Professional Services Contract Drafting Tips

Consultant contracts can be a minefield in the best of circumstances  and if a consultant agrees to provide a guarantee, a warranty, or an enhanced performance standard, their insurance can even be voided.

That is because errors and omissions policies often only provide coverage for a failure to meet the prevailing standard of care of a professional practicing in the relevant discipline. Guaranteeing that the work will be “free of defects” or agreeing to perform to the “highest standards”, may not be covered.

Sometimes this type of problematic language is clear in the proposed contract and should be rejected outright by the consultant. At other times, the language used can be more ambiguous but can still lead to a possible interpretation that poses a higher standard on the consultant than their policy covers.

Here’s a detailed look at how you can navigate this minefield effectively.

Guarantees

Guarantees can significantly increase a consultant’s liability. To avoid inadvertently providing a guarantee, consultants should:

1. Use Clear Language: Ensure that the contract language is precise and unambiguous. Avoid terms that imply a guarantee, such as “ensure” or “warrant.”
2. Limit Scope of Work: Clearly define the scope of work to avoid any implied guarantees. This includes specifying what is and isn’t included in the services provided.
3. Include Disclaimers: Incorporate disclaimers that explicitly state that no guarantees are being made regarding the outcome of the services.
4. Negotiate Terms: During contract negotiations, be firm about not including guarantee clauses. Explain the risks associated with guarantees, such as possible insurance coverage concerns, to the client.

Higher Standards of Performance

Higher contractual standards of performance can lead to increased liability and expectations. To manage this, consultants should:

1. Define Standard of Care: Clearly define the standard of care expected in the contract. This should align with industry norms and not exceed what is typically expected.
2. Avoid Absolute Terms: Refrain from using absolute terms like “best” or “highest” in describing performance standards. Instead, use terms like “reasonable” or “customary.”
3. Document Assumptions: Clearly document any assumptions that the performance is based on. This can help manage expectations and provide a reference if disputes arise.

Warranties

Warranties on design accuracy can be particularly risky, as they imply a level of certainty that may not be achievable. To mitigate this risk, consultants should:

1. Clarify Responsibilities: Clearly outline the responsibilities of each party regarding design accuracy. This includes specifying who is responsible for verifying and approving designs.
2. Include Limitations: Incorporate limitations of liability clauses that cap the consultant’s liability for design inaccuracies.
3. Use Disclaimers: Include disclaimers that state the designs are based on the information available at the time and may be subject to change.
4. Regular Reviews: Implement regular design reviews with the client to ensure that any inaccuracies are identified and addressed promptly.

Above all, read your contract carefully with a view to what your insurance covers.  Keep in mind that the use of precise language, defining clear standards, and the inclusion of appropriate disclaimers and limitations can significantly assist in managing your risk.

This article originally appeared in Construction Business. It was co-written with Norm Streu, associate counsel with the law firm Harper Grey and past chair of the Vancouver Regional Construction Association. Chris Hirst is a partner d leader of the Construction and Engineering practice group at the law firm Alexander Holburn LLP.  Chris has been recognized in “Best Lawyers in Canada” since 2020 in Construction Law.