Introduction
Contracts are the gatekeepers of risk. In the architecture, engineering, and surveying (AES) professions, the language embedded in a design agreement can have far more lasting consequences than a technical oversight. Yet too often, contracts are signed without scrutiny or under pressure to 'just get started.' This can expose firms to liabilities that are not only avoidable but also uninsurable. This article unpacks key contractual provisions that frequently lead to claims, disputes, and financial losses for design professionals. It explains how and why these terms are risky, and offers sample language to support fair and insurable alternatives.
1. Indemnity Clauses: The “Defend at All Costs” Trap
Indemnity provisions are one of the most critical—yet misunderstood—elements in professional service agreements. On the surface, indemnity appears to be a fair requirement: if the consultant causes harm, they should be responsible for that harm. But many contracts go far beyond this principle, requiring design firms to defend and indemnify the client against 'any and all claims' related to their services, regardless of negligence or fault. This language may force a firm to pay legal fees upfront, long before any court finds them liable. Even worse, such language may not be covered by professional liability insurance policies, which typically only respond to claims arising from negligent acts, errors, or omissions.
⚠️ Problematic Language:
“Consultant shall indemnify, defend and save harmless the Client, and its officers, directors, employees and agents, from and against all liability, loss, cost or expense (including attorney’s fees) by reason of liability imposed upon the Client, arising out of or related to Consultant’s services, whether caused by or contributed to by the Client or any other party indemnified herein, unless caused by the sole negligence of the Client.”
This clause obligates the design firm to defend the client even if the claim is meritless or caused by someone else. The duty to 'defend' is particularly hazardous because it can trigger immediately upon the filing of a claim—not after a finding of negligence. This turns the design firm into a de facto insurer for the client’s legal costs.
✅ Recommended Clause:
“Consultant shall indemnify and hold harmless the Client, its officers, directors, and employees ("Indemnitees") from and against those damages and costs (including reasonable attorneys fees and expense), where recoverable under applicable law, that Indemnitee incurs as a result of third-party tort claims to the extent caused by the negligent act, error or omission of the Consultant or anyone for whom the Consultant is legally responsible, subject to any limitations of liability contained in this Agreement.”
This revised clause reflects a balanced allocation of risk. It ensures the firm is only liable to the extent of its negligence and avoids uninsurable defense obligations.
2. Duty to Defend Before Fault is Established
Closely related to indemnity provisions, often included within the provision itself, 'duty to defend' clauses create one of the most financially damaging obligations for design professionals. When a contract requires a consultant to defend the client against claims, it effectively demands the firm take on the role of legal insurer. This is problematic for several reasons. First, the duty to defend typically activates upon the mere allegation of a claim, not upon a finding of fault. Second, most professional liability policies only provide coverage for damages arising out of negligence—not for the cost of defending others. Design firms that agree to defend their clients can end up paying legal fees out-of-pocket, regardless of their involvement in the alleged issue.
Firms operating in states like New York, California, Texas, and Illinois are especially vulnerable. Courts there have upheld broad contractual defense obligations even when a design professional is ultimately exonerated. The result: a costly legal defense on behalf of the client with no reimbursement and no insurance support. It is vital to strike this obligation from contracts or limit it to scenarios involving proven negligence and available insurance coverage.
3. Warranties & Guarantees of Performance
Another common pitfall for design firms is contractual language that imposes warranties or guarantees of performance. Unlike contractors who deliver tangible goods and services, design professionals provide intellectual services—drawings, specifications, and recommendations—based on the standard of care, not perfection. When a contract states that the consultant 'warrants' their work will be free from defects or meet specific performance targets, it exposes the firm to strict liability. This significantly exceeds the standard legal expectation of negligence-based accountability.
Such language is especially risky when tied to environmental or performance goals, such as LEED certification, net-zero energy outcomes, or cost savings guarantees. These outcomes often depend on factors outside the design team’s control—contractor decisions, occupant behavior, or even changing codes and market forces. Agreeing to a warranty turns an aspirational design goal into a contractual promise, often voiding insurance coverage in the process.
⚠️ Problematic Language:
“Consultant warrants that the services will be performed in strict compliance with this agreement, all federal, state and local laws, ordinances and governmental rules, regulations and codes, free from and all defects, final product shall be fit for its intended purposes and shall meet all performance criteria as outlined by the Owner.”
✅ Recommended Clause:
“Consultant shall perform its services consistent with the professional skill and care ordinarily provided by consultants practicing in the same or similar locality under the same or similar circumstances. Consultant shall perform its services as expeditiously as is consistent with such professional skill and care and the orderly progress of the Project (hereinafter the “Standard of Care”).
Notwithstanding any clause in this Agreement to the contrary, Consultant expressly disclaims all express or implied warranties and guarantees with respect to the quality of performance of professional services, and it is agreed that the quality of such services shall be judged solely as to whether Consultant performed its services consistent with the Standard of Care.”
This language reinforces the standard of care while still assuring the client of quality. Design professionals must advocate for contract terms that reflect what they can control, not unknowable future outcomes.
4. Ownership of Instruments of Service
Instruments of Service—drawings, specifications, and other design documents—are the intellectual property of the design professional. However, many clients attempt to assert ownership over these documents through broad contractual language, sometimes even reserving the right to reuse or modify them without the designer’s involvement. This creates substantial risk for the consultant, who may be held responsible for how their work is reused—especially if modified by others or applied to future projects for which they had no oversight.
The American Institute of Architects (AIA) and Engineers Joint Contract Documents Committee (EJCDC) forms typically grant the client a limited license to use the documents for the intended project only. This strikes a fair balance: it provides clients the access they need without stripping design professionals of ownership or exposing them to open-ended liability.
⚠️ Problematic Clause:
“All drawings, models, specifications, and Instruments of Service shall become the sole property of the Owner, who may use or modify them for future projects without restriction.”
✅ Recommended Clause:
“Consultant retains ownership of Instruments of Service. Owner is granted a non-exclusive license to use the documents solely for this project, provided Consultant is not in default.”
This clause preserves the consultant’s intellectual property rights while granting the client appropriate use rights for the current project only.
If the client requires transfer of ownership and copyrights, it is important to:
- Make the transaction contingent upon payment for your services,
- Seek indemnification from the client for unauthorized reuse of documents:
“In the event the [Client] uses the [Instruments of Service] without retaining the authors of the [Instruments of Service], the [Client] releases the [Consultant] from all claims and causes of action arising from such uses. The [Client], to the extent permitted by law, further agrees to indemnify and hold harmless the [Consultant] from all costs and expenses, including the cost of defense, related to claims and causes of action asserted by any third person or entity to the extent such costs and expenses arise from the [Client's] use of the [Instruments of Service] under this Section.”
- Preserve and protect your interest in the documents for future use:
“[Client] acknowledges and agrees that the documents and data to be provided by [Consultant] under the Agreement may contain certain design details, features and concepts from [Consultant’s] own practice detail library, which collectively may form portions of the design for the Project, but which separately, are, and shall remain, the sole and exclusive property of [Consultant]. Nothing herein shall be construed as a limitation on [Consultant’s] right to re-use such component design details, features and concepts on other projects, in other contexts or for other clients.”
5. Certificate Language and Insurance Requirements
Design contracts often include insurance requirements, and some attempt to dictate policy types, language, and endorsements that may not apply to design professionals. For instance, requiring occurrence-based professional, or pollution liability coverage or naming the owner as an additional insured is common in contractor agreements, but is not applicable—or even available—for design services.
Professional liability insurance is typically claims-made and cannot support many of the requirements seen in generalized templates. Overly prescriptive insurance language can result in a breach of contract or delay in execution if the consultant cannot comply.
⚠️ Contract Clause to Avoid:
“Consultant shall provide evidence of protecting Client as an insured from claims resulting from the performance of professional services and operations under this Agreement.”
Best Practice: Coordinate with your insurance broker to clarify what coverage you carry and which endorsements are appropriate. Negotiate for language that matches industry norms and actual policy terms.
6. Schedule and Delay Penalties
Liquidated damages provisions are designed to compensate the client for delays. While this might be reasonable in construction contracts, it poses serious problems for design professionals. Design schedules are often impacted by factors outside the consultant’s control—such as owner decisions, permit delays, or contractor coordination. Nonetheless, contracts increasingly attempt to impose daily penalties or damages on designers if submission milestones are missed.
These penalties are not typically insurable, as they do not stem from negligence but rather from a breach of a contractual timeline. A firm could perform competently and still incur liability due to client-driven project slowdowns.
⚠️ Problematic Clause:
“The Consultant shall be liable for liquidated damages of $500 per day for every day the final design submission is delayed past the agreed-upon date.”
✅ Recommended Clause:
“Consultant shall not be liable for delays unless such delay is solely and directly caused by Consultant’s negligence. Liquidated damages shall not apply to professional services.”
7. Unlimited Consequential Damages
Consequential damages include financial losses such as lost profits, rent, financing charges, or missed revenue from project delays. Many contracts seek to make the design professional liable for these damages, which can far exceed the value of the design services provided. Because consequential damages are not directly tied to design errors, they are often uninsurable.
✅ Protective Clause:
“In no event shall Consultant be liable for consequential, indirect, or incidental damages, including lost profits, arising out of this Agreement.”
This clause draws a necessary line between direct and indirect damages and protects firms from being financially responsible for factors they do not control.
8. No Limitation of Liability
Limitation of liability (LoL) clauses are perhaps the single most effective way to manage risk. They cap the consultant’s total financial exposure, often at the value of the fee or a multiple thereof. Without such clauses, design professionals risk exposure to unlimited liability that far exceeds both the project fee and insurance limits.
Negotiation Tip: Propose a cap at the amount of the fee, or a reasonable multiplier, depending on the project type and risk.
Check out our article: Limitation of Liability for more information on negotiation, incorporation and sample provisions.
Conclusion: Read It Before You Regret It
Contractual language can dramatically affect a firm’s liability, insurability, and profitability. The clauses discussed here are not merely legal technicalities, or boilerplate language—they are risk-shifting mechanisms that can determine whether a firm survives a claim or folds under its weight. Design professionals must be proactive in reviewing, negotiating, and managing their contracts.
Checklist: What to Watch For
✅ Indemnity tied to negligence
✅ No duty to defend unless insured
✅ Clear ownership of Instruments of Service
✅ Limitation of liability
✅ No guarantees of performance
✅ Reasonable insurance language
✅ No liquidated damages or broad consequential damages