The Handshake Start: Contract Risk on a 24-Unit Multifamily
You are managing principal of a six-person architecture firm negotiating a 24-unit, four-story multifamily building for a developer who has not yet closed on the land. The developer's draft agreement sets a fixed fee of $312,000 for design through construction administration and a 14-month schedule, and includes a clause requiring "all services necessary to obtain a certificate of occupancy" plus "unlimited design revisions until the owner approves." It also asks you to begin schematic design immediately, before signature, on a handshake; sets payment on a 90-day cycle; and requires $2 million in professional liability coverage with a waiver of the statute of limitations down to three years after substantial completion. In a kickoff call the developer mentions that the lender wants a guaranteed maximum price from a contractor you have never met, and that the project architect will be your newest intern, who is not yet licensed.
1. Identify the contract provisions that most increase your firm's risk and give a specific redline for each. What do you do about the proposed project architect?
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The three clauses I would fight hardest are the open-ended scope, the unlimited-revision standard, and the payment terms.
'All services necessary to obtain a certificate of occupancy.' This has no boundary: it can be read to include contractor means and methods, owner-furnished equipment, AHJ delays, and re-inspections. Redline: an enumerated list of basic services and deliverables by phase, plus an express statement that the certificate of occupancy is a shared responsibility, and that services tied to contractor means and methods, owner FF&E, or code changes adopted after design are additional services at the hourly rates in the exhibit.
'Unlimited design revisions until the owner approves.' 'Approves' has no objective test, so the fee is uncapped. Redline: a set number of submissions per phase, comments consolidated through one designated owner representative within 10 working days, and any revision after written phase approval, or any change to program, budget, or site, as additional services.
90-day payment. Your firm finances the work and the trigger to stop is too remote. Redline: net 30, interest on past-due amounts, and the right to suspend after 10 days' written notice without liability.
On staffing: you cannot designate an unlicensed intern as 'project architect' in responsible charge. A licensed architect must be in responsible charge; the intern can be project manager under documented supervision.
2. The developer wants work to start before the agreement is signed. What is your response, and what should any interim authorization contain?
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Do not start on a handshake. Without a signed instrument you have no enforceable fee, no limitation of liability, no ownership of instruments of service, and no indemnity, and once design is underway the developer has little incentive to accept the terms you proposed.
If the client wants work to begin, offer a short signed preliminary services agreement: a defined scope (site and zoning analysis, existing conditions review, code summary, concept test-fit), a not-to-exceed fee or hourly rate, termination for convenience with payment for services performed, instruments of service owned by the architect, mutual indemnity, and a limitation of liability tied to the fee. Include a date by which the parties either execute the full agreement or stop work.
Check with your carrier that the practice policy covers the pre-contract services; it generally will, but a claim arising from early work is still a claim, and the interim fee is tiny compared with the exposure on a 24-unit building. Have a certificate of insurance issued so the lender's file is complete, and confirm whether the $2 million requirement needs an endorsement and what it costs.
This also protects cash flow: if the land deal collapses, the interim agreement, not a handshake, is what you collect on.
3. The developer asks your firm to guarantee a maximum price with a contractor you have not met. How do you respond, and what contract language should change?
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Explain the roles plainly. The architect provides professional services and exercises reasonable care; the contractor, not the architect, owns the guaranteed maximum price, the means and methods, the schedule, and the price. Cost estimates the architect produces at each phase are opinions of probable cost and must be labeled that way in the agreement.
When bids exceed budget, the contract should define the owner's remedies in sequence: value engineering within program, reduce scope or quality by written owner direction, redesign at additional fee if overage results from a program change, or the architect absorbs redesign only if the overage resulted from the architect's negligence.
Practically: decline to promise a price; recommend a cost consultant or a CM at risk engaged before schematic design so cost input arrives while changes are still cheap; design to a target cost with escalation and contingency line items; require bidding on completed documents. Strike language warranting that drawings are 'complete and free of errors' or making the architect liable for consequential damages.
Meeting the contractor for the first time at GMP means the price is set after your design is fixed and every gap becomes a change order. If the owner insists on a GMP, insist on a pre-construction services contract with the contractor first.