With the passage of the $1.2 trillion infrastructure act, design firms across the board can anticipate more work in the next few years. While the prognosis for the industry is positive, firms should take the time to establish meaningful fee collection practices so that they can remain financially solvent. Avoiding fee disputes with clients helps maintain positive working relationships while safeguarding the ability to provide services on future projects, including those of existing clients. Timely collection of fees is essential since design firms do not have a high profit margin that allows them to subsidize clients who do not pay. In the Victor and CNA program, we have found that one of the leading precursors for a professional liability claim against a design firm is a fee dispute between the firm and client, so fee collection practices that help avoid fee disputes are an essential risk management tool.
Create Clear Scope of Services
A written agreement detailing the scope of services and the payment schedule is the first step to avoid fee disputes. The scope of services the firm is providing has to be clear, detailing the manner and method for delivery of those services. It is essential that the scope of services clarify what is not included so that there is no ambiguity about the requirements of the agreement. The timeframe for the execution of services should be clear as well so that both the client and design firm have clarity on the schedule. If there is a clear and transparent scope of services and schedule obligations, disagreements that could lead to fee disputes are less likely.
Outline Specific Responsibilities
Another cause of fee disputes is the failure to outline specific responsibilities. As more information becomes available about the client’s program requirements, site conditions, and government-imposed requirements, it is inevitable that modification of the scope of services will occur, allowing the firm to provide a design solution to address the changes. Therefore, the professional services agreement should address how the parties will handle questions or problems that arise during design and construction. Some of the issues that the firm will have to address in the agreement are payment for changes in scope, government-mandated modifications that require additional services, and changed site conditions that require alteration of the initial design solution. The agreement should also address what remedies the firm has if the client is unable to complete the project.
Suspend Services if Necessary
A firm often finds itself in a quandary when a client does not make timely payments. The firm should follow up with the client when payments are late; a firm who is in regular contact with clients should make it a point to discuss unpaid fees during their meetings. The bargained-for exchange between a firm and client is that the firm provides services in exchange for fees; if the client does not pay the fees in a timely manner, the firm does not receive the benefit of the bargained-for exchange.
Be sure to address the right to suspend services for non-payment of fees in the professional services agreement. A clear contractual right to suspend (and potentially terminate) services gives the design firm the right to inform the client that services will be suspended until outstanding fees have been paid. This will certainly get the client’s attention as it forces the client to propose a resolution or specifically state why they have not made payment. AIA document B101-2017, Standard Form of Agreement Between Owner and Architect, has an excellent clause that clearly states the ability to suspend services:
§ 9.1 If the Owner fails to make payments to the Architect in accordance with this Agreement, such failure shall be considered substantial nonperformance and cause for termination or, at the Architect’s option, cause for suspension of performance of services under this Agreement. If the Architect elects to suspend services, the Architect shall give seven days’ written notice to the Owner before suspending services. In the event of a suspension of services, the Architect shall have no liability to the Owner for delay or damage caused the Owner because of such suspension of services. Before resuming services, the Owner shall pay Architect all sums due prior to suspension and any expenses incurred in the interruption and resumption of the Architect’s services. The Architect’s fees for the remaining services and the time schedules shall be equitably adjusted.AIA document B101-2017, Standard Form of Agreement Between Owner and Architect
Communicate and Document Changes
Ultimately, ongoing communication with the client is essential to avoid payment disputes. The firm should provide regular and prompt narratives detailing the services provided; the invoices should also clearly identify the services billed. Promptly inform the client of any exceptions to the anticipated progress of the project, ideally with a proposed solution to the problem. The client’s ability to complete any project hinges on the design firm’s communication of any problems. Lack of clarity on the status of the project often leads to a client withholding fees, precipitating an erosion of trust between the client and design firm. It is essential to involve the client in the design process to document client feedback and changes throughout the project.