A Design Professional’s Guide To Getting Paid

Posted on: 12/13/16

Written by: Jay S. Gregory, Esq.

Topics: Business Development

Architecture and engineering firms deserve to be paid for their services. Unfortunately, circumstances, bad contracts, miscommunication, and unreliable clients often make it difficult for design professionals to receive the compensation they deserve. Following is a list of pointers for increasing the likelihood that you will be compensated for your services.

Contract Terms to Include.
Having a good contract is your best tool for getting paid. Your contract should be tailored for each client and project and the scope of your services should be fully defined. The contract should reflect duration (start and finish), payment terms, copyright, and mechanism for resolving disputes. The contract should also identify those services that you will not provide. It is helpful to align the scope of services with specific payment milestones.

It is appropriate for you to require a retainer. This is especially true for first time clients. The retainer should not be applied to initial services but held to be applied to the final invoice at project completion. Maintaining the retainer until project completion creates leverage and also mitigates the risk that the client is unable or unwilling to pay for services. Include in the contract the frequency of invoicing (e.g., monthly), as well as the time by which the client is required to pay. Include a provision that the client’s refusal to pay constitutes a material breach of the contract justifying you either to suspend or terminate services.

On the other side of the coin, delete any provision that obligates you to continue to provide services in the event of a dispute. The contract should indicate that invoices not paid in-full by a date certain will accrue interest. Also, include an “equitable adjustment” clause to address changes to project scope.

Your contract should include a clause waiving consequential damages. In addition, include a provision requiring you and your client to mediate disputes prior to litigation. If possible, your contract should include a limitation of liability provision.

Contract Terms To Avoid.
The contract should reflect that you will provide services consistent with the applicable standard of care (i.e., the level of services provided by a reasonably prudent design professional on a similar project under similar circumstances).

Avoid contract language that increases the standard of care and, for example, requires that you provide the “best” or the “highest” degree of skill or care. Avoid overbroad indemnification provisions. It is appropriate to agree to indemnify and hold harmless your client from damages “to the extent” arising from your negligence or breach of contract. It is unwise to agree to indemnify, defend, and hold harmless a client for damages arising, in whole or in part, from your acts or omissions. Make the indemnity obligation proportionate to the extent of your having caused the damage. (N.B. Professional Liability policies do not typically cover indemnity obligations for damages you did not cause.)

Avoid clauses that transfer your copyright to the owner. Contract documents are instruments of your service and should remain your property. In most projects it should be sufficient for the owner to have a “license” to use your documents.

Warning Signs Of A Bad Client.
How a client marks up your proposed contract can reveal important information. If the new client balks at paying a retainer, including a limitation of liability provision, or agreeing to timely payments, you may have a problem.

It is not inappropriate to ask a new client about problems on past projects, disputes with other design professionals, litigation, or similar issues. (Your lawyer can research on line if that client has been involved in litigation.) Ask for references.

Filing Suit.
Sometimes you have no option but to file suit to collect payment. Law suits are an imperfect remedy and have their own risks. Often, if you sue for fees, your client will countersue as a defense. Justice is neither speedy nor inexpensive. A law suit can take up to three years from filing through trial. While you might find a lawyer willing to work on a contingency basis, most lawyers charge hourly especially if there is a counterclaim. It is preferable to try mediation before filing suit. Most cases that go to mediation settle (at least 85%).

Only a small fraction of law suits actually go to trial. Most settle after the parties become tired and/or drained by the legal process. Law suits can be time consuming as well. Design professionals involved in law suits are often required to spend hours if not days engaged in “discovery,” being deposed, and going to trial. Every hour that a design professional spends involved in a law suit is an hour not devoted to money-making projects or marketing. The above is simply the tip of the iceberg and a mere summary of issues to be considered. For a more in-depth discussion, call your attorney.

About the Author: Jay S. Gregory is a partner in the Boston office of Gordon & Rees. He focuses his practice on construction defect litigation and the defense of malpractice actions brought against professionals, including architects, engineers, surveyors, real estate brokers, appraisers and attorneys. He has practiced in both state and federal courts, before administrative and arbitration tribunals and in numerous non-binding mediations.

Ever wonder if there really is a way to get the upper hand in negotiations? A way to get the fees (and respect) that you deserve…without losing the client? There is. Our A/E/C Pricing and Negotiations Workshop is packed with 40+ years of proven strategies and tactics that the most successful architecture and engineering professionals are using to get results.