With the recent release of the Association of Consulting Architects’ Short Form Agreement, it’s a good opportunity to recap some available options for pro forma consultancy agreements that you can use.
All these contracts have been drafted with the consultant’s interests in mind. As compared to client-drafted contracts, they generally offer a much better risk allocation for the consultant, and contain extra protections. The endorsement of an industry body may make some clients more willing to accept them.
These contracts also avoid unduly onerous obligations that tend to infringe “assumed liability” exclusions commonly found in professional indemnity insurance policies, such as unqualified warranties, guarantees and broad indemnities. This means that the consultant’s professional obligations in these contracts are generally within the cover of a typical consultant’s professional indemnity insurance policy. (Although of course there is no substitute for checking with your broker in case of non-typical provisions within your own policy.)
AS 4122 is the main Australian Standard consultancy agreement. A lot of work was done on the 2010 version to improve clauses that imposed uninsured liability on the consultant. The result is a great improvement, albeit with a small number of remaining risks to consider. An informed Practice Guide on AS4122-2010 is available to many professional indemnity insurance clients of Planned Cover (contact your local Planned Cover representative for login details to gain access) and to informed subscribers.
AS 4904 is designed for use on novated projects. It is a more aggressive contract than AS 4122, and contains several warranties, indemnities and other clauses that infringe common exclusions in consultants’ professional indemnity policies. Some common problem clauses are highlighted in the informed Practice Guide on AS 4904-2009. Rather than negotiating amendments, consultants might prefer to use AS 4122 and have solicitors add in a novation clause and deed.
The efficiencies of using pro forma contracts are undermined when clients’ solicitors make extensive amendments. At worst, our contract review team has seen amendments two or three times as long as the original text. Generally, conscientious clients will mark up amendments clearly within the document, but there is no obligation to do this, and remember that occasionally amendments slip through the cracks in automatic mark-up programs. There is a convenient check in Item 31 of Annexure Part A of AS 4122-2010, which asks the party proposing the contract to confirm whether any amendments have been made.
Seek advice on client-drafted amendments. At best, they usually make it harder for the consultant to claim variation payments and extensions of time, and at worst they add in onerous new liabilities that are potentially uninsured.
All of the above contracts contain “limit of liability” clauses. For instance, clause 29 of AS4122. Courts have sometimes upheld these clauses and found negligent consultants not liable for an error, purely because of one of these clauses. They are a great protection for consultants, with two provisos:
1.In many contracts, an item in the contract schedule or annexure must be completed in order to activate the clause (e.g. the amount of the limit of liability must be inserted – say, $5 million). Failing to complete this item can mean the protection of the clause is completely lost, so pay attention to completing all blank fields in the document.
2.If you engage sub-consultants using these contracts (that is, if you enter the contract in the role of client rather than consultant) these limitation clauses can put you and your insurance cover at serious risk. Have the client engage all consultants directly to avoid this problem, or seek advice. The informed contract review team can review sub-consultant agreements for many Planned Cover clients.
Unsurprisingly, there is no universal answer and it depends on your practice profile and client base. Consultants often find that domestic clients are less daunted by the shorter length and simpler language of the industry contracts, whereas commercial and government clients may be more attracted to the endorsement of Standards Australia.
Risk Manager, informed