanged?  That practice does entail risk, most if not all firms have done it (some routinely) and it should also be evaluated and limited or eliminated.

Don't get so hung up on whether an actual signature on a piece of paper forms the contract - it is one way that can occur - but only one way.  Many astute owners take advantage of that understanding, and in my experience it has bitten more than a few Architects.

-------------------------------------------
Frederick Butters FAIA, Esq.
Frederick F. Butters, PLLC
Southfield MI
-------------------------------------------

Fred, as usual your comments are helpful.  It would be a mistake, however, for anyone to interpret them as suggesting that a firm should commence work without an executed agreement in place.  There are several dangers in doing so that all should note.

First:  When there is a signed contract in place, if dispute arises courts will almost without exception adhere to the four corners principal - and enforce the face language of the contract.  In that circumstance the firm can accurately understand the risk it has undertaken - so long as it performs in strict accordance with the contract terms. 

However, if work proceeds based on an exchange of communications that contain language being 'considered' by both sides but not fully agreed to in writing there is a huge 'hole' that awaits.  There is no assurance someone later adjudicating a dispute will 'interpret' the understanding upon which the firm was acting in the same way the firm itself 'understood' what it was doing.  Unfortunately, the absence of an executed contract leaves room for others to decide what the anticipation of each party was when the work started (the mindset that only the actual participants can know with certainty).  This is a dangerous place to be in. 

Rather than working without a contract and 'hoping' your actions will be interpreted consistent with what you claim was your mindset at any given moment, I suggest that Architects never agree to perform services without a writing that is unequivocal.  It is also good practice to have an ongoing relationship with legal counsel (specializing in design professional matters) that can eyeball every contract written.  After all, there are numerous pitfalls in a contract that are not as well understood by Architects as they should be.  While Architects readily consult with a bevy of design consultants and others when needed, many firms never talk to an attorney until a dispute has arisen.  By then it is, literally, too late.  This is most often driven by low fees that do not contain enough 'soft cost' margin for admin/mgmt/acct'g/legal functions.  That is an unfortunate reality of a competitive business, but one that the Architect must control as part of its risk-management practice.

Second:  Architects sometimes purchase a PL policy without really understanding what it covers, and what it excludes from coverage.  I venture to say that once the policy is purchased it is also put away in a drawer never to be reviewed again until a claim situation has arisen.  Without going into details, most insurers include important underwriting-related questions in their application forms.  Included is the one that asks if the firm only does work when it has signed contracts.  I'd guess every firm that has ever filled out an application says 'yes'.  That is to be expected since most states require that an Architect have written contracts before proceeding with work.  Regardless of that fact, if you work without a signed contract, when it comes time to file a claim the first thing the insurer will do is ask for a copy of your signed contract.  If you cannot produce one you may find you have no coverage.  That 'denial of coverage' letter is one you do not want to receive.

Architects have long had a reputation for being creative, but also for not being the most astute business-people.  I don't believe in generalities, but must confess that over the years I have come across too many situations where this one has been proven accurate.   Don't prove anyone right by ignoring the most fundamental risk management tool of any business (design or otherwise)...  get it in writing...  signed, sealed, delivered.

I think the responses to this situation have provided excellent guidance to what could easily become a very expensive lesson, if a colleague chooses to venture forth, in spite of being armed with first-class options.
In my way of cutting to chase and keeping it simple, I offer the following as another option.I apologize if a previous responder has already made this recommendation.
Many years ago as the VP/DOO for a large int'l design firm, I developed a one-page 'Work Authorization' (W.A.) specifically to as Howard has so aptly suggested 'get it in writing...  signed, sealed, delivered.get the signature'.  This form simply defines the scope of services requested by the client, a relative fee for the service, any anticipated, related add'l services that would require a separate W.A. approval and the schedule time to complete.  The form would be sent immediately after the client has requested these services.  Work would not commence (and this needs to be noted in the W.A.) until a signed copy of the form has been received.
For the life of me, in more than 50 years in this profession I cannot understand why any responsible principal/owner would put their firm at risk, instead of investing 30 minutes to write and send the W.A. to their client.  But, from personal experience, far too many firms do just that. I am confident that any client worth having would be pleased to know that they were dealing with another 'astute business person' and their respect for the firm would be enhanced instead of being de-valued.
Respectfully,
-------------------------------------------
Steve L. Wintner, AIA Emeritus
Founder-Principal
Management Consulting Services
Georgetown, TX 78633-5712
-------------------------------------------







Original Message:
Sent: 02-19-2014 17:37
From: Howard Littman
Subject: Mid-size firm signature authority policy


Fred, as usual your comments are helpful.  It would be a mistake, however, for anyone to interpret them as suggesting that a firm should commence work without an executed agreement in place.  There are several dangers in doing so that all should note.

First:  When there is a signed contract in place, if dispute arises courts will almost without exception adhere to the four corners principal - and enforce the face language of the contract.  In that circumstance the firm can accurately understand the risk it has undertaken - so long as it performs in strict accordance with the contract terms. 

However, if work proceeds based on an exchange of communications that contain language being 'considered' by both sides but not fully agreed to in writing there is a huge 'hole' that awaits.  There is no assurance someone later adjudicating a dispute will 'interpret' the understanding upon which the firm was acting in the same way the firm itself 'understood' what it was doing.  Unfortunately, the absence of an executed contract leaves room for others to decide what the anticipation of each party was when the work started (the mindset that only the actual participants can know with certainty).  This is a dangerous place to be in. 

Rather than working without a contract and 'hoping' your actions will be interpreted consistent with what you claim was your mindset at any given moment, I suggest that Architects never agree to perform services without a writing that is unequivocal.  It is also good practice to have an ongoing relationship with legal counsel (specializing in design professional matters) that can eyeball every contract written.  After all, there are numerous pitfalls in a contract that are not as well understood by Architects as they should be.  While Architects readily consult with a bevy of design consultants and others when needed, many firms never talk to an attorney until a dispute has arisen.  By then it is, literally, too late.  This is most often driven by low fees that do not contain enough 'soft cost' margin for admin/mgmt/acct'g/legal functions.  That is an unfortunate reality of a competitive business, but one that the Architect must control as part of its risk-management practice.

Second:  Architects sometimes purchase a PL policy without really understanding what it covers, and what it excludes from coverage.  I venture to say that once the policy is purchased it is also put away in a drawer never to be reviewed again until a claim situation has arisen.  Without going into details, most insurers include important underwriting-related questions in their application forms.  Included is the one that asks if the firm only does work when it has signed contracts.  I'd guess every firm that has ever filled out an application says 'yes'.  That is to be expected since most states require that an Architect have written contracts before proceeding with work.  Regardless of that fact, if you work without a signed contract, when it comes time to file a claim the first thing the insurer will do is ask for a copy of your signed contract.  If you cannot produce one you may find you have no coverage.  That 'denial of coverage' letter is one you do not want to receive.

Architects have long had a reputation for being creative, but also for not being the most astute business-people.  I don't believe in generalities, but must confess that over the years I have come across too many situations where this one has been proven accurate.   Don't prove anyone right by ignoring the most fundamental risk management tool of any business (design or otherwise)...  get it in writing...  signed, sealed, delivered.

Wow . . . Mr. Littman

I don't render legal advice in this forum (this is general information only) but I can't understand how what I said could have been misinterpreted.  I never said don't sign a contract.  I said be careful because performing work can constitute acceptance.  formation of a contract requires an offer, acceptance and consideration.  If a written contract form is exchanged, that constitutes an offer.  Understand that if you begin to perform services, the risk you run is that a court will conclude you accepted the offer and the terms set out in the proposed contract.  An astute Owner could indeed take the position that no further negotiation is permitted and the terms offered are the contract. 

Indeed, I have seen that  more than a few times.  The Owner presses the Architect to begin work (of course everything is always under time pressure) and prepares a written contract with a few objectionable terms.  When the Architect points that out, the Owner is either silent or asks for proposed alternative language, while pressing the Architect to continue work so as to keep the project on schedule.  Things generally come to a head when payment is due and the Owner takes the view that the Architect's performance accepted the offer and that the form the Owner prepared constitutes the contract - including the objectionable clauses - even if the Architect refuses to sign it.

I never suggested one should not sigh a contract and hope.  To the contrary, I suggested one should insist on getting the contract in order and signed before ANY service is performed.  There is extensive language that doesn't have the common meaning ascribed to it outside the contract context - and even attorneys (and others) who routinely draft contracts sometimes miss some of it.  Having counsel review drafts is good practice as well.  Unfortunately, many - sometimes too many - view that review as an unnecessary expense - at least until the problems arise.

You are correct - many carriers do ask whether the firm has a policy of developing written contracts for every project - because of course that practice eliminates the possibility that the terms and conditions under which the work is performed are open to any degree of dispute or debate.  However, that does not constitute an insurance exclusion.  I have defended A/E claims since 1991, and I am familiar with most approved policy language.  The only exclusions are those set out in the text of the policy and I am not aware of any that exclude coverage where the Architect does not have a written contract covering the services at issue.  That doesn't mean it isn't recommended practice, but no carrier excludes instances where a written contract is lacking from coverage (where breach of contract, except for breach of a contract by committed an act inconsistent with the standard of care - by contrast - is excluded).  Indeed, the carrier may occasionally audit a firm and ask for the written agreements, and may refused to insure in the future if it is found lacking, but none I am aware of exclude coverage for that reason.  In theory they may argue a firm committed fraud by representing something that isn't true, but again, I have never seen a carrier do that - they are simply driving home the point that a written contract is far and away the best practice.

Insofar as most states requiring a written contact for Architectural services, I would respectfully disagree.  Most states have no such general requirements.  many states do have that requirement for certain types of projects (residential for example) and many states disallow lien rights if there is no written contract, but only a handful of states require it.  Those which do (notably, California) also have a number of exceptions that undercut the general rules such that many firms with clients with which they have long term established relationships clients (one of the exceptions) may not be legally required to prepare a written contract over an extended period of time.

I never suggested that one could or should try to skate by without a written contract - I am just point out some of the pitfalls inherent in the process, such as the legal rule that beginning performance can constitute acceptance.  That of course is avoided where the contract is negotiated and signed before the work begins. 

Indeed, Architects don't know contracts like they think they do.  Architects often bristle at the suggestion that others are capable on some level of doing what they do, but they seem all too often to be willing to engage in what really should be left to attorneys.  To the contrary, Architects should practice architecture, and they should leave the practice of law to Attorneys.  That costs a little money sometimes, but that little is better than the alternative.

-------------------------------------------
Frederick Butters FAIA, Esq.
Frederick F. Butters, PLLC
Southfield MI
-------------------------------------------

Fred, I'm sorry if you misinterpreted my post as being in any way critical of what you had to offer.  If you look carefully at my first paragraph, I said my concern was that readers should not incorrectly interpret your post as implying having the signed contract was not essential.   I did not say you thought otherwise.

We have both been around this business a long time... have both seen Architects fail to act in their own best interests...  and have both seen the foreseeable results.   Most of your latest agrees with points I made, and I think that fundamentally we are encouraging the same kind of responsible professional approach to contracts and risk avoidance.

Re the insurance coverage issue, my point was simply that (as you noted) if push comes to shove an insurer can seek to avoid coverage if an applicant has misrepresented anything in an application or renewal form (that could have a material impact on the risk the insurer has agreed to undertake).  While most insurers, in most instances, may not pursue that avenue, it is nevertheless a potential risk that is easily avoided.  Just ensure the firm does have an executed contract in hand before undertaking any work.  

Ideally the risk avoidance plan (before work starts) eliminates as many potential incalculable losses as possible...  so that risk management efforts (during the course of projects) can be minimized.

Respectfully,
Howard
-------------------------------------------
Howard Littman AIA
Forensic Architect, Expert Witness
Howard I. Littman, AIA
Agoura Hills CA
-------------------------------------------

Let's get this discussion back on track....

If we are discussing delegation of signature authority in mid-size firms, it is a balancing act.  In a previous firm we originally had an SOP that only the COO could sign contracts or even minor supplements in scope and fees of existing projects.  From a top-down perspective this provided the ultimate in risk management control. 

However it was highly wasteful of staff time to have to explain all the intricacies of the most minor change, created untimely responses to the clients, and made managers start working on revisions without formal review nor authorization to proceed.  Most importantly it negated development of contractual language understanding and oversight responsibility of the managers who defaulted in belief that the COO was now responsible.

So we set up a tiered system of levels of signature authority based upon dollar value of the proposal or change, and type of service or revision.  This made it clear the manager was responsible for thoroughly understanding the contract/change.  On lower tiered proposals/revisions, another equal level manager was responsible for a QC review and approval.  This included total fee calculations outlining the projected revenue, costs, and profits.  By default they became very interested in additional training in contract and proposal writing for even the smallest change. 

-------------------------------------------
Donald Koppy AIA, CCS
Architect
Donald A. Koppy Architect, LLC
Crestwood MO
-------------------------------------------







Original Message:
Sent: 02-20-2014 18:02
From: Frederick Butters
Subject: Mid-size firm signature authority policy

Wow . . . Mr. Littman

I don't render legal advice in this forum (this is general information only) but I can't understand how what I said could have been misinterpreted.  I never said don't sign a contract.  I said be careful because performing work can constitute acceptance.  formation of a contract requires an offer, acceptance and consideration.  If a written contract form is exchanged, that constitutes an offer.  Understand that if you begin to perform services, the risk you run is that a court will conclude you accepted the offer and the terms set out in the proposed contract.  An astute Owner could indeed take the position that no further negotiation is permitted and the terms offered are the contract. 

Indeed, I have seen that  more than a few times.  The Owner presses the Architect to begin work (of course everything is always under time pressure) and prepares a written contract with a few objectionable terms.  When the Architect points that out, the Owner is either silent or asks for proposed alternative language, while pressing the Architect to continue work so as to keep the project on schedule.  Things generally come to a head when payment is due and the Owner takes the view that the Architect's performance accepted the offer and that the form the Owner prepared constitutes the contract - including the objectionable clauses - even if the Architect refuses to sign it.

I never suggested one should not sigh a contract and hope.  To the contrary, I suggested one should insist on getting the contract in order and signed before ANY service is performed.  There is extensive language that doesn't have the common meaning ascribed to it outside the contract context - and even attorneys (and others) who routinely draft contracts sometimes miss some of it.  Having counsel review drafts is good practice as well.  Unfortunately, many - sometimes too many - view that review as an unnecessary expense - at least until the problems arise.

You are correct - many carriers do ask whether the firm has a policy of developing written contracts for every project - because of course that practice eliminates the possibility that the terms and conditions under which the work is performed are open to any degree of dispute or debate.  However, that does not constitute an insurance exclusion.  I have defended A/E claims since 1991, and I am familiar with most approved policy language.  The only exclusions are those set out in the text of the policy and I am not aware of any that exclude coverage where the Architect does not have a written contract covering the services at issue.  That doesn't mean it isn't recommended practice, but no carrier excludes instances where a written contract is lacking from coverage (where breach of contract, except for breach of a contract by committed an act inconsistent with the standard of care - by contrast - is excluded).  Indeed, the carrier may occasionally audit a firm and ask for the written agreements, and may refused to insure in the future if it is found lacking, but none I am aware of exclude coverage for that reason.  In theory they may argue a firm committed fraud by representing something that isn't true, but again, I have never seen a carrier do that - they are simply driving home the point that a written contract is far and away the best practice.

Insofar as most states requiring a written contact for Architectural services, I would respectfully disagree.  Most states have no such general requirements.  many states do have that requirement for certain types of projects (residential for example) and many states disallow lien rights if there is no written contract, but only a handful of states require it.  Those which do (notably, California) also have a number of exceptions that undercut the general rules such that many firms with clients with which they have long term established relationships clients (one of the exceptions) may not be legally required to prepare a written contract over an extended period of time.

I never suggested that one could or should try to skate by without a written contract - I am just point out some of the pitfalls inherent in the process, such as the legal rule that beginning performance can constitute acceptance.  That of course is avoided where the contract is negotiated and signed before the work begins. 

Indeed, Architects don't know contracts like they think they do.  Architects often bristle at the suggestion that others are capable on some level of doing what they do, but they seem all too often to be willing to engage in what really should be left to attorneys.  To the contrary, Architects should practice architecture, and they should leave the practice of law to Attorneys.  That costs a little money sometimes, but that little is better than the alternative.

-------------------------------------------
Frederick Butters FAIA, Esq.
Frederick F. Butters, PLLC
Southfield MI
-------------------------------------------

Donald,

Thank you very much for sharing your thoughts.

It appears you have experienced the evolution of a risk management program moving from a "policy" affording the project leader little latitude and a high level of risk management to one with a reasonable balance between latitude and risk management.

Recognizing all firms are different and a policy from one firm would not simply work with another I would still be interested to gain a broader perspective of how different firms are addressing risk management. Can you share any details about your current program?

Thanks again, 

-------------------------------------------
Neal Rinella AIA
Principal / COO
Taylor & Associates Architects
Ivine CA
-------------------------------------------







Original Message:
Sent: 02-25-2014 10:35
From: Donald Koppy
Subject: Mid-size firm signature authority policy

Let's get this discussion back on track....

If we are discussing delegation of signature authority in mid-size firms, it is a balancing act.  In a previous firm we originally had an SOP that only the COO could sign contracts or even minor supplements in scope and fees of existing projects.  From a top-down perspective this provided the ultimate in risk management control. 

However it was highly wasteful of staff time to have to explain all the intricacies of the most minor change, created untimely responses to the clients, and made managers start working on revisions without formal review nor authorization to proceed.  Most importantly it negated development of contractual language understanding and oversight responsibility of the managers who defaulted in belief that the COO was now responsible.

So we set up a tiered system of levels of signature authority based upon dollar value of the proposal or change, and type of service or revision.  This made it clear the manager was responsible for thoroughly understanding the contract/change.  On lower tiered proposals/revisions, another equal level manager was responsible for a QC review and approval.  This included total fee calculations outlining the projected revenue, costs, and profits.  By default they became very interested in additional training in contract and proposal writing for even the smallest change. 

-------------------------------------------
Donald Koppy AIA, CCS
Architect
Donald A. Koppy Architect, LLC
Crestwood MO
-------------------------------------------







Original Message:
Sent: 02-20-2014 18:02
From: Frederick Butters
Subject: Mid-size firm signature authority policy

Wow . . . Mr. Littman

I don't render legal advice in this forum (this is general information only) but I can't understand how what I said could have been misinterpreted.  I never said don't sign a contract.  I said be careful because performing work can constitute acceptance.  formation of a contract requires an offer, acceptance and consideration.  If a written contract form is exchanged, that constitutes an offer.  Understand that if you begin to perform services, the risk you run is that a court will conclude you accepted the offer and the terms set out in the proposed contract.  An astute Owner could indeed take the position that no further negotiation is permitted and the terms offered are the contract. 

Indeed, I have seen that  more than a few times.  The Owner presses the Architect to begin work (of course everything is always under time pressure) and prepares a written contract with a few objectionable terms.  When the Architect points that out, the Owner is either silent or asks for proposed alternative language, while pressing the Architect to continue work so as to keep the project on schedule.  Things generally come to a head when payment is due and the Owner takes the view that the Architect's performance accepted the offer and that the form the Owner prepared constitutes the contract - including the objectionable clauses - even if the Architect refuses to sign it.

I never suggested one should not sigh a contract and hope.  To the contrary, I suggested one should insist on getting the contract in order and signed before ANY service is performed.  There is extensive language that doesn't have the common meaning ascribed to it outside the contract context - and even attorneys (and others) who routinely draft contracts sometimes miss some of it.  Having counsel review drafts is good practice as well.  Unfortunately, many - sometimes too many - view that review as an unnecessary expense - at least until the problems arise.

You are correct - many carriers do ask whether the firm has a policy of developing written contracts for every project - because of course that practice eliminates the possibility that the terms and conditions under which the work is performed are open to any degree of dispute or debate.  However, that does not constitute an insurance exclusion.  I have defended A/E claims since 1991, and I am familiar with most approved policy language.  The only exclusions are those set out in the text of the policy and I am not aware of any that exclude coverage where the Architect does not have a written contract covering the services at issue.  That doesn't mean it isn't recommended practice, but no carrier excludes instances where a written contract is lacking from coverage (where breach of contract, except for breach of a contract by committed an act inconsistent with the standard of care - by contrast - is excluded).  Indeed, the carrier may occasionally audit a firm and ask for the written agreements, and may refused to insure in the future if it is found lacking, but none I am aware of exclude coverage for that reason.  In theory they may argue a firm committed fraud by representing something that isn't true, but again, I have never seen a carrier do that - they are simply driving home the point that a written contract is far and away the best practice.

Insofar as most states requiring a written contact for Architectural services, I would respectfully disagree.  Most states have no such general requirements.  many states do have that requirement for certain types of projects (residential for example) and many states disallow lien rights if there is no written contract, but only a handful of states require it.  Those which do (notably, California) also have a number of exceptions that undercut the general rules such that many firms with clients with which they have long term established relationships clients (one of the exceptions) may not be legally required to prepare a written contract over an extended period of time.

I never suggested that one could or should try to skate by without a written contract - I am just point out some of the pitfalls inherent in the process, such as the legal rule that beginning performance can constitute acceptance.  That of course is avoided where the contract is negotiated and signed before the work begins. 

Indeed, Architects don't know contracts like they think they do.  Architects often bristle at the suggestion that others are capable on some level of doing what they do, but they seem all too often to be willing to engage in what really should be left to attorneys.  To the contrary, Architects should practice architecture, and they should leave the practice of law to Attorneys.  That costs a little money sometimes, but that little is better than the alternative.

-------------------------------------------
Frederick Butters FAIA, Esq.
Frederick F. Butters, PLLC
Southfield MI
-------------------------------------------

Neal,

Per your request, here is the critical wording the SOP for signature authority, and location of Attachment A:

1. Roles and Responsibilities

    Signature authority obligating the firm financially shall be as indicated on Attachment "A".  All documents - regardless of the medium used for the instruments, are hereby covered by this SOP. 

    It shall be the responsibility of the Parties to use sound judgment and consult with the COO on any document requiring a signature that the Party believes should be reviewed by the CEO or President.

    It shall be the responsibility of Group Directors, Department Heads, Office Managers, Project Managers, and other responsible personnel, to ensure that approval is received and signature provided by only those authorized to do so.

    The CEO and/or President may delegate authority for others to sign financially obligating documents of the firm.  Such delegations will typically be in writing for a specific category of obligation instruments and for indefinite periods of time.  One-time delegation of signature authority may be used for convenience or other executive management reason; in such cases, the delegating party shall document in writing (letter, memo, e-mail, handwritten note) that delegation and file it with the subject document appropriately.

2. The attachment is at https://dl.dropboxusercontent.com/u/92532534/Sig-authority-12-03-07.docx
   
   -------------------------------------------
   Donald Koppy AIA
   Architect
   Donald A. Koppy, Architect
   Crestwood MO
   -------------------------------------------
   
   
   
   
   
   
   

   Original Message
   Original Message:
   Sent: 03-02-2014 19:26
   From: Neal Rinella
   Subject: Mid-size firm signature authority policy
   
   Donald,
   
   Thank you very much for sharing your thoughts.
   
   It appears you have experienced the evolution of a risk management program moving from a "policy" affording the project leader little latitude and a high level of risk management to one with a reasonable balance between latitude and risk management.
   
   Recognizing all firms are different and a policy from one firm would not simply work with another I would still be interested to gain a broader perspective of how different firms are addressing risk management. Can you share any details about your current program?
   
   Thanks again, 
   
   -------------------------------------------
   Neal Rinella AIA
   Principal / COO
   Taylor & Associates Architects
   Ivine CA
   -------------------------------------------
   
   
   
   
   
   
   
   Original Message:
   Sent: 02-25-2014 10:35
   From: Donald Koppy
   Subject: Mid-size firm signature authority policy
   
   Let's get this discussion back on track....
   
   If we are discussing delegation of signature authority in mid-size firms, it is a balancing act.  In a previous firm we originally had an SOP that only the COO could sign contracts or even minor supplements in scope and fees of existing projects.  From a top-down perspective this provided the ultimate in risk management control. 
   
   However it was highly wasteful of staff time to have to explain all the intricacies of the most minor change, created untimely responses to the clients, and made managers start working on revisions without formal review nor authorization to proceed.  Most importantly it negated development of contractual language understanding and oversight responsibility of the managers who defaulted in belief that the COO was now responsible.
   
   So we set up a tiered system of levels of signature authority based upon dollar value of the proposal or change, and type of service or revision.  This made it clear the manager was responsible for thoroughly understanding the contract/change.  On lower tiered proposals/revisions, another equal level manager was responsible for a QC review and approval.  This included total fee calculations outlining the projected revenue, costs, and profits.  By default they became very interested in additional training in contract and proposal writing for even the smallest change. 
   
   -------------------------------------------
   Donald Koppy AIA, CCS
   Architect
   Donald A. Koppy Architect, LLC
   Crestwood MO
   -------------------------------------------
   
   
   
   
   
   
   
   Original Message:
   Sent: 02-20-2014 18:02
   From: Frederick Butters
   Subject: Mid-size firm signature authority policy
      

Wow . . . Mr. Littman

I don't render legal advice in this forum (this is general information only) but I can't understand how what I said could have been misinterpreted.  I never said don't sign a contract.  I said be careful because performing work can constitute acceptance.  formation of a contract requires an offer, acceptance and consideration.  If a written contract form is exchanged, that constitutes an offer.  Understand that if you begin to perform services, the risk you run is that a court will conclude you accepted the offer and the terms set out in the proposed contract.  An astute Owner could indeed take the position that no further negotiation is permitted and the terms offered are the contract. 

Indeed, I have seen that  more than a few times.  The Owner presses the Architect to begin work (of course everything is always under time pressure) and prepares a written contract with a few objectionable terms.  When the Architect points that out, the Owner is either silent or asks for proposed alternative language, while pressing the Architect to continue work so as to keep the project on schedule.  Things generally come to a head when payment is due and the Owner takes the view that the Architect's performance accepted the offer and that the form the Owner prepared constitutes the contract - including the objectionable clauses - even if the Architect refuses to sign it.

I never suggested one should not sigh a contract and hope.  To the contrary, I suggested one should insist on getting the contract in order and signed before ANY service is performed.  There is extensive language that doesn't have the common meaning ascribed to it outside the contract context - and even attorneys (and others) who routinely draft contracts sometimes miss some of it.  Having counsel review drafts is good practice as well.  Unfortunately, many - sometimes too many - view that review as an unnecessary expense - at least until the problems arise.

You are correct - many carriers do ask whether the firm has a policy of developing written contracts for every project - because of course that practice eliminates the possibility that the terms and conditions under which the work is performed are open to any degree of dispute or debate.  However, that does not constitute an insurance exclusion.  I have defended A/E claims since 1991, and I am familiar with most approved policy language.  The only exclusions are those set out in the text of the policy and I am not aware of any that exclude coverage where the Architect does not have a written contract covering the services at issue.  That doesn't mean it isn't recommended practice, but no carrier excludes instances where a written contract is lacking from coverage (where breach of contract, except for breach of a contract by committed an act inconsistent with the standard of care - by contrast - is excluded).  Indeed, the carrier may occasionally audit a firm and ask for the written agreements, and may refused to insure in the future if it is found lacking, but none I am aware of exclude coverage for that reason.  In theory they may argue a firm committed fraud by representing something that isn't true, but again, I have never seen a carrier do that - they are simply driving home the point that a written contract is far and away the best practice.

Insofar as most states requiring a written contact for Architectural services, I would respectfully disagree.  Most states have no such general requirements.  many states do have that requirement for certain types of projects (residential for example) and many states disallow lien rights if there is no written contract, but only a handful of states require it.  Those which do (notably, California) also have a number of exceptions that undercut the general rules such that many firms with clients with which they have long term established relationships clients (one of the exceptions) may not be legally required to prepare a written contract over an extended period of time.

I never suggested that one could or should try to skate by without a written contract - I am just point out some of the pitfalls inherent in the process, such as the legal rule that beginning performance can constitute acceptance.  That of course is avoided where the contract is negotiated and signed before the work begins. 

Indeed, Architects don't know contracts like they think they do.  Architects often bristle at the suggestion that others are capable on some level of doing what they do, but they seem all too often to be willing to engage in what really should be left to attorneys.  To the contrary, Architects should practice architecture, and they should leave the practice of law to Attorneys.  That costs a little money sometimes, but that little is better than the alternative.

-------------------------------------------
Frederick Butters FAIA, Esq.
Frederick F. Butters, PLLC
Southfield MI
-------------------------------------------

I agree with your comments. The signature authority policy will need to include language which touches on the "risk" considerations for any size project. Our goal is to recognize our growth and to put in place a policy which gives authority commensurate with responsibilities carried by an increasing number individuals in our organization. I think a strong mentoring program will need to play a big role on the risk side to insure those small projects with high risk are not overlooked or flagged. 

Thank you for your comment!

-------------------------------------------
Neal Rinella AIA
Principal / COO
TAYLOR
Ivine CA
-------------------------------------------







Original Message:
Sent: 02-17-2014 12:12
From: Howard Littman
Subject: Mid-size firm signature authority policy

Neal, I'm sure you will get constructive ideas re: tiers... but allow me to offer a thought from a somewhat different perspective.

The risks a firm undertakes when performing professional services is not necessarily directly correlated to the fees involved (size of contract).  Even on a relatively small contract, one negligent act on a small job can expose the firm to the same potential 'damages' as those on a large project.  With that in mind, exercising a lesser degree of oversight on small contracts (to save some admin time/costs) may be penny-wise but pound-foolish. 

I understand that performing the same review for all size projects means you will be devoting a larger percentage of admin cost to smaller projects... but that is simply a part of doing business.  In all types of business the overhead can be the same for both large and small 'projects', and this has to be factored into the business model.  Small jobs equal higher cost per unit, due in part to larger overhead per unit.

I have seen firms exposed to very large dollar claims on projects both large and small.  Be careful out there.

Howard

-------------------------------------------
Howard Littman AIA
Forensic Architect, Expert Witness
Howard I. Littman, AIA
Agoura Hills CA
-------------------------------------------

This is turning into a very interesting and valuable discussion. I greatly appreciate your contributions to the discussion. There seems to be a couple of trends in the discussion which vary from my original question / request, all of which are extremely valuable. My question is really focused on an enterprise risk management given a growing enterprise. Specifically best practices to institute a signature authority protocol which both enables a growing number of firm leaders to commit the enterprise in engagements and also afford a reasonable level of enterprise risk management. Maybe better stated by saying how to empower new firm leaders while maintaining reasonable control and risk management.

That being said, we are a firm which has been extremely proactive to insure our contracting is performed with the necessary due diligence avoiding performing work prior to signed agreements, coordinating all contracts with our insurance broker and legal advisor. or in the case of Master Agreements, having them reviewed by our Contracts Department and COO. My personal impression is that given the many instances in which I am told by clients, which include contractors with our design-build engagements, that they have not experienced push back from other architects or other architects have accepted their contracts as stipulated, that our profession, as a broad and general statement, is not being proactive or possibly responsible in appropriately negotiating their contracts. This may warrant a need for a separate discussion given the responsibilities we all carry to one another to raise the level of our professional influence, value, and contributions we are able to provide to the built environment.
 
Contracts are complicated and ideally thrown in a drawer and forgotten. If we are entering into strategic engagements prospered by due diligence fostering relationships and strategic alliances, the contracts become secondary to the relationships. This does not dismiss the importance of the contract but places emphasis on the relationship and necessary collaboration between all parties involved in an engagement.  

The language of contracts, the terms and conditions, which must be weighed against the value of the potential engagement and the associated risks. There are many forms of agreement and no single source agreement which may be applicable to all engagements. Our firm has predominantly utilized or was obligated includes AIA Owner Architect Agreements, Client modified AIA Agreements. Contractor modified DBIA agreements. Client Master Agreements. We have not had the opportunity to engage in agreements based upon an Integrated Delivery Project Agreement.

-------------------------------------------
Neal Rinella AIA
Principal / COO
Taylor & Associates Architects
Ivine CA
-------------------------------------------







Original Message:
Sent: 02-19-2014 02:40
From: Neal Rinella
Subject: Mid-size firm signature authority policy

I agree with your comments. The signature authority policy will need to include language which touches on the "risk" considerations for any size project. Our goal is to recognize our growth and to put in place a policy which gives authority commensurate with responsibilities carried by an increasing number individuals in our organization. I think a strong mentoring program will need to play a big role on the risk side to insure those small projects with high risk are not overlooked or flagged. 

Thank you for your comment!

-------------------------------------------
Neal Rinella AIA
Principal / COO
TAYLOR
Ivine CA
-------------------------------------------

I agree with you that contracts are complicated, however cannot agree that the ideal is for them to be forgotten.  Contracts must be read and reread repeatedly during the course of a project, even in ideal circumstances.  You cannot predict which projects might turn sour and to default on a provision of a contract because it was in the drawer and forgotten is a form of negligence (not the negligence as defined by the E&O community).  The leaders of the project must know the contents of a contract and make sure that all provisions are followed.  Also don't get sucked into the perception that contracts are secondary.  They are primary, because at the end of the day, the contact will dictate terms and conditions of a settlement, if it comes to that.  Good relationships can help mitigate potential problem areas, but it is how you respond to those that are important. 

Now for signature authority on documents:  protocol you adopt should stand to scrutiny from your insurance carrier and risk manager.  What other firms do might not work for your firm because of a number of factors.  Many in the thread have offered sound advise, buy

-------------------------------------------
Kerry Hogue AIA
HKS, Inc.
Dallas TX
-------------------------------------------







Original Message:
Sent: 02-21-2014 07:38
From: Neal Rinella
Subject: Mid-size firm signature authority policy

This is turning into a very interesting and valuable discussion. I greatly appreciate your contributions to the discussion. There seems to be a couple of trends in the discussion which vary from my original question / request, all of which are extremely valuable. My question is really focused on an enterprise risk management given a growing enterprise. Specifically best practices to institute a signature authority protocol which both enables a growing number of firm leaders to commit the enterprise in engagements and also afford a reasonable level of enterprise risk management. Maybe better stated by saying how to empower new firm leaders while maintaining reasonable control and risk management.

That being said, we are a firm which has been extremely proactive to insure our contracting is performed with the necessary due diligence avoiding performing work prior to signed agreements, coordinating all contracts with our insurance broker and legal advisor. or in the case of Master Agreements, having them reviewed by our Contracts Department and COO. My personal impression is that given the many instances in which I am told by clients, which include contractors with our design-build engagements, that they have not experienced push back from other architects or other architects have accepted their contracts as stipulated, that our profession, as a broad and general statement, is not being proactive or possibly responsible in appropriately negotiating their contracts. This may warrant a need for a separate discussion given the responsibilities we all carry to one another to raise the level of our professional influence, value, and contributions we are able to provide to the built environment.
 
Contracts are complicated and ideally thrown in a drawer and forgotten. If we are entering into strategic engagements prospered by due diligence fostering relationships and strategic alliances, the contracts become secondary to the relationships. This does not dismiss the importance of the contract but places emphasis on the relationship and necessary collaboration between all parties involved in an engagement.  

The language of contracts, the terms and conditions, which must be weighed against the value of the potential engagement and the associated risks. There are many forms of agreement and no single source agreement which may be applicable to all engagements. Our firm has predominantly utilized or was obligated includes AIA Owner Architect Agreements, Client modified AIA Agreements. Contractor modified DBIA agreements. Client Master Agreements. We have not had the opportunity to engage in agreements based upon an Integrated Delivery Project Agreement.

-------------------------------------------
Neal Rinella AIA
Principal / COO
Taylor & Associates Architects
Ivine CA
-------------------------------------------







Original Message:
Sent: 02-19-2014 02:40
From: Neal Rinella
Subject: Mid-size firm signature authority policy

I agree with your comments. The signature authority policy will need to include language which touches on the "risk" considerations for any size project. Our goal is to recognize our growth and to put in place a policy which gives authority commensurate with responsibilities carried by an increasing number individuals in our organization. I think a strong mentoring program will need to play a big role on the risk side to insure those small projects with high risk are not overlooked or flagged. 

Thank you for your comment!

-------------------------------------------
Neal Rinella AIA
Principal / COO
TAYLOR
Ivine CA
-------------------------------------------

Kerry,

Thank you for your thoughts.

Yes, I agree that contracts cannot really be forgotten or ignored. I guess the comment was made as a tongue-n-check statement that if a project or engagement, is highly successful that the need to refer back to the contract would not be necessary as no negative events or issues arose requiring reference to the contract.

I am still interested in learning about how others have approached structuring a signature authority program or risk management program.

Any thoughts on this?

-------------------------------------------
Neal Rinella AIA
Principal / COO
Taylor & Associates Architects
Ivine CA
-------------------------------------------







Original Message:
Sent: 02-25-2014 10:27
From: Kerry Hogue
Subject: Mid-size firm signature authority policy

I agree with you that contracts are complicated, however cannot agree that the ideal is for them to be forgotten.  Contracts must be read and reread repeatedly during the course of a project, even in ideal circumstances.  You cannot predict which projects might turn sour and to default on a provision of a contract because it was in the drawer and forgotten is a form of negligence (not the negligence as defined by the E&O community).  The leaders of the project must know the contents of a contract and make sure that all provisions are followed.  Also don't get sucked into the perception that contracts are secondary.  They are primary, because at the end of the day, the contact will dictate terms and conditions of a settlement, if it comes to that.  Good relationships can help mitigate potential problem areas, but it is how you respond to those that are important. 

Now for signature authority on documents:  protocol you adopt should stand to scrutiny from your insurance carrier and risk manager.  What other firms do might not work for your firm because of a number of factors.  Many in the thread have offered sound advise, buy

-------------------------------------------
Kerry Hogue AIA
HKS, Inc.
Dallas TX
-------------------------------------------







Original Message:
Sent: 02-21-2014 07:38
From: Neal Rinella
Subject: Mid-size firm signature authority policy

This is turning into a very interesting and valuable discussion. I greatly appreciate your contributions to the discussion. There seems to be a couple of trends in the discussion which vary from my original question / request, all of which are extremely valuable. My question is really focused on an enterprise risk management given a growing enterprise. Specifically best practices to institute a signature authority protocol which both enables a growing number of firm leaders to commit the enterprise in engagements and also afford a reasonable level of enterprise risk management. Maybe better stated by saying how to empower new firm leaders while maintaining reasonable control and risk management.

That being said, we are a firm which has been extremely proactive to insure our contracting is performed with the necessary due diligence avoiding performing work prior to signed agreements, coordinating all contracts with our insurance broker and legal advisor. or in the case of Master Agreements, having them reviewed by our Contracts Department and COO. My personal impression is that given the many instances in which I am told by clients, which include contractors with our design-build engagements, that they have not experienced push back from other architects or other architects have accepted their contracts as stipulated, that our profession, as a broad and general statement, is not being proactive or possibly responsible in appropriately negotiating their contracts. This may warrant a need for a separate discussion given the responsibilities we all carry to one another to raise the level of our professional influence, value, and contributions we are able to provide to the built environment.
 
Contracts are complicated and ideally thrown in a drawer and forgotten. If we are entering into strategic engagements prospered by due diligence fostering relationships and strategic alliances, the contracts become secondary to the relationships. This does not dismiss the importance of the contract but places emphasis on the relationship and necessary collaboration between all parties involved in an engagement.  

The language of contracts, the terms and conditions, which must be weighed against the value of the potential engagement and the associated risks. There are many forms of agreement and no single source agreement which may be applicable to all engagements. Our firm has predominantly utilized or was obligated includes AIA Owner Architect Agreements, Client modified AIA Agreements. Contractor modified DBIA agreements. Client Master Agreements. We have not had the opportunity to engage in agreements based upon an Integrated Delivery Project Agreement.

-------------------------------------------
Neal Rinella AIA
Principal / COO
Taylor & Associates Architects
Ivine CA
-------------------------------------------

One thing I strongly recommend is that you have someone, not associated with the project, read the agreements for terms and conditions.  Delegating the fee part of the process makes sense and allows people to learn on smaller projects how to deal with scope fee and time.  That can be mentored but learning to read legal documents is a whole different animal.
I used to have to read all the agreements for a large national firm and it was amazing the terms the principal in charge would talk themselves into.  Architects by our nature think we can solve anything and every project will go well.  Someone else needs to look at the terms that understands the risks and can say no.  Your professional liability carrier is a good place to start.  A clause buried in an agreement on a little project can cost you a lot.   

-------------------------------------------
Robert Carlson AIA
Principal
Carlson Design Team PC
Iowa City IA
-------------------------------------------







Original Message:
Sent: 02-19-2014 12:08
From: Neal Rinella
Subject: Mid-size firm signature authority policy

I agree with your comments. The signature authority policy will need to include language which touches on the "risk" considerations for any size project. Our goal is to recognize our growth and to put in place a policy which gives authority commensurate with responsibilities carried by an increasing number individuals in our organization. I think a strong mentoring program will need to play a big role on the risk side to insure those small projects with high risk are not overlooked or flagged. 

Thank you for your comment!

-------------------------------------------
Neal Rinella AIA
Principal / COO
TAYLOR
Ivine CA
-------------------------------------------

Howard,

Thank you for your thoughts!

I completely agree with your comment that fee value does not represent a level of risk associated with the engagement. The use of a fee value, the gross fee, is only intended to establish a simple trigger or threshold upon which additional levels of signature are required on a proposal or contract. I think the risk management aspect of our intended policy comes from a continuous program to work with the individuals being given the responsibility such as offering custom programs for education. I am planning to have our insurance broker and our attorney provide a custom 2 hour program for our Directors. It also comes with having a "go/no go" review process for projects along with  an effective infrastructure in the form of a contracts core group which all proposals and contracts are processed. I suppose it is worth mentioning that having a well defined job description and screening process for the position is essential.

I would be interested to know if you have, or have heard of, another method for creating a tiered system of review?

Again, my intent is to create a policy which has a balance between providing our Directors latitude to perform their responsibilities with a minimum of encumbrance and also insure our enterprise is provided with an appropriate and reasonable level of risk management.

Again, thanks for your thoughts.

-------------------------------------------
Neal Rinella AIA
Principal / COO
Taylor & Associates Architects
Ivine CA
-------------------------------------------







Original Message:
Sent: 02-25-2014 09:56
From: Howard Littman
Subject: Mid-size firm signature authority policy

Neal, I'm sure you will get constructive ideas re: tiers... but allow me to offer a thought from a somewhat different perspective.

The risks a firm undertakes when performing professional services is not necessarily directly correlated to the fees involved (size of contract).  Even on a relatively small contract, one negligent act on a small job can expose the firm to the same potential 'damages' as those on a large project.  With that in mind, exercising a lesser degree of oversight on small contracts (to save some admin time/costs) may be penny-wise but pound-foolish. 

I understand that performing the same review for all size projects means you will be devoting a larger percentage of admin cost to smaller projects... but that is simply a part of doing business.  In all types of business the overhead can be the same for both large and small 'projects', and this has to be factored into the business model.  Small jobs equal higher cost per unit, due in part to larger overhead per unit.

I have seen firms exposed to very large dollar claims on projects both large and small.  Be careful out there.

Howard

-------------------------------------------
Howard Littman AIA
Forensic Architect, Expert Witness
Howard I. Littman, AIA
Agoura Hills CA
-------------------------------------------