COAA Contract Poses Problems for Design Professionals

by James C. Moore, Esquire

For architects and engineers accustomed to the clearly understood parameters of the American Institute of Architects’ (AIA) contracts, the recently released Construction Owners Association of America (COAA) forms, called Contracts for Professional Services, should cause concern on at least three levels: ability to perform, adequacy of insurance coverage and profitability.

The stark facts are that design professionals who sign the COAA agreements will assume unexpected responsibilities with which they are not likely to be familiar, for which they may not be insured, and for which they will almost certainly be under compensated.

COAA is a recently established association of building owners that, from time to time, may be involved in the construction of facilities. The contracts appear to be very similar to those drafted for the National Association of Attorneys General (NAAG) and the National Construction Law Council (NCLC) a few years ago. Members of the group are predominantly public entities (counties, cities, public agencies), health care providers and educational institutions. In producing its "new" forms the COAA’s stated goal was to make a "lasting impact on the construction industry while balancing the interests of the parties" (emphasis added).

However, even the most casual review of the COAA Contract for Professional Services reveals major changes in the role and responsibilities of the design professional coupled with a seeming indifference to the interlocking and complementary roles of the many parties in a construction project.

For example, with respect to the design professional, the COAA agreement requires the architect or engineer:

• To agree to design the project so that its cost "does not exceed" the budget established by the owner and to work at no additional cost to the owner if the low bid exceeds the budget.
• To coordinate all the owner’s professionals (regardless of who retained them) for the purpose of keeping the project on schedule.
• To assist the owner in obtaining all approvals and to attend "any and all" meetings to obtain those approvals.
• To provide the owner, after approval of the preliminary design drawings, a set of "review Construction Documents" which detail the work within the budgeted Total Project Construction Cost. This is a new set of documents provided prior to the final construction documents.
• To "review, certify [i.e. "to attest as certain: to confirm" Random House Dictionary] approve, reject" shop drawings, product data, samples, materials submitted as equals, and the results of inspections or tests.
• To visit the site "with sufficient frequency to determine compliance with construction documents," schedules and "all applicable laws and statues."
• To certify on the builder’s payment requests that the work has been done in accordance with the construction documents and that waivers of any liens have been filed.

Other provisions contained in the COAA documents suggest added time, expense and liability problems for the design professional:

• Substantial completion and final completion occur only when the owner, the builder and the design professional agree that those events have occurred.
• The design professional is reminded throughout the agreement that "time is of the essence" and, as such, the design professional will bear some responsibility for delays.
• The design professional must advise the owner of hazardous substance or environmental contamination of which it becomes aware or "reasonably should have become aware" (emphasis added).
• The construction documents, when completed by the design professional, become the property of the owner and can be re-used without the designer’s consent.
• While disputes between the owner and the design professional must be mediated, the vehicle for dispute resolution is the court rather than arbitration.
• The design professional agrees to reimburse the owner for "any costs or damages" (emphasis added) resulting from his or her failure to perform.
• The indemnity provision requires the design professional to indemnify and hold harmless the owner even when it is only claimed that the owner’s liability results from the design professional’s conduct.

While some owners may be frustrated by certain provisions in the 1997 AIA documents, the COAA documents simply ignore the realities of the current construction marketplace. A few of those realities include:

• The fact that the already modest levels of design fees will not support the additional labor expense required to comply with the demands of the COAA forms.
• The fact that the COAA forms do not contemplate the owner’s very common reliance on construction managers to oversee major commercial projects.
• The fact that the COAA forms require the design professional to provide certifications and guarantees, neither of which are covered by professional liability insurance.
• The fact that the COAA forms expose the design professions to tort-based damages in contract-based relationships, while at the same time requiring the designer to waive any such claim against the owner.

There may, indeed, be a need for some further adjusting of the relative responsibilities of the parties on a construction project. Those familiar with the industry know that concepts such as fast track, design-build, partnering and turnkey have already had a significant impact on the role and responsibilities of the design professional. That adjustment, however, should be the result of industry-wide efforts in which all of the key players participate. One-sided attempts to shift the balance of power to groups of owners will inevitably lead to confusion during construction and in the courts, increased legal expense, less productive time for the parties and, regrettably, a further straining of the already tenuous bond between the owner and the design professional.

In the meantime, architects and engineers should regard the COAA agreements or variations of them with care and concern. A better alternative is to start with the professional association contract forms that are widely understood and are the standard of the industry, then to modify them as required for a specific project.

James C. Moore is a partner in the Rochester, New York law firm of Harter, Secrest & Emery. He has represented architects and engineers and their firms for more than 30 years. He may be reached at: jmoore@hselaw.com.