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The OAA continues to review RFPs and contracts with the intent of identifying requirements and/or provisions that:
The following does not constitute legal advice. It is one in a series of excerpts from Practice Tip 39.1 that should assist practices in making a 'go/no go' decision with respect to responding to an RFP or in contract negotiations. Members should familiarize themselves with all of 39.1 and refer to it when reviewing RFPs, and bid and contract documents
To read previous excerpts in this series, click here.
2. Examples of Specific Contract Language of Concern
2.4. Client’s Right to Set Off
Established law does afford a client the right to set off funds. However, where an architect has given the client the right to withhold fees through such a contract provision, the architect and client have essentially agreed to a settlement for what might have otherwise qualified as an insurance claim. There is no professional liability insurance coverage for defence or damages in this case as the settlement has already been reached through contract at the sole discretion of the client, and without any due process or opportunity for the insurance company to defend the claim.
Example Clause 1
The Client may withhold any further payment of outstanding fees and expenses then due the Architect until such time as the issue is resolved by one of the means set out herein, at which time any outstanding fees and expenses shall be paid as provided in GC11.
The client asserts the right at its sole discretion and without due process to suspend further payment to the architect for however long it takes to resolve the issue. The result may be that the practice has no or only limited liability. It may take several years to reach this conclusion, during which the practice is out-of-pocket. This is often accompanied by clauses that remove any right of the architect to suspend or terminate services. It is important to check what interest, if any, will be paid on the monies owed and for what period. Often the wording is such as to make it financially advantageous for the owner to delay payment as long as possible.
Example Clause 2
Notwithstanding the foregoing, where the Project is abandoned due to receipt of bids in excess of the variance described in GC 5.5, no termination expenses are payable, subject to and without prejudice to the Client's right to invoke, set off or otherwise take proceedings to recover any loss or damage which it may have suffered as a result of the abandonment of the Project in those circumstances. The Client shall have no further or other liability to the Architect as a result of termination except as described in this GC10.5.
The client asserts the right at its sole discretion to decide: that it has suffered some form of damage; that the architect is responsible; and what the amount of damage is. The architect’s only recourse is potentially lengthy and expensive dispute resolution. Agreeing to a right of set off may be considered an admission of guilt/settlement resulting in the potential exclusion of insurance coverage. The clause circumvents any requirement for due process or to prove an allegation to the satisfaction of an independent third party.
With regard to this matter, OAA 600 in GC 11.4 states “No deductions shall be made by the Client from amounts payable to the Architect on account of penalty, liquidated damages, or other sums withheld from payments to contractors, or on account of the cost of changes in the Work other than those for which the Architect is proven to be legally responsible or has agreed to pay.” This clause should be retained.