A recent case considered whether or not the model IPENZ – ACENZ Short Form Agreement was incorporated into a contract between a client and an engineering firm.  This was important because negligence had been alleged.  If the short form applied it included a limitation of the engineer’s liability to $100,000.00.

On the facts of the case it was decided that the model short form agreement had not been included in the contract. The architect had engaged the engineering firm on behalf of the client.  Although the model short form agreement had been provided at various points, including when invoices were issued by the engineering firm and paid by the client, it was found that it was not in fact part of the contract.  Nor was there a sufficient course of dealing such that the terms could be deemed to apply in the circumstances.  Whilst the architect and the engineer had worked together numerous times the same arrangement was not imputed to the client.  There had also been the added complexity of the architectural firm incorporating over the period.

Although the lessons learned here are not new they are worth repeating.  The best and safest route is always a signed contract incorporating all the terms.

There is another important point though.  The short form agreement, which is routinely used, includes limitation of liability clauses.  For example, liability might be limited to 5 times the fee with a maximum limit of  $500,000.00.  Liability might be limited to claims made within 6 years.  Loss of profit, indirect and consequential losses excluded. Proportionate liability clauses included to limit the damages payable when others are also responsible.  Professional indemnity insurance typically is required only for the amount of the liability cap.  Clients should ensure they consider this at the outset against the risk profile for their project, the procurement plan and other commercial imperatives.  These terms can be negotiated with the consultant team to ensure they are right for the project.

By Denise Marsden