Are Legal Costs Transferred to You?

Originally published by the following source: SBC MagazineJanuary 29, 2019. Updated March 21, 2019.
by SBCA Staff with contributions from SBCA Professional Engineers

   

Today one of the goals all legal counsel have when providing advice to businesses is for your business to shift all risk to others if possible. Hence, it is very important for someone in your organization to read the fine print in all your contracts, or you may be accepting risk and adding to your scope of work without being paid for it.

The ideal service provider to collaborate with is one that clearly tells you what their scope of work is, does the work they say they will do and stands behind their work.

Less than ideal is the business that asks you to hold them harmless.

There are often more pressing daily needs to meet in your business, and it is likely that the consequence of this risk is not a “front and center” issue. Thus, it is common to have a “wake-up call” and come to the realization it is “too late”.

Therefore, it is wise to take the time now to ask a few questions of your service provider, and delve into a bit of fine print reading.

  1. How does you service provider detail their scope of work?
  2. How they stand behind their work? Are they willing to sign and seal?
  3. Does your service provider have professional liability insurance to cover any error or omission they make?
  4. Have you reviewed all the contracts in your supply chain to assess if risk has been transferred to someone other than the responsible party?
  5. Would you be okay with risk being transferred to you by any of the following contractual provisions shown in Table 1?

Nine Silent Contract Provisions Shifting Risk to You

  1. The exclusive remedy shall be either ten times the fee paid or fifteen thousand dollars ($15,000 USD), whichever is less.
  2. The Customer shall guarantee, hold harmless and indemnify against all claims made by any third party.
  3. The Customer shall guarantee, hold harmless and indemnify against all claims for loss, damage or expense of whatsoever nature and howsoever arising relating to the performance, purported performance or non-performance of any services.
  4. The Customer shall guarantee, hold harmless and indemnify against any related costs of litigation and attorneys’ fees higher than _________ (e.g. $15,000 USD)
  5. Customer shall defend, indemnify and hold harmless from and against all claims, suits and liabilities (including but not limited to cost of litigation and attorney’s fees) arising from:
    1. Actions by any governmental authority or others for any actual or asserted failure.
    2. Information supplied by the Customer and relied upon,
    3. Personal injuries, loss of or damage to property, economic loss, and loss of or damage to intellectual property incurred by or occurring to any person or entity.
  6. Customer shall defend, indemnify and hold harmless from and against all claims, suits and liabilities (including but not limited to cost of litigation and attorney’s fees) arising from or related to the unauthorized use or misuse of testing, research reports, technical evaluations, third party inspection reports, engineered designs, etc.
  7. Liability is expressly disclaimed with respect to any guarantees regarding the quality of any goods or as an insurer against loss or damage and disclaims all liability in any such capacity.
  8. Customers seeking a guarantee against loss or damage should obtain appropriate all risk insurance and, if such insurance is procured, Customer agrees to obtain a waiver of subrogation.
  9. Customer shall discharge all liability for all claims for loss, damage or expense and such claims shall be extinguished unless a written claim is made within ninety (90) calendar days of the date at which the loss, damage, defect or alleged non- performance became apparent, or ought to have become apparent to the Customer, and suit is brought no later than two (2) years from the date of the services rendered.

Table 1: Actual Contract Provisions Obtained from ANSI 17065 Accredited Companies

ICC Evaluation Service

IAPMO Uniform ES Logo

The language in Table 1 are direct contract language quotes. Would it surprise you that these contracts are being agreed to and signed every day?

Here are a few simple best practices to consider implementing:

  1. Have one of your staff review all of your contracts for indemnity and hold harmless language. Contract review should include but not be limited to all of your:
    1. Do you even have a contract? If not, the Uniform Commercial Code and any Common Law will apply.
    2. Raw material and product supplier relationships.ANSI Accreditation logo
    3. “ICC Report” providers (a.k.a ANSI ISO/IEC 17065 accredited third party certification bodies)
    4. Third party inspectors (a.k.a ISO/IEC 17020 accredited agencies),
    5. Testing facilities (a.k.a ISO/IEC 17025 accredited agencies),
    6. Engineering, accounting, legal and other professional service providers, and
    7. Letter contracts, purchase orders, etc. where reference terms, conditions and warranty language is on website (e.g. https://www.buildgp.com/terms-of-sale/).
  2. The review goal is to ensure full understanding of the following items:
    1. Scope of work of each party.
    2. Scope of responsibility of each party.
    3. Will they sign and seal their work if they have engineers on staff?
    4. Will they sign and seal their work if they are a third party inspection firm and have engineers on staff?
    5. Do they have professional liability insurance?

In summary, there are simple approaches for evaluating suppliers and their willingness to stand behind their work:

  1. Will they sign their work and take responsibility for it in a manner similar to that of a professional architect or engineer?
  2. Do they have general liability insurance similar to profession liability insurance, which backs up any scope of work error or omission?
  3. Will they transparently inform you of their contract’s indemnity and hold harmless provisions, and how they will operate in event of an occurrence?
  4. How willing are they to work with you to modify contract language to a point where there is agreement that the relationship is fair, risk sharing is fair and the partnership value is mutual?

Reference Documents: The following are external links that were available at the time this article was published. Please see the PDF files attached below for the 2019 contractual language referenced above and publicly published.

  1. Intertek General Terms & Conditions of Service
  2. UL Environment Service Agreement
  3. IAPMO Uniform Evaluation Service Packet
  4. ICC-ES Evaluation Report Application and ICC-ES Application for Building Product Listing Report