Owner-Environmental Consultant Agreement

From, book chapter in - The Construction Renovation Formbook, John Wiley & Sons, Spring 1991 John E. Osborn

Section 8.1 - Ten Basic Problems
Section 8.2 - Liability Concerns
Section 8.3 - Basic Clauses
Section 8.4 - Ten Rules for Owners
Section 8.5 - Form Agreement

Section 8.1 Ten Basic Problems

Of all the participants in the design and construction process on a renovation or rehabilitation project, the environmental consultant almost certainly has the most precarious role and the one fraught with the most potential for future exposure to liability. Before an enlightened businesslike approach can be taken to environmental risk management, both the owner and environmental consultant must develop a thorough picture of the roles of the project participants so that risk can be responsibly allocated. This chapter explores some of the problems the environmental consultant faces and offers suggestions of how the consultant and owner can, in contract documents and in conduct, better protect against future liability.

Restoration or renovation work is especially difficult for the environmental consultant because the basic nature of the work is to leave as much of the existing environment in place as possible. Accordingly, the ability to perform thorough testing and to specify comprehensive remediation is often blocked by lack of access, confined space, or a concern for aesthetics or landmark designations.

At the end of this chapter there is an owner-consultant agreement that seeks to apportion fairly the risks and obligations of the parties. The agreement has been developed from the comments of owners and consultants and from personal experience in contract negotiation.

Problem 1

The environmental consultant is often a participant added late in the process. The owner has hired an architect to prepare plans and specifications for the renovation. During the contract negotiations, the architect has insisted on a clause that lets him wholly off the hook if asbestos, PCBs, or hazardous material is encountered. The clause puts the ball squarely in the owner's court for all environmental testing and hiring of geotechnical or other engineers, as needed to investigate environmental problems and formulate their solutions.

Under these clauses, the architect has disclaimed all responsibility for environmental issues and has shifted it back to the owner. Unless the owner is sophisticated, the owner may not even realize the impact of this. The owner may ask the architect to retain a subconsultant to handle this responsibility, but this would shift at least some of the burden back to the architect. Thus, the architect should reject this approach, suggesting instead that the owner contract directly with the environmental consultant.

Problem 2

The selection of an environmental consultant is difficult. Selecting the environmental consultant is not a scientific process. The owner, at a late stage discovers the need for an environmental consultant, only to find that although there is some information centrally recorded, it has not been widely used. In addition, the architect often does not wish to recommend a consultant for fear of taking on liability (if things do not go perfectly) for being involved in the selection process.

Problem 3

In the final preconstruction phase, the owner is most interested in a "clean bill of health" and will look for an environmental consultant who will render one. In states that do not require prepurchase inspections before a sale of real estate, by the time the environmental consultant is being selected to address environmental concerns in the building, the owner has already invested a great deal of money in the project. Although there might have been an earlier point at which a prepurchase inspection showing an environmental problem for the first time might have killed the deal, the owner now is committed to going ahead almost without regard to what is found. What the owner wants now is "a clean bill of health" and not an exhaustive review of records, changing of title, adjoining land uses, prior tenants, chemical and air sampling tests, and so on.

Problem 4

Involvement of a short-term owner may explain the failures of disclosure or attempts to restrict severely the scope of services to be undertaken. There is a significant difference in motivations of owners, depending upon differences in future planning. If an owner intends to renovate and then occupy or retain ownership and manage the premises, that owner might be expected to desire a more comprehensive review of the premises by the environmental consultant. In contrast, the owner who is renovating in contemplation of an immediate sale may be expected to want merely the bare minimum done.

Problem 5

Beware of an owner who does not act with care as to the scope of the inspection or concessions agreed to in the consultant-owner agreement. The owner who has thin financial backing may be unwilling to incur significant costs for environmental testing. For example, a corporate owner whose only asset is the property being renovated may proceed with much less caution in the type of inspection required and the type of contract documents it is willing to sign. As a practical matter, reputable consultants may wish to steer clear of this type of owner who, to conserve funds, may severely restrict the scope of an environmental assessment.

Problem 6

Nothing takes the place of hands-on involvement of the owner in the project. The owner who tells the environmental consultant "Do whatever you need to do - you are the expert" and is then never seen or heard from again on the project may be the consultant's worst long-term problem. As in the rendering of other professional services, there are many junctures in the performance by the consultant when options are available. The owner should exercise those options after the consultant presents the. When the owner takes a total hands-off approach to the project, a prudent environmental consultant will take a highly conservative approach to the exercise of discretion so as to protect himself or herself from future scrutiny. In the instance of asbestos, it may mean a full removal where an operations and maintenance (O&M) plan can be used if the owner has pledged active involvement (that is, and O&M plan is usually appropriate only when an owner is actively involved in making sure it has well-trained facilities management personnel). An owner not actively involved is not available to combine facts and background knowledge with the consultant's day-to-day findings. The coordinated approach is preferable for maximizing efficiency and controlling risk.

Problem 7

Mutually developed work scopes incorporate knowledge and expertise of both the owner and consultant and enhance cost-effectiveness. There is an impetus for an owner to look at fees as a primary indicator in choosing the environmental consultant. The better course would be to look at scope suggestions or comments made by the environmental consultant candidates. For the hands-off owner, this advantage is not attainable. In order to evaluate scope suggestions or comments, the owner must be involved on a daily basis.

Problem 8

Severely restricting testing performed by the environmental consultant is not beneficial to the owner. In many instances, as in the case of the architect, the environmental consultant is not in a position, without undertaking fairly extensive destructive testing, to comment intelligently on what is behind walls or above the ceiling and what conditions might be encountered there. But testing can pay off in the long run. If the architect or environmental consultant discovers a serious condition before the contractor bids the job and includes it in the original bid documents, the price quoted to remedy the problem likely will be lower than if it is dealt with by change order in the middle of the job. (If the problem is encountered early on, many other options might be pursued as well.) In spite of this, the owner is often interested in limiting the scope of testing before construction.

Problem 9

Treating the environmental consultant as part of the team is essential. Another common mistake is that the environmental consultant may not be treated as a coordinate member of the team. The consultant simply may be asked to submit a written report to be read by the owner and the architect. The owner would then ask the architect to address the environmental risks set forth in the report. It is important to the owner's best protection (and to the architect's) that the environmental consultant be integrally involved in the entire process. Either the architect should ask the environmental consultant to prepare the portion of the bid package pertaining to environmental problems, or the environmental consultant should review materials prepared by the architect. In any event, during the construction phase, the environmental consultant should be retained to monitor the environmental concerns and to render reports that the environmental problems have been properly addressed.

Problem 10

Comprehensive understanding of the way a project is to be designed and constructed is the essential first line of defense to all types of liability. A simple checklist of project responsibilities can often prevent gaps in responsibility. A well thought out, one-page outline of project responsibilities that is adhered to during construction may offer more protection to the owner (and to other participants in the in the construction process) than will hundreds of pages of contract documents and hundreds of thousands of dollars of insurance coverage.

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Section 8.2 Liability Concerns

As mentioned, the environmental consultant's role in the design and execution of a project varies drastically, depending upon the priorities of the owner. The consultant can be perceived as an insider who is there to suggest solutions and afford protection in a manner tailored specifically to the project or as an outsider who is seen as only able to cast stones, offer roadblocks, and add expense. All of this suggests that what is really needed in addition to a lesson on contract drafting and risk management is a lesson on "team building" or "industrial psychology." With this relationship, more than with the other relationships the owner must undertake to get the job done, the owner should recognize that liability can be what the owner makes it. Environmental laws and regulations notwithstanding, informed, hands-on involvement in a project, coupled with careful selection of the contractor who will execute the work, is the best protection against risk for both the owner and the environmental consultant.

Consultant's Liability to Whom?

Although the environmental consultant's agreement is negotiated with the owner and the common law defense of privity of contract may be raised against thrid-party claims, this defense is eroding in some jurisdictions. Claims may be asserted directly against the environmental consultant by contractors, regulatory authorities, sureties, injured parties, or parties whose property is damaged by environmental contamination.

The cornerstone document for deciding whether the environmental consultant should be held liable to third parties is the owner-environmental consultant agreement. The focus of this chapter is to advise both owners and environmental consultants on how best to prepare appropriate agreements, including clauses that address the potential of a third-party claim. First, however, here are some guiding principles for risk management to be followed by both the owner and the environmental consultant:

The owner stands to gain a great deal financially in the event the project reaches a successful conclusion. Most often, the consultant will derive profit only from each hour its personnel works on the project. Fairness dictates that the owner must either limit the liability of the consultant or increase the compensation. In this author's experience, owners would sooner do the former.
Some of the most severe risks faced by an owner are not insurable at all, and the responsibility for them clearly should not be shifted to the environmental consultant. The owner must get forthright advice from the environmental consultant, but cannot hope to be relieved of these uninsurable risks.
Attempts to pass off risk, beyond insurable risk, to the environmental consultant cannot be too successful anyway because it is unlikely that the consultant is heavily capitalized (the "shallow pockets" defense). Keep in mind that an indemnity clause is only as good as the indemnitor who backs it.

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Section 8.3 Basic Clauses

Scope of Work

There is no doubt that the scope of work clause, which is clearly within the capability of the environmental consultant and the owner to draft without the intervention of lawyers, insurance people, or risk managers, is the most important clause in the agreement. Nowhere is the axiom "Stick to the basics" more appropriate than here. Regrettably, attention is often deflected to more esoteric concerns, such as indemnity or limitations of liability clauses. The environmental consultant should concentrate on environmental problems and leave the lawyering to the lawyers. Without a proper scope of work clause, every other clause fails.

Description of the scope of work should include an outline of the responsibilities of each of the project participants and of the chain of command and communications. The clause should contain a requirement that periodic job meetings be held and that "point" persons be appointed for each of the entities on the project.

Owner Responsibilities

The owner is responsible for providing plans and specifications for the building, records of prior renovations, and similar information. The owner is also responsible for providing the consultant access to the premises at all times. If the owner fails to provide complete and wholly updated plans and specifications, that failure should be designated to be a breach of the agreement by the owner.

Method of Retaining Contractors

Some owners attempt to require the consultant to hire the contractor who will be undertaking environmental remediation work. This has several drawbacks: First, whether or not intended, the consultant takes on some liability that is properly the owner's. Second, the consultant is guaranteed a lawsuit if there is a problem; there is less impetus to sue the consultant when the contractor enters an agreement directly with the owner. Third, a contractor who knows the owner will be paying, although the contract is with the consultant, would be inclined, when entering a lump-sum project, to include a higher price to take into account late payment. Finally, as to the owner, the insulation afforded by making the consultant sign the agreement is illusory, and the owner significantly relinquishes control over the contractor.

Assignment

A professional services contract often contains a provision limiting the ability of the provider of the services to assign or subcontract the agreement to another party. This type of limitation appears to be appropriate. A further limitation in the agreement may restrict the personnel who will represent the environmental consultant on the project. The clause may require that a specific individual be designated who may not be changed without the owner's approval.

Billing and Payment

One of the most frequent disputes between the owner and environmental consultant relates to method of computing and timing of payment. This issue should be focused on and clearly defined at the outset.

Different types of problems may develop depending upon the method of compensation. If the environmental consultant agrees to perform for a lump-sum fee, such considerations as liquidated damages assessment become critical. It also then becomes essential to know who will be making the decision that the consultant is responsible for a delay in the project.

The consultant also should be cautious about a "pay when paid" clause. This clause may make payment of the consultant contingent upon the happening of other events on the project that really bear no relation to the consultant's performance. It may not be appropriate for the consultant's compensation to be timed according to when a drawdown is obtained from the bank or the contractor reaches substantial completion.

Finally, the consultant should ask for a clause providing for payment of costs (including attorneys' fees) incurred in collecting monies due from the owner and awarding interest on monies when the owner pays late

Construction Cost Estimates

Design professionals and environmental consultants have traditionally had a problem with the significance given to the estimates they provide.

At all times it must be made clear that the estimate is up to the contractor and that the design professional or environmental consultant's mistakes in estimating construction costs are not covered by professional liability insurance.

The most balanced method of dealing with this aspect of the design professional and environmental consultant's responsibility is to provide for the design professional and environmental consultant to prepare a statement of probable construction costs, subject to approval by the owner and for them to disclaim responsibility for its accuracy.

The contract should also set forth the conditions under which calculations were made. For example, no destructive testing requirements may have been in effect or they may have relied on assumptions of others as to actual conditions and the means and methods that would actually be used by the contractor.

Changed Conditions

Particularly with regard to a renovation project, there will be conditions the parties will not have contemplated. The very nature of environmental risk makes it essential that the environmental consultant be given an "out" if a hazard beyond that anticipated is encountered. For example, the consultant should try to include in its contract for performing an asbestos survey that it will not be responsible for specifying a solution to PCB contamination or chemical substances encountered. This solution, which parallels what the architect has done in its contract as to environmental concerns in general, would give the consultant the option of refusing any further work in the areas affected until the owner has addressed the problem. Changed conditions are particularly significant when the environmental consultant's role is to investigate subsurface conditions.

What may pose a bigger problem is that the environmental consultant may have obligations to make disclosures of environmental crimes to the regulatory authorities. With or without a clause pledging confidentiality, this obligation exists.

Another variation on this theme is that the owner may wish for the environmental consultant to contract with the owner's attorney (rather than with the owner) so that the findings may be better protected by attorney work product privileges. Because case law is continually evolving on this subject, it is important that the environmental consultant keep in touch with its attorney regarding how to handle this issue and what the consultant may be called upon to produce to regulatory authorities.

Limitations of Consultant Liability

The axiom that "Design professionals who don't care about their own risks are not likely to care about yours" is good advice to live by. Thus, an owner should not look unfavorably upon the environmental consultant who seeks to limit monetary recovery or the time during which it may be sued by the owner.

Some approaches to limiting the environmental consultant's liability to the owner are to restrict it as follows:

To the amount of the environmental consultant's fee on the project;
To the amount of the environmental consultant's profit on the project;
To the insurance coverage of the environmental consultant on the project;
To the right of the owner to direct the environmental consultant to redo the work; or
To a fixed dollar amount (for example, $50,000).

What is often forgotten is that these limitations of liability affect liability only of the two parties to the agreement. When third parties sue, they are not bound to any of these terms. However, it should be kept in mind that the owner-consultant agreement is relevant evidence for the court to use in evaluating the role and amount of risk the consultant intended to undertake on the project.

In addition to limiting the amount of total liability, the environmental consultant also may wish to limit the time within which the owner may sue under the agreement, or the amount of time an indemnity running from the consultant to the owner will survive conclusion of performance on the project. If the consultant offers a fairly broad indemnity clause, one of the considerations may be that the owner will limit the time within which to exercise its rights under it.

Consequential damages. Another point of consideration in limiting damages is that parties to an agreement may agree to be responsible to each other for consequential damages. Very often damages could be assessed against an environmental consultant that would be wholly out of proportion to its fee (for example, the owner may seek his lost profits when he is deprived of the premises by a delayed asbestos abatement). Perhaps the most equitable method of limitation is simply to state that neither party is obligated to the other for consequential damages. The agreement of the two contracting parties not to sue for consequential damages is often included in the hold harmless clause.

Indemnification

The clause probably the most argued about and perhaps the least well understood is the indemnification clause. An owner who intends a hands-off role on a project will require the broadest indemnity clause possible because it will (in its perception) be protected against all risks in design and construction. It is likely that this owner will also insist upon a broad indemnity from the contractor as well.

Protection by an indemnity clause is often illusory because many contractors and environmental consultants do not have the financial stability to back the clause. The insurance held by the contractor and environmental consultant also may exclude or significantly limit coverage for environmental risks. Even when insurance coverage is available, the indemnity clause may go well beyond insurance coverage, thereby leaving a gap between the coverage and the responsibility undertaken by the consultant.

The best indemnity clause is a balanced one that fairly takes into count the relative bargaining positions and financial stakes of the parties and does not attempt to saddle a party with responsibility to cover the cost of problems for which the party is wholly without fault. Following are some basic thoughts to keep in mind about indemnity clauses:

Some states' laws contain limitations on indemnity clauses, and an indemnity clause that is too broad may, in some instances, be void.
Coverage under indemnity clauses is narrowly construed by the courts, and any ambiguity is construed to protect the indemnitor.
Even without any indemnity clause, an owner sued by a third party based upon negligence of the environmental consultant has a common law right of indemnity against the consultant to the extent of the consultant's negligence.

Following are some issues that must be kept in mind when addressing the indemnity clause:

Defense costs. Perhaps the real battlefield in negotiation of the indemnity clause is the portion requiring one of the parties to bear the burden and expense of defending against third-party claims. It is conceivable that if a third party sues, the environmental consultant may ultimately be exonerated from paying a judgment. However, if there is a requirement that the consultant defend the owner in the lawsuit, even if the third party does not recover against it, the consultant may be required to pay tens or even hundreds of thousands of dollars to lawyers before exoneration is reached. Thus, the parties should agree in advance about whether the owner is obligated to reimburse the defense costs incurred by the environmental consultant if it is ultimately found blameless or only partially to blame for the conduct complained of by a third party and the owner found partially or fully to blame (under a contract that requires the consultant to defend the owner). This obligation, if intended, should be provided in the agreement.

Notice. Are there specific notice requirements that the indemnitee must give from the time it is sued by a third party or from the time the conduct that might lead to a claim is undertaken? This type of limit must be spelled out clearly in the agreement.

Control. The extent to which the indemnitor is entitled to control the action, to settle it, and to take over the defense must be spelled out in the indemnity clause. The party being indemnified may not wish to give up control of litigation that arises because that party may see its reputation as being on the line in the event of a settlement, even if it does not have to pay a penny out of its own pocket.

Cashing out. Should the party granting the indemnity be allowed to "cash out" under certain conditions? That is, should it be allowed to terminate its obligations to defend the lawsuit by putting up an appropriate settlement amount? Without a clear expression of this arrangement, entitlement to do so would have to be negotiated after the claim arises. It is better to set guidelines in the original agreement.

Monitoring Requirements

Monitoring a remediation or asbestos abatement project, once the environmental consultant sets out the design for that process, is probably the best assurance that the project is executed promptly and properly in accordance with the design. With environmental risks extending for 30 to 40 years, any environmental consultant who plans similar longevity for its business cannot afford to take a back seat while someone botches the execution of a project that still bears the consultant's fingerprints. As in the case of structural engineers on a project that has experienced structural failure, the field of environmental engineering and administration is fraught with huge risk, and it is inconceivable that a consultant would want to allow another party to supervise the consultant's design unless the consultant is ready to fend off a third-party claim without adequate protection. The environmental consultant must be there to document that the design was followed; if the proper recordkeeping is not maintained, blameless parties can be left without a defense. If the environmental consultant is called upon to provide only design and not monitoring, the agreement should contain a disclaimer as to the effectiveness of the design if not strictly followed.

Whether or not the environmental consultant has monitoring responsibility, the consultant should request that a clause be included exculpating the consultant from responsibility in the event that the owner or the contractor refuses to follow the recommendations of the consultant. This clause may also go hand in hand with a provision under which the owner agrees to hold harmless, indemnify, and defend the consultant from any claims that result from failure to follow the consultant's advice.

It may be appropriate also for the owner to agree that the consultant's recommendations will be adhered to and that the consultant shall have the right to stop work at the site. Although it does not afford the same amount of protection, if the consultant is unable to achieve a clause protecting it in the event that the owner or contractor does not follow its recommendations, the consultant should advise the owner in writing, in each instance, if its directions are not followed, stating that it disclaims all responsibility for the consequences of failure to adhere to its directions.

Certification

The environmental consultant often is called upon to guarantee or warrant the work of the contractor. Sometimes this is set out in the provision that the consultant shall issue a written certification that the contractor has complied with the approved drawings and specifications. The consultant should be wary of agreeing to "certify." To certify, warrant, or guarantee a contractor's work appears not to be good engineering practice because it is not an appropriate risk to be undertaken by the design professional and will certainly go beyond any professional liability insurance coverage limits that are in effect.

Claims for Delay

The environmental consultant may be left in an anomalous situation in the event that the remedial or abatement contractor's agreement with the owner contains a "no damage for delay" clause. It may well be that the contractor, who is barred from suit against the owner, may wish to sue the consultant for damages for delay. To guard against this inequity, the owner should be willing to provide the consultant with indemnity coverage against any third-party claims for delay. Recent case law, which establishes this contractor right of action against design professionals, highlights the importance of this protection.

As between the consultant and the owner, if the fee arrangement is on a lump-sum basis, it is important that the consultant be given the right to additional compensation if the owner delays or makes the consultant's performance more difficult or expensive. The "no damage for delay" clause is not appropriately placed in the owner-consultant agreement.

Liquidated Damages

An owner who has retained a consultant on a lump-sum basis to perform within a limited time period may wish to impose liquidated damages on the consultant if the project exceeds schedule limits. In addition to the fact that many commentators see the imposition of liquidated damages on a design professional or environmental consultant as being entirely out of place, there are other reasons that such a provision is inappropriate: It creates an atmosphere in which the consultant feels under pressure to cut corners, which can be dangerous when hazardous waste is involved. In addition, the consultant or the design professional makes decisions about extensions of contract time in connection with the owner-contractor agreement, but left open is the problem of who will decide the issue when it relates to the design professional or consultant.

Suspension or Termination

Reasonable ground rules need to be set for suspension or termination of the agreement. It makes sense that a grace period be given to the owner to guard against minor delays that both parties might anticipate. For instance, it might be a good idea to allow a 30- or 45- day suspension period after which the owner would be given the option of terminating or renegotiating with the consultant.

In the event of suspension, it is relatively easy when the consultant is being paid by the hour to place a value on demobilization and remobilization. If the consultant is working under a lump-sum agreement, however, it may be more of a problem to value these costs to the consultant because records have probably not been kept in this manner. The method of calculation of payment upon suspension should be set out in the agreement. Because the nature of the relationship is a very sensitive and personal one, as with one personal one, as with most personal services arrangements, there will be instances when it is in the best interests of both parties for the agreement to end. It is imperative that ground rules be clearly set out to ensure that such a partnering of the ways is amicable. This particularly includes resolutions of financial obligations. In situations when the consultant is working on a lump-sum basis, the consultant, at termination, should be given an allowance for its overhead and profit. Again, it is important that the method of calculation be set out in the agreement.

Dispute Resolution

It is likely that many consultants and owners favor arbitration under the auspices of the American Arbitration Association. One significant reason for the frequent use of arbitration is that the standard industry contract form issued by the American Institute of Architects (AIA) provides for disputes between owners and consultants to be resolved by arbitration. Most often, the agreement also will contain a prohibition against consolidating the owner-consultant arbitration with other arbitration in which either party is already involved.

It has become apparent that many people who favor the AIA form have never had any experience with arbitration. Some commentators, including this author, would rater be in court. Very often, the dynamics of the discovery process and of court proceedings can precipitate settlement well before it could be approached in arbitration, which most often has little or not discovery structure.

The most effective method to resolve a dispute is through face-to-face negotiation among the executives who have settlement authority. Particularly when environmental issues are involved, the parties have often recognized that alternatives to the time-consuming and costly conventional means of dispute resolution must be developed. Mediation is recommended as a first step in attempting to resolve a case, no matter how complex the case. In the event the parties have undergone a mediation procedure that has not achieved a settlement, there is no reason willing parties cannot tailor another form of alternate dispute resolution to meet their needs and to achieve early settlement. One method of choice of many construction industry participants is the minitrial. If settlement is not achieved, the parties can still proceed to trial.

Those who prefer court proceedings to arbitration cite the following reason for this preference: (1) The arbitration clause includes a bar to consolidation of the owner-consultant claim or lawsuit with other claims relating to the project and bars bringing other parties into the suit; (2) the arbitration decision is not binding on parties other than those in the arbitration; (3) because there is no discovery in arbitration, one of the parties may be unable to obtain information necessary to defend or prosecute the action properly; (4) because the rules of evidence are not followed, arbitration may take longer and be costlier than litigation; and (5) the right to appeal a decision rendered by an arbitration panel or arbitrator is extremely limited. Virtually the only successful grounds for overturning an arbitration result are arbitrator bias or a decision so unfair or so poorly developed that it cannot stand.

Consultant Responsibility to Decide Disputes

Trends in recent case law indicate that the consultant can be sued for decisions made in deciding disputes on the project. The consultant may point out accurately that if the contractor dislikes a decision the consultant makes on an extra work order, the contractor can sue. A wrong decision on a hazardous waste remediation or asbestos abatement can be very costly to all concerned, and the consultant can be placed in the very front line of liability for that decision. To avoid this problem, the consultant's decision should be cast in the form of a recommendation to the owner, and the owner should issue the decision.

Type of Report Issued

The environmental consultant must be very careful about the type and content of the report issued to the owner. The issuance of an evaluation study, which subjectively evaluates performance, may broaden the scope of liability beyond that entailed in issuance of an information study, which provides objective information only.

Incorporation by Reference

In many instances, the design professional is asked to incorporate by reference a contract with another party without giving the design professional the opportunity to review it thoroughly. Rather than incorporate another contract in bulk, it is more appropriate to adapt the portions that should be included and specifically repeat them. If the owner refuses to do so, the consultant should get a full copy of the other agreement, read it, and have its attorney list deletions or modifications as deemed appropriate.

Note that there is case law limiting the ability of a party to incorporate by reference. For example, in some states, clauses involving an agreement to arbitrate are strictly construed, and the mere incorporation by reference of another contract that contains an agreement to arbitrate is not enough to bring about a finding that the parties have also agreed to arbitrate.

Jobsite Safety

Because workers' compensation laws restrict suits by workers against their own employers, workers often seek out others on the site to sue. Thus, it is important that the environmental consultant not agree to a clause that would appear to give it responsibility for jobsite safety. In fact, the consultant should include a clause disclaiming such responsibility. A clause such as the following should never be accepted by the environmental consultant: "Consultant shall be responsible for any losses or injuries which occur at the jobsite due to unsafe conditions which resulted from plans and specifications provided by consultant."

Although this clause appears innocuous enough, it is clear that it can be construed by an injured worker's attorney to create an affirmative obligation on the part of the consultant. Absent such an affirmative contractual undertaking or active malfeasance, courts have refused to impose liability on consultants for site safety.

Some cases have held that even if the consultant had notice of an unsafe practice, no obligation was created absent a contractual obligation. However, the exercise of control over contractor "means and methods" can create jobsite safety liability even when none would otherwise have existed.

Joint and Several Liability

In the context of cleanup of hazardous waste, the concept of joint and several liability is one that allows other parties (especially regulatory agencies) to recover against any contributor to the problem. Thus, it is appropriate for an environmental consultant embarking about a project to be given protection (in the form of an indemnity backed by a solvent party) against joint and several liability that might be imposed because of the presence of an environmental hazard. If the consultant is not given such an assurance, there is a question as to whether an agreement should be entered into at all.

Standard of Care

If a lawsuit results, the standard of care to which the environmental consultant is obligated is important and may ultimately be outcome-determinative. If a standard of care is not set out in the agreement (or if there is no written agreement at all), negligence will be the standard applied. The conduct will be evaluated against that level of skill and care ordinarily exercised by members of the profession currently practicing in the same locality under similar conditions.

In what seems to be a phenomenon encouraged by the consultants' pride in their credentials, some owners attempt to obligate consultants to warrant that they are highly qualified to perform the services and that the services shall be performed in accordance with the "highest professional standards." If the consultant signs an agreement obligating compliance with this standard, a judge, arbitrator, or jury considering the liability question will hold the consultant to a far higher standard than when the inquiry is whether, under the circumstances, the consultant was negligent.

In addition to causing a problem in a lawsuit, the signing of the clause is a questionable matter insofar as maintaining insurance. Even if the insurer does not disclaim coverage altogether, professional liability insurance would cover negligent conduct only; obligating the consultant to live up to a higher standard will, at the very least, cause a gap in the consultant's insurance protection.

State of the Art

Environmental technology, laws, and regulations are changing rapidly and very often will change during a project. When a new law or regulation takes effect during the construction phase, it may led to revisions being made on the design that cause the consultant to expend additional monies. Under these circumstances, the owner should bear the cost of the change, and it is important to point this out in the agreement to obviate a later dispute. In the case of a change in law, regulation, or technology that obligates the owner to undertake substantially more expense, the owner should be allowed to reserve the right to stop work if the cost is too high.

Permits and Approvals

When the owner provides the agreement, the inclusion of a clause requiring the consultant to obtain approvals and permits is not unusual. It is typical that the consultant would assist the owner to obtain the permits, but it is foolish for the consultant solely to assume this responsibility. The consultant cannot control the progress of the processing of the permits and should not assume responsibility for delays or additional project costs incurred when a permit is issued late. The best solution to this problem is to spell out clearly the permits and approvals the consultant is actually involved in obtaining and what the obligation is as to each. Failure to consider this issue in advance seems to be a common problem.

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Section 8.4 Ten Rules for Owners

In the end, an owner-consultant agreement that clearly and fairly allocates risk is the most effective way for an owner to control risk and cost.

Before the project is undertaken, and even before the consultant is retained, the owner must develop a basic understanding of the complicated web of federal, state, and local laws and regulations that govern the environmental aspects of the project, at the same time recognizing that these laws and regulations are not clear, sometimes overlap or conflict, and often leave many basic questions unanswered. Because there is complexity, discretion, and constant change involved, and because the owner has the most to lose if things go wrong, the owner's best protection is to have hands-on involvement. The owner must require that the consultant provide it with information and recommendations so that the owner can make the major decisions on the project. Even given the most cleverly drafted agreement, the liability "buck" stops with the owner. The consultant is the owner's best resource - not as an insurer against risk but as a risk manager who has an overview and can help focus the owner's thinking so that the owner can make well-informed decisions. The owner's best protection against liability is carefulness and consistency in running the business; getting and following good legal advice; care in selecting a component and well trained environmental consultant, contractor, and facilities manager.

Following these 10 practical rules of hands-on owner management of environmental risk will significantly limit potential legal liability:

Take a detailed inventory of all environmental problems in the building. If sued, the owner is not relieved of responsibility merely because it did not actually know of an environmental problem. The owner is held to the standard of what a reasonably prudent owner in the same locality should have known under the circumstances. In today's terms, there is much that an owner "should have known" about environmental problems.
Once an inventory shows the presence of specific environmental problems, prepare a written plan and make sure that all relevant personnel are familiar with it.
Retain owner representative who are knowledgeable about environmental problems and make sure they receive updated education by attending formal training on an ongoing basis.
Set up a consistent and well-organized recordkeeping system relating to environmental risk management and monitor it to assure that it is being followed.
Formulate a written plan for addressing emergencies relating to environmental problems and make sure that owner representatives and facilities management personnel are fully trained in these procedures. It is important that emergencies be addressed promptly and thoroughly and that proper contemporaneous documentation be kept. Twenty-four-hour telephone numbers for reaching the team of professionals who oversee the safe management of environmental problems should be made available to facilities management and executive-level personnel and to the engineer, lawyer, and publicist. It is important that a chain of command be identified and that a coordinator be appointed for this important function.
Develop a hands-on program; know firsthand the quality of the environmental management program. Do not merely rely on the advice of others; an owner or an executive of the owner must know all of the facts and ask questions.
Do not rely on insurance. Expense, policy limits, sunset clauses, exclusions, the claims-made nature of coverage, the long-delayed manifestation of environmental or asbestos-related liability, and questionable long-term stability of insurance companies preclude relying on this protection.
Do not rely on contract clauses that purport to give the owner protection. Indemnity clauses or other assurances provided by prior owners, contractors, transporters, or others are only as good as their future solvency. In addition, even though it is not a complete answer, the owner should make sure that its lawyer properly protects it in the purchase, sale, or lease of property or when the owner hires a contractor to address environmental problems.
Worry about where removed asbestos or hazardous waste is being disposed of. Improper disposal may subject the owner to a lawsuit to clean up the dump site years later.
Be candid with tenants, potential purchasers, regulatory authorities, and the public about the presence of asbestos or hazardous waste. Formulate an enlightened and forthright public relations plan and follow it. The worst legal exposure often arises not from the presence of asbestos or hazardous waste but from the lengths taken to conceal its presence, conduct that may give rise to a fraud cause of action. Realize that perceptions, especially in the case of an emergency, may govern. A panicky response may suggest improper handling; the team must be counseled to be calm and not to guess or speculate about facts.

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Section 8.5 Form Agreement

Agreement Between Owner and Environmental Consultant

This agreement is made as of [date], between Environmental Consultant, a corporation with offices at [address], and Owner, a corporation with offices of [address].

Owner employs Environmental Consultant to perform professional environmental engineering services, to serve as Owner's professional environmental engineering representative, and to provide professional environmental engineering representative, and to provide professional environmental engineering consultation as provided herein in connection with [brief description of project] ("Project").

Owner, by separate agreement, has employed or will employ a Contractor to carry out certain work as the Owner shall therein provide.

As hereinafter referred to, "Work" refers to the scope of the Owner's separate agreement with the Contractor.

The obligations, rights, and responsibilities of the Contractor and Owner under that agreement are separate and distinct from those created under this Agreement. The Environmental Consultant makes no representations or warranties as to the qualifications, experience, or any other respect as to the Contractor, and no third party rights on the part of the Contractor are created by this Agreement.

WITNESSETH:

Owner desires that Environmental Consultant provide consulting services in connection with the Project for which the Owner will compensate the Environmental Consultant as set forth herein.

In consideration of the foregoing, and the mutual covenants set forth herein, the parties agree as follows:

SERVICES TO BE PERFORMED

The services to be performed by the Environmental Consultant shall be as follows: [description of services].

OWNER OBLIGATIONS REGARDING ACCESS

The Owner shall provide the Environmental Consultant and Contractor with access to such areas of the Project at such times as the Environmental Consultant shall require in carrying out its obligations under this agreement. The owner shall provide, at its expense, appropriate personnel as shall be required to operate equipment (e.g., ladders, cherry pickers, and service elevators), and to operate or disconnect utilities, including but not limited to electrical and alarm systems, building systems, and other facilities at the Project, as required by the Environmental Consultant in carrying out its testing, monitoring, and other obligations under this agreement.
The Owner shall ensure that all work areas are vacated before the Work begins, and where required by the Environmental Consultant or the Contractor, the Owner shall keep all entrances to areas of the Work properly secured.
The Owner represents that the area(s) of the Work shall be made available to the Contractor and Environmental Consultant twenty-four (24) hours a day, and that if any restriction is to be placed upon the number of hours during which the Contractor and Environmental Consultant shall have access, the Owner shall so advise the Contractor and Environmental Consultant in writing and an appropriate extension of time within which to complete the Work will be granted to the Contractor and Environmental Consultant.
Access to the area(s) of the Work shall include but not be limited to making available to the Contractor the Owner's personnel to provide access to and provide the ability to operate heating and cooling systems, sprinklers, electrical systems, telephone systems, computer systems, elevators, freight elevators, machine rooms, roofs, other building utilities, and building systems. The Owner shall be responsible for hiring and paying for all operation of the building utilities and building systems.

OWNER OBLIGATIONS REGARDING THE PROVIDING OF INFORMATION

The Owner shall furnish data, documentation, and other information relevant to the Project to the Environmental Consultant. This data, documentation, and other information shall include but shall not be limited to plans, specifications, as-built drawings, floor plans, hand sketches, records relating to previous ownership, records of previous inspections, records o summonses or citations relating to violations of the building code or of other laws, ordinances, or regulations, and records of lawsuits relating in any way to the Project.
The Environmental Consultant shall make request to the Owner for information relating to the services provided hereunder, and the Owner shall promptly provide such information to the Environmental Consultant to assure the sufficiency of any of the information provided; accordingly, the Owner waives any claim against the Environmental Consultant and agrees to defend, indemnify, and hold the Environmental Consultant harmless from any claim or liability for injury or loss allegedly arising from errors, omissions, or inaccuracies in documents or other information provided to the Environmental Consultant by the Owner.
The Owner had made certain representations to the Environmental Consultant in documents and information provided to the Environmental Consultant in oral and written form. In the event that any of the representations are reasonably determined by the Environmental Consultant to be inaccurate, the Environmental Consultant shall have the right to terminate this agreement and shall bear no further responsibility to the Owner.

OWNER OBLIGATIONS REGARDING RESPONSIBLE PERSONNEL

The owner shall designate in writing, by name, position, and telephone number, a person(s) who is authorized to coordinate the fulfillment of responsibilities of the Owner and who shall have the authority to bind the Owner with regard to all aspects of the Project. The designated representative shall be available in person or by telephone at all times during which the Environmental Consultant is at the Project.

STANDARD OF CARE

Services performed by the Environmental Consultant under this agreement shall be conducted in a manner consistent with that level of care and skill ordinarily exercised by members of the profession currently practicing in the same locality under similar conditions.

COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS

The Environmental Consultant shall comply with all applicable federal, state, and local laws in effect at the time the services under this agreement are performed. In the event that any of the services under this agreement are provided at a lump-sum price, and a change in applicable federal, state, or local laws renders the performance of those services more expensive, the Owner agrees to compensate the Environmental Consultant for such additional costs.

INDEMNITY

The Environmental Consultant shall indemnify and hold harmless the Owner and its officers, directors, employees, and subcontractors from and against all claims and actions, including reasonable attorneys' fees, based on or arising out of damages or injuries to persons or property caused by error, omission, or negligent act of the Environmental Consultant or any of its agents, subcontractors, and employees in the performance of services hereunder, subject to any limitations, other indemnification's, or other provisions to which the Owner and Environmental Consultant have agreed.

LIMITATION OF LIABILITY

Neither party shall be responsible or be held liable to the other for consequential damages, including but not limited to loss of profit, loss of investment, loss of product, or business interruption. The liability of the Environmental Consultant to the Owner shall be limited to the Environmental Consultant's fee or to $50,000, whichever is less.

RESPONSIBILITY FOR PROJECT SCHEDULE

Should the Owner require a project schedule to be prepared by the Environmental Consultant, such schedule shall be deemed to be only an estimate. Although the Environmental Consultant shall use its best effort to achieve completion of the Work in accordance with the requests of the Owner, the Environmental Consultant shall not assume liability for completion in accordance with such schedule.

COMPENSATION
1. The Environmental Consultant shall submit monthly invoices to the Owner and a final bill upon completion of the Work. In the case of a cost reimbursable arrangement, invoices will identify labor, materials, and other charges. Upon request by the Owner, a more detailed itemization will be provided by the Environmental Consultant.
  
  In the case of a lump sum arrangement, the Environmental Consultant shall submit an itemized schedule of contract values with this Agreement for approval by Owner, detailing the various obligations to be performed hereunder and the dollar amount attributable to each.
2. Payment is due upon receipt of each invoice and is past due thirty (30) days from the invoice date, after which date the Environmental Consultant may immediately stop work. The Owner agrees to pay interest of 1 ½ % per month on past due amounts. Interest will be calculated on any unpaid balance commencing thirty (30) days after the original invoice date. Once approved by the Owner, the Schedule of Values shall become the basis for payment by the Owner to the Environmental Consultant. Each month the Environmental Consultant shall submit its invoice for payment showing the percentage of completion of each items in the Schedule of Values.
DISPUTES

No action or proceeding shall be maintained by either of the parties to this agreement, concerning this agreement or any portion thereof or arising out of the Work performed hereunder, except before the courts of appropriate jurisdiction of the State of [ ], located in the County in which the Project is situated.

GOVERNING LAW

This agreement shall, in all respects, be subject to and construed in accordance with the laws of the State of [ ].

TRANSFERABILITY

Neither party to this Agreement shall assign, sublet, or transfer its interest in the Agreement without the written consent of the other party.

USE OF DRAWINGS, SPECIFICATIONS, AND REPORTS

Drawings, specifications, and reports prepared by the Environmental Consultant are to be used only by the Owner for the Project and not for any other purpose and shall remain the sole property of the Environmental Consultant. If the Owner shall authorize the use of the Environmental Consultant's drawings, specifications, or reports for any other purpose, in violation of the foregoing restriction, then, in addition to any other remedies the Environmental Consultant may have against the Owner, the Owner agrees to indemnify, defend with counsel acceptable attorneys' fees, arising out of any use of the drawings, specifications, and reports without the written consent of the Environmental Consultant.

INSURANCE

The Environmental Consultant shall procure and maintain, at its expense, insurance in the kinds and in the amounts described in the Schedule annexed hereto.

NOTICES

Notices under this Agreement shall be given by mail to the parties at addresses noted on the first page of this Agreement, unless notification is provided, in writing, that the notice should be provided to the party at a different address.

SUSPENSION

Upon fourteen (14) calendar days' written notice to the Environmental Consultant, the Owner may suspend the Environmental Consultant's work. If payment of the Environmental Consultant's invoices is not maintained on a thirty (30) calendar day basis by the Owner, the Environmental Consultant may, by fourteen (14) calendar days' written notice to the Owner, suspended further work until payment is restored on a current basis. Suspension for any reason exceeding forty-five (45) calendar days shall, at the Environmental Consultant's option, make this agreement subject to renegotiation or termination. Any suspension shall extend the time schedule for performance in a manner that is satisfactory to both the Owner and Environmental Consultant, and the Environmental Consultant shall be compensated for services performed and charges incurred prior to the suspension date, plus demobilization charges. The demobilization charges may include but shall not be limited to services and costs associated with putting analyses and documents in order, rescheduling and reassigning personnel and/or equipment, and issuing necessary or customary notices to governmental agencies. Compensation to the Environmental Consultant shall be based upon the Environmental Consultant's fee schedule and expense reimbursement policy.
TERMINATION

Either party may terminate this agreement for reasons identified elsewhere in this agreement or for other reasons that may arise, with or without cause. In the event such a termination occurs, the party effecting the termination shall so notify the other party and termination will become effective fourteen (14) calendar days after the receipt of the termination notice. Irrespective of which party shall effect termination or the cause therefor, the Owner shall within thirty (30) calendar days of termination compensate the Environmental Consultant for services rendered up to the time of termination, as well as those associated with termination, as well as those associated with termination and posttermination activities, such as demobilizing, decontaminating, and/or disposing of equipment.

JOBSITE SAFETY

The Environmental Consultant is solely responsible for its employees' activities on the jobsite, but this shall not be construed to relieve the Owner or any contractor from responsibility for maintaining a safe jobsite. Neither the professional activities of the Environmental Consultant nor the presence of its employees and subcontractors shall be construed to imply that the Environmental Consultant shall be made an additional named insured under the general contractor's general liability insurance policy.
JOINT AND SEVERAL LIABILITY

It is possible in the context of environmental investigations that the concept of joint and several liability could be construed to make the Environmental Consultant partly or wholly responsible for damages created directly or indirectly by asbestos or hazardous materials. The Owner agrees that it would be unfair for the Environmental Consultant to be exposed to such liability; accordingly, the Owner waives any claim against the Environmental Consultant and agrees to defend, indemnify, and hold the Environmental Consultant harmless from any claim or liability for injury or loss arising from application of the concept of joint several liability. The Owner additionally agrees to compensate the Environmental Consultant for any time spent and expenses incurred by the Environmental Consultant in defense of any such claim, with such compensation to be based upon the Environmental Consultant's prevailing fee schedule and expense reimbursement policy.
DISCLAIMER OF RESPONSIBILITY FOR OTHER HAZARDOUS MATERIALS FOUND

It is expressly understood that unless otherwise provided in this Agreement, the Environmental Consultant shall have no responsibility for the discovery, presence, handling, removal, or disposal of or exposure of persons to hazardous materials in any form at the Project, including but not limited to asbestos, polychlorinated biphenyl (PCB), or other toxic substances.
RETENTION OF CONTRACTORS BY THE OWNER

It is understood that the role of the Environmental Consultant in assisting the Owner in the process of selecting a Contractor to perform environmental remedial work or any other work at the Project shall be in an advisory function Accordingly, the Owner waives any claim against the Environmental Consultant in connection with the Owner's selection of a Contractor.
OPINION OF PROBABLE CONSTRUCTION COST

The Environmental Consultant shall submit to the owner an opinion of the probable cost required to carry out the work recommended by the Environmental Consultant. It is expressly provided that the Environmental Consultant makes no representation or warranty as to the accuracy of its opinions of cost, and in recognition thereof, the Owner waives any claim against the Environmental Consultant relative to the accuracy of its opinion of probable cost.
CONFIDENTIALITY

The Environmental Consultant agrees to keep confidential and not to disclose to any person or entity without the Owner's prior written consent all data and information of whatsoever kind generated by the Environmental Consultant or furnished to the Environmental Consultant by the Owner in the course of the Environmental Consultant's performance hereunder. This agreement to maintain confidentiality shall not apply to information in the public domain acquired by the Environmental Consultant independently from third parties not under any obligation to the Owner to keep the information confidential and shall not apply to instances in which provisions of law or regulation require the Environmental Consultant to disclose information to governmental authorities.
PERMITS AND APPROVALS

Although the Owner retains responsibility to apply for permits and approvals, the Environmental Consultant shall assist the Owner in applying for those permits and approvals typically required by law for projects similar to the one for which the Environmental Consultant's services are being engaged.
NO THIRD-PARTY BENEFICIARY RIGHTS CREATED

This Agreement shall not create any rights or benefits to parties other than the Owner and the Environmental Consultant, except as may be expressly provided herein.
EXTENT OF STUDY PERFORMED

The Owner recognized that asbestos and hazardous waste conditions are, by their nature, uncertain and may vary from those encountered through visual inspection, surveys, or other investigations, and recommendations of the Environmental Consultant are based solely on such information or from information supplied by the Owner.
MERGER

This Agreement with the Exhibits and Schedules annexed hereto constitutes the entire agreement of the parties, and any prior or contemporaneous representations or statements are merged herein.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement, which shall be effective as of the date written above. Such execution shall constitute Owner's authorization for the Environmental Consultant to proceed with the Work set forth above.

OWNER:

BY: _________________

NAME: _________________

TITLE: _________________

DATE: _________________

ENVIRONMENTAL CONSULTANT:

BY: _________________

NAME: _________________

TITLE: _________________

DATE: _________________