Architectural Contracts 101

Bob Borson —  June 3, 2013 — 6 Comments

The Most Important Document That You’ll Never Ever Use… Hopefully

One of the most important steps in the architectural process is one that, once completed, will hopefully never be seen again.

A properly prepared legal agreement between owner and architect will clearly communicate a project’s terms and conditions, determine responsibilities of each party and set expectations for schedule and payment for services. The most successful architectural projects are those where open lines of communication are established, and trust and respect are mutually granted.

In order to best communicate the legal framework from which a project will be developed, professionals use written agreements. It’s the first step toward a successful project.

trust puzzle image by Sal Falko

First Comes the Proposal

Following an initial meeting to discuss the basics of the project, your architect will follow up with a Letter of Proposal.

A formal document most often prepared in the form of a letter, the proposal identifies each party, the specific location of the property involved, a brief description of the project, a basic scope of services to be performed by the architect and a proposed compensation structure.

A letter of proposal is not an agreement (nor a proposed design). It’s simply a letter from architect to owner communicating a basic understanding and a proposed framework from which to complete the architectural services. If the owner chooses to proceed with the services presented, the proposal also includes a call-to-action for what’s next in the process.

When an owner chooses to proceed with the services of an architect, the details of the proposal must be more clearly defined. A legal agreement between owner and architect must be crafted.

There are five common options from which to choose:

The Handshake

For those “old school” service providers (I mean so old that they no longer provide services), a handshake is the absolute simplest agreement. It is a verbal understanding of the project, the scope of services and a basic payment structure to be used. There are no written documents and therefore, no legal contract between owner and architect. Handshake agreements have no legal protection for either party and therefore, should be avoided at all costs.

Letter of Intent

Prepared by the architect and forwarded to the owner, a letter of intent includes much of the same information presented in the letter of proposal. It more thoroughly defines the services proposed and includes additional basic terms and conditions. The letter of intent is signed by the architect, but requires no signature or written confirmation from the owner. Essentially a written “handshake”, a letter of intent offers minimal legal protection.

Often letters of intent are followed up with more formal legal agreements.

Letter of Agreement

More developed than the letter of intent, a letter of agreement is a one or two page document outlining the project description, the basic terms and conditions of the agreement, defined responsibilities for each party and a basic compensation structure. The letter of agreement is prepared by the architect and signed by both parties. This document is rather undeveloped though, so it still offers limited protection when compared to the two final documents described below.

Architect-Prepared Contract

Contracts prepared in-house by the architect, and often reviewed by an attorney prior to execution, can be significantly more beneficial to the relationship between owner and architect. If properly prepared, these documents often work best. They have evolved over time and address the specific issues most often experienced by the architect for the services most commonly provided.

A fully developed legal contract, this document includes more thoroughly developed terms and conditions and provides adequate legal protection for both parties. Since the document is constructed in-house, its fully customizable, easily revised and may be designed to have a “client friendly” appearance. When a legal document is designed with less visual formality, it appears less intimidating. This results in quicker turn-around for execution and expedites commencement of the project.

Simply stated… you get to the fun stuff faster.

AIA Contract Documents

Since 1888, the American Institute of Architects has been offering legal documents to the architectural profession. In 1911, they released their first set of Standard Documents of the AIA. The current 2007 edition is the Institute’s 16th update, offering over 100 different documents for architectural and construction services. AIA Contract Documents have become the industry standard, with non-biased language, complete terms and conditions and documents for use on projects of any size.

The very formal legal format of the documents may be intimidating to some residential and small commercial clients, often resulting in additional review by the owner’s attorney. Special software is required to prepare and edit the documents, which makes AIA Contract Documents a more expensive solution. The legal protection provided to both parties makes AIA Contract Documents the preferred choice for larger and more complicated architectural projects.

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You’ve been dreaming about your architectural project for years. You’ve saved your money to do it right and it’s finally time to get started. Find an architect that has experience with the type of work you are considering and the skills to provide you with the services your important project deserves.

Communication is the key to your project’s success and a written legal agreement is the best way to ensure that communication. If all goes well (and if you choose your architect wisely, it will), the results of your up-front effort to choose the proper agreement will be filed away… and never seen again.

 

I’d like to thank my good friend and colleague Mark R. LePage, AIA for sitting in today and helping to break architectural contracts down into such easy to understand language. When he’s not helping out his friends, Mark is the Partner in Charge of Operations at Fivecat Studio Architecture and the founder of Entrepreneur Architect, an online resource inspiring architects to build better businesses. Mark writes a weekly blog, hosts a monthly podcast and has recently introduced Entrepreneur Architect Academy; an online business school for architects planned for launch in June 2013.

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The imagine used has been used under the creative commons license and can be found HERE.

even better

  • http://overarchingthoughts.blogspot.com/ D. Aaron Wells

    Great article! This subject needs more coverage these days, when architects are tempted to hustle for work without taking the time to educate their clients because they are simply desperate for the work.

    I recommended this article over at my blog.

  • kylemcadams

    Bob- Great peice and good call bringing in Mark LePage…he is The Man for sure.

    You may or may not be aware, but AIA Contract Docs does have a short Owner-Architect agreement form for small and residential projects…only 4 pages as I recall (and one page is for signatures). Also, you can get single electronic versions of AIA docs on Docs-on-Demand service, which sells single doc PDF’s with fill points rather than the multi-document software option…they are a little clugy and not as nice as the software, but a nice price for a solid-looking document with word-processed input.
    The doc is B105–2007 (formerly B155–1993), Standard Form of Agreement Between Owner and Architect for a Residential or Small Commercial Project

    SLS Construction, a good comment for sure…but the funny thing is that architects tell us the same thing (I work at AIA National)…that the contracts are “unfair to architects” and “how could the AIA write contracts that are so biased in favor of the Contractor and Owner?”.

    What I’ve come to embrace is the fact that a really good contract leaves all parties a little unhappy with some aspects…that is the “balanced” part as they say. AIA Contract Docs can’t be too bad for Contractors…they are the heaviest users and best customers for AIA documents…seriously! They have the greatest appreciation for the necessity and value of a good contract.
    Great Conversation Bob.

  • Mark Mc Swain

    It hace been my sad occasion to meet some tightwad skinflint misers out there who simply copy the G-series documents (and kvetch about the time & effort it “costs” them–without bothering to notice that they could simply buy the documents legitimately–sigh). These ar ethe sort of folks who will always stop to pick up a dime, even if that costs them $22.85 to do so.

    I have a love-hate relationship with contracts. When crafted well, they are marvels of communication, terse and precise in language and image; details both drawn and written done so with craft and care.

    Sadly, there is a portion of the world who insist that contracts must be as obscure and indecipherable as road instructions to the Sphinc by way of Peru written in Ancient Sanskrit.

  • tomyownrhythm

    A verbal contract is a valid, enforceable contract. Unfortunately, as memories fade or one party lies, a verbal contract becomes more difficult to enforce. I would agree that it offers the least protection, but it is still a legal contract.

  • http://blog.SLS-Construction.com/ SLS Construction

    Pretty well written & explained though I am going to have to disagree on the “handshake” part. In many parts of the country it is still considered a legal agreement & while harder to prove ones case there are still some protections. With that you would be silly not to have things in writing & be forewarned, in some states failure to utilize a written contract can result in a misdemeanor.

    As for the AIA contracts, as a contractor the last thing I think of is the term non-biased – maybe that only applies between the architect & building owner. ; )

  • Melanie Perry

    Whenever someone complains about document turnover, or project expecations, etc on the forums, the first thing everyone always chimes in with is ‘what does the contract say?’

    Of course, with an owner as big as my company, we’ve got both a legal department (writing formal contracts), the project management team (assembling the RFP’s) and the facilities teams (with their book of standards and specifications for materials closeout). Let’s face it, no one reads at least 2/3 of this stuff until someone argues something in it. ;)