“Other consultants don’t have a problem with this clause.”
As part of the contract review service we provide to PI insurance clients of Planned Cover, we regularly see consultants’ clients giving this exact reason as justification for refusing to amend a problem clause in their contract. For what it’s worth, a great many of you appear to be “the only consultant who has a problem with our contract”.
You know that the client’s assertion could be bending the truth a little, or that these “other consultants” who agreed to the contract could have done so recklessly without seeking advice, or reluctantly under high commercial pressures.
But how do you counter this suggestion that you are out of step with your peers?
In this article, we’ll highlight some objective external reference points you can call on for back-up.
Documents from Industry Bodies
In Consult Australia’s Model Client Policy (June 2018), a leading industry body endorses a number of positions commonly taken by consultants, such as refusing to provide “fit for purpose” warranties, or accept an “expert” standard of care. It substantiates the cost of independently verifying client-provided information (useful when negotiating clauses in which the client disclaims liability for the accuracy of any information it provides). It confirms that consultants’ insurance typically does not cover contract clauses imposing higher obligations than would exist at common law. Noting the amount of valuable consultant time wasted on negotiating onerous bespoke contracts, the policy strongly recommends that government clients use standard form contracts on an “if not, why not” basis. You can read more in our article.
The Australian Institute of Architects uses its Guidelines: Expressions of interest and requests for tender for architectural services (April 2019) to call more specifically for government clients to use Australian Standard 4122-2010, or the Institute’s own pro forma client and architect agreement. This document also makes practical suggestions to resolve a raft of obstacles and inefficiencies commonly encountered in the tender process, from unclear response criteria to excessive demands for financial records and the uncertainties of stage-by-stage engagement.
Although an older document, with circulation limited to members, the Institute of Architect’s Guiding Principles for Balanced and Insurable Client/Architect Agreements (2005) is still, unfortunately, very relevant. This document explains why consultants cannot agree to certain kinds of onerous contract clauses, such as warranties or “fit for purpose” obligations, without jeopardising their professional indemnity insurance cover. It also notes the high risk of consultants being asked to sign unqualified certificates, and endorses limits of liability for the consultant.
Australian Standard Contracts
Clients sometimes claim that their no-fault indemnity clause is “a standard clause”.
Becoming familiar with the Australian Standard consultancy agreement AS 4122-2010 can help rebut these kinds of claims. The contract also contains several examples of balanced clauses against which you can benchmark the client’s drafting.
Some useful clauses to know include clause 5.1 (a “fit for purpose” clause that is limited to using reasonable care), clause 28 (a relatively balanced indemnity clause that is tied to fault and accounts for proportionate liability and contributory negligence), clause 29 (limit of liability for the Consultant) and 32 (dispute resolution that does not use arbitration or expert determination to deprive the Consultant of the protections of the court system).
Notably, AS 4122-2010 does not contain any warranties, any waivers of proportionate liability rights, or any requirement for the consultant to provide certificates. Although some clients may make a habit of including these clauses in their contracts, none of them can truly be considered “standard” provisions in the sense of being willingly endorsed across the industry.
Although less balanced and more onerous than AS 4122, the Australian Standard consultants agreement for design and construct projects, AS 4904-2009, contains a very useful example of a novation deed.
The novation deed can be found in Annexure Part D (and it also appears in a very similar form as Annexure Part E of AS 4300-1995). What makes it conspicuously different from the average client-drafted novation deed is that it is half a page long, with none of the added risks like restricted termination rights or onerous post-novation reporting obligations. Notably, the outgoing party (the principal) and the continuing party (the consultant) properly sever their relationship by giving each other a full release from liability. Apart from the warranty in clause 2, this novation deed is fairly low risk from an insurance perspective.
Our upcoming half-day intensive seminars on consultancy agreements are another opportunity to reassure yourself that you are not alone and hear from your peers about their experiences with contract negotiation. Places are still available for you to join us in:
Melbourne on Wednesday 5 June; or
And consultants in other parts of the country can look out for our webinar on contract negotiation in November.
Wendy Poulton
Risk Manager