10/2/2017 N EGOTIATING P ROFESSIONAL A GREEMENTS F ROM A C ONSULTANT ’ S P ERSPECTIVE Van Collins, JD Nancie Boccio, MBA, JD President/CEO Senior Consultant, American Council of Parametrix Engineering Companies (ACEC) N OVEMBER 2017 S ETTING THE C ONTEXT V AN C OLLINS Preparing For Professional Services Contract Negotiations Common Thoughts Often Heard In Approaching Professional Service Contracts • “As a Procurement Officer, don’t I have a responsibility to get the most I can for the least amount of money spent, or an obligation when purchasing goods or services with public dollars to see that the lowest price is obtained?” • “Why is the likelihood of the success of a project reduced simply because the services of the design professional for the project are obtained with a lowest price in mind?” • “How can it be detrimental to a project by merely shifting risk to the design professional beyond its common law duty of care?” 1
10/2/2017 Types of Contracts • Transactional Contracts versus Relational Contracts • More Transactional Like Contracts – Focus of Contract is on Specified Outcomes – Failure is Focused on Inability to Produce the Desired Outcomes (Expectation Damages) • More Relational Like Contracts – Outcomes are a Result of the Quality of the Relationship – Failure is Focused on Failure to Act in Accordance with a Certain Standard of Behavior in Similar Circumstances Washington Public Works Contracts Transaction Relational Why Did The Legislature Enact QBS? RCW 39.80.010 Legislative declaration The legislature hereby establishes a state policy, to the extent provided in this chapter, that governmental agencies publicly announce requirements for architectural and engineering services, and negotiate contracts for architectural and engineering services on the basis of demonstrated competence and qualification for the type of professional services required and at fair and reasonable prices 2
10/2/2017 Why Did The Legislature Enact QBS? • Axiom #1 – Performance of Architecture and Engineering Services is Different Than Low ‐ Bid Construction Services – The Scope of Work is Most Often Uncertain at the Time of Selection. Determination is Often Iterative In Nature – Scoping, Consultation, Investigation, Evaluation, Planning, and Design are Best Accomplished in Collaborative And Innovative Processes – To Be Most Effective, Collaboration and Innovation Require A Positive, Partnering, and Creative Atmosphere Which Values Communication and Joint Respect Why Did The Legislature Enact QBS? • Axiom #2 – Good Planning and Design Save Money and Provide the Best Value to the Public (i.e. QBS is for the Public Benefit, not the Engineering Community) • WSDOT “Practical Design” • Design ‐ Build – Alternative Technical Concepts (ATCs) • Value Engineering What Are The Takeaways From The Legislature? • The Legislature Understood That QBS Is About Setting an Innovative and Creative “Atmosphere” That Will Result In The Best Value And Outcome For the Public Interest. As a Corollary, Anything Which Negatively Impacts Innovation and Creativity Inherently Negatively Impacts Projects and the Public Interest • Procurement of A/E Services Is Fundamentally Different Than The Procurement of Construction Services Because The Nature and Performance Of The Work Is Fundamentally Different • QBS Is Not A Mechanical Procedure to Be Followed Unthinkingly 3
10/2/2017 What Are The Takeaways From The Legislature? • The Focus Is On Qualifications In The Initial Stage For A Reason (i.e. Highest Likelihood of Creativity and Innovation) Price is not Irrelevant • • Procurement/Negotiation Cannot Become Adversarial Nor Can Contract Terms Become So Inequitable That They Negatively Impact the Innovative and Creative Environment • Requires Public Owners To Understand Consultants’ Business Models And How Contract Terms (Both Risk and Pricing) Impact Them, Their Subconsultants, and Their Combined Performances So, What is the Correct Attitude to Take Into Professional Service Contract Negotiations? • It Is A Give And Take Process • Requires Both Sides To Actively Engage In Good Faith Requires Both Sides To Understand The Other’s Priorities and Needs To • Be Most Effective • Trust Is An Essential Component • “Non ‐ Negotiable” Terms Are Clear Signs Of Distrust And/Or Concern About A Public Owner’s Own Proficiency At Negotiating • “Non ‐ Negotiable” Terms Violate State Law and Defeat The Intent Of QBS – Impairs Development of Relationships and Innovative Atmosphere So, What Are Consultants Thinking? • They Want to Develop Strong Relationships • They Want to Be Appreciated as Professionals • They Want to More Than Meet Expectations • They Want to Provide Innovation and Creativity • They Want to Make a Reasonable Profit 4
10/2/2017 A Federal Perspective 48 U.S.C. § 15.404 ‐ 4. Profit . . . • (1) Profit or fee prenegotiation objectives do not necessarily represent net income to contractors. Rather, they represent that element of the potential total remuneration that contractors may receive for contract performance over and above allowable costs. This potential remuneration element and the Government's estimate of allowable costs to be incurred in contract performance together equal the Government's total prenegotiation objective. Just as actual costs may vary from estimated costs, the contractor's actual realized profit or fee may vary from negotiated profit or fee, because of such factors as efficiency of performance, incurrence of costs the Government does not recognize as allowable, and the contract type. A Federal Perspective • (2) It is in the Government's interest to offer contractors opportunities for financial rewards sufficient to stimulate efficient contract performance, attract the best capabilities of qualified large and small business concerns to Government contracts, and maintain a viable industrial base. (3) Both the Government and contractors should be concerned with • profit as a motivator of efficient and effective contract performance. Negotiations aimed merely at reducing prices by reducing profit, without proper recognition of the function of profit, are not in the Government's interest. Negotiation of extremely low profits, use of historical averages, or automatic application of predetermined percentages to total estimated costs do not provide proper motivation for optimum contract performance. The Unreasonable Expectation Of Perfection 5
10/2/2017 The Unreasonable Expectation of Perfection Owners - Unmet Expectations Engineering Firms - Cost Risk `` Things That Are Often Misunderstood Regarding Expectation of Perfection on Pricing • The Unreasonable Expectation of Perfection (i.e. Why Not Paying For an Agreed Appropriate Amount of Perfection is Bad for Projects) • A Lowest Cost Pricing Mentality Is Bad for Projects – Places Pressure On Projects From The Start And Creates An Adversarial Rather Than Collaborative Atmosphere – Creates Incentives For A/Es To Cut Corners Or Use Less Experienced Personnel On Projects – Can Lead To More Claims, Errors, and Conflict – Will Often Create Hardship for Subconsultants • In Contrast, Negotiating a Fair and Reasonable Price is Required For a Reason Owners - Unmet Expectations Engineering Firms - Liability Risk 6
10/2/2017 A Look at Errors and Omissions Insurance – Effects on Consultants • How Many of You Have Insurance Requirements in Your Contracts? • How Many of You Understand What Errors & Omissions Insurance Covers and What is Excluded? • Coverage Related to The Performance or Non ‐ Performance of A/E Services – Must Rise to the Level of Negligence – Requires a Breach of the Common Law Duty of Care A Look at Errors and Omissions Insurance – Effects on Consultants • Exclusions – Contract Claims* o Warranties o Indemnities o Contractual Assumption of Common Law Duty of Care • Direct Liability is to the Professional Engineer. The Firm is Vicariously Liable A Look at Errors and Omissions Insurance – Effects on Consultants • Examples of Concerning Provisions: – “CONSULTANT shall indemnify OWNER for all liability, claims, damages, losses and expenses incurred by the OWNER, whether direct, indirect, consequential.” – “CONSULTANT warrants that its services will be performed with that degree of care and skill ordinarily exercised by professional consultants practicing in the same discipline and claiming a similar degree of specialization and/or expertise.” 7
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