Prior Work Clauses in Construction Contracts and Architects Agreements
After years of working on architects agreements, I've noticed that it seems like more often then not the architect starts work on a design before they and the owner get around to actually signing an architects agreement. The same goes for contractors and construction contracts.
This brings up a problem that actually has a couple of solutions. One is to have a preliminary contract - perhaps for a limited scope of work and a limited amount of time that will then be superseded by a comprehensive architects agreement or construction contract. Many call these early start agreements.
But sometimes its too late for an early start agreement or those involved in the project don't want to spend the time and the money to negotiate and prepare one. So the alternate is to include a prior work clause in the architects agreement or construction contract.
Prior Work Clauses In Architects Agreements
The prior work clause applies the agreement retroactively to cover architectural services or construction work provided before the owner and architect enter into the architects agreement. Or before the owner and contractor enter into the construction contract. Parties can also use a prior work clause to serve a kind of audit function helping ensure that there are no pre-contract fees, reimbursable costs, costs of the work, or claims that will crop up later.
Here is my short list of things a prior work clause for an architects agreement should have:
- Retroactive application. The agreement applies to all pre-agreement effective date services provided by, or on behalf of, the architect. Whatever standards the agreement imposes on the scope and quality of the architects services will apply to services provided before the owner and architect entered into the agreement.
- Paid-in-full certification. The architect certifies that the owner has paid the architect for (1) all pre-agreement services and (2) all pre-agreement reimbursable expenses, except for fees and reimbursable expenses specifically identified on a special list attached as an exhibit to the agreement (I call this the "reserved fees and expenses list"). If there the owner has paid all fees and reimbursed all reimbursable expenses, then the reserved fees and expenses list just says "none".
- Waiver of claims. The architect waives all claims arising from pre-agreement services, except for items identified on the reserved fees and expenses list. The waiver applies to (1) claims the architect actually knows of, and (2) claims that the architect, providing pre-agreement services in compliance with the applicable standard of care, should know of. This waiver usually includes claims for:
- Fees for pre-agreement services.
- Reimbursement for reimbursable expenses the architect incurred, or promised to pay, before the owner and architect entered into the agreement. This usually includes fees ad expenses for consultants and other sub-designers working for the architect (e.g., engineers, wind consultants, sound consultants).
- Any other claim the architect may have against the owner related to the services or the project.
Prior Work Clauses In Construction Contracts
Prior work clauses in construction contracts (whether a prime contract or a subcontract) are very similar to the clauses in architects agreement. The difference is the terminology they use, not the substance of what they do. Using terminology from the American Institute of Arhcitects's construction contracts, the instead of referring to the architect's "services", "fees", and "reimbursable expenses", a prior work clause in a construction contract usually refers to the contractor's "Work", payment in exchange for the Work (including the "Cost of the Work" under a cost-plus with guaranteed maximum price contract), the contractor's fee, and extension of the "Contract Time".
- Retroactive application. The contract (including the contractor's warranties and correction obligations) applies retroactively to all Work provided before the effective date of the contract.
- Paid-in-full certification. The contractor certifies that they've been paid in full for all pre-contract Work, except for Work specifically identified on an exhibit to the contract like the reserved fees and expenses list attached to an architects agreement. If there the contractor has been paid in full this exhibit just says "none".
- Waiver of claims. The contractor waives all claims against the owner (in a prime contract) or the higher tier contractor (in a subcontract or sub-subcontract) arising from pre-contract work, except for items identified on the unpaid Work exhibit. The waiver applies to (1) claims the contractor actually knows of, and (2) claims that the contractor reasonably should know of. This waiver usually includes claims for:
- Pre-contract labor, material, and equipment devoted to the Work, including demolition, excavation, construction, and overhead/general conditions costs.
- Any other claim the contractor may have against the owner, or higher tier contractor, related to their Work or the project.
Defining Claims
Because prior work clauses focuses so much on, and so profoundly affect "claims", it's very important to define what qualifies as a claim. This previous post talks about defining the term "claim".
When doing this, it's usually a good idea to ensure that everyone involved and affected agrees on what qualifies as a "claim". There's few things worse in business than years of depositions and document review all over whether "it was the intent of the parties" that a prior work clause waive a claim for payment of this or reimbursement for that. Defining what qualifies as a claim won't guaranty you'll avoid this; but it can help.
Conclusion
Using a prior work clause the owner and architect, owner and contractor, or prime and subcontractor, can assure themselves that:
- Their agreement will apply to pre-agreement services and Work. This could be important for ensuring that insurance coverages apply to those services or Work.
- The parties start out from signing the agreement with a clean slate; no legacy fees, reimbursable expenses, payments, or other claims lingering around or springing-up at an inopportune time.
- The architect or contractor can invoice for pre-agreement services, Work, and expenses and get paid sooner for pre-agreement work.
Construction Law Today is a legal blog about construction contracts, disputes, finance, and the people whose job it is to deal with them.
