Legal: Mitigating the risk of scope creep (Part 2 of 2)

Kailey Sutton (left) and Patrick Pinho (right). Photos courtesy MacMillan LLP.

(Note: Part 1 of this article discussed the key issues consulting engineers face with scope creep, as well as important considerations when drafting services agreements to minimize these risks. Part 2 discusses best practices in administering and enforcing a services agreement.)

A well-drafted services agreement addresses only part of the potential for scope creep; the parties must also follow the provisions of the agreement. This can, however, come with its own difficulties, which often reflect the power imbalance inherent in such relationships, especially in the current market.

For example, a consultant may simply write off the time and avoid speaking up out of fear of harming the relationship with the client or otherwise being branded as difficult. The client may see additional services (and costs thereof) as another problem complicating an already difficult project, while the consultant may be hesitant about being seen as the source of such additional problems.

Additionally, there is the natural tendency of the design professional to focus on serving the client and the project first and foremost. Unfortunately, this can lead to the consultant downplaying impacts or paying less attention to protecting their own financial interests, which would be best served by giving timely notice of additional services being rendered.

A multi-pronged approach should be implemented to address this issue:

1.Establish internal principles regarding contract management

Internal principles should be established within the consultant’s firm that treat managing one’s own services agreement as equal in priority to performing the services. The firm may consider delegating this task to a specific member of the team charged solely with managing and administering the services agreement. The additional work of managing the services agreement will be small compared to the (uncompensated) effort required later to pursue payment for work already done, including resolving disputes that may arise in the course of pursuing such payment.

2.Maintain a professional, non-adversarial tone when discussing the services agreement

When following the services agreement and discussing its administration with the client, it is important to maintain a tone of calm professionalism. The consultant is looking to alert the client in advance about a change in scope, thus giving the client a reasonable opportunity to accept, reject or mitigate the problem in some other way.

The intent is to fairly allocate risk and cost. A savvy client should recognize and appreciate the consultant’s effort to contribute to the project’s management as part of the greater team.

The message conveyed to the client should therefore be simple and clear and avoid an adversarial or defensive tone, in the spirit of maintaining a healthy ‘no surprises’ relationship. Initiating such communication may be as simple as stating something along the lines of:

“As you know, our services agreement contemplates additional compensation and/or time where we are required to provide services beyond the agreed scope. We have identified the need for such additional services, being [describe the circumstances and the cost/time impact]. We request your confirmation to proceed and we remain available to discuss if there are any questions or concerns.”

This communication should be followed up on promptly as circumstances require. If there is any resistance or dispute that remains unresolved, the consultant should maintain their position and again request the client’s instruction to proceed, after clarifying that the services will, in the interim, be billed as additional services. The consultant should also consider iterating what the risk to the project may be, should the client fail to provide instructions and the consultant not proceed with such services (e.g. scheduling inefficiencies or project delay).

In each event, crafting and ultimately deciding whether to send the communication will require consideration of the contractual terms (e.g. notice procedures and entitlement) and business judgment (e.g. consideration of who the message is best to come from). Indeed, from a business standpoint, a consultant may determine not to seek compensation for every bit of work that may otherwise qualify as additional services, in a bid not to actually wind up being truly ‘difficult’ to work with. The point is such decisions need to be made intentionally, on an issue-by-issue basis, with due regard to the project context and client relationship.

3.Determine the client’s intention respecting the form of construction contract

If it will be a bespoke form, obtain a draft of the contract. If the client intends to use a standard form, such as a Canadian Construction Documents Committee (CCDC) form, obtain a copy of any draft supplementary conditions the client intends to use.

In each case, carefully review the proposed form of construction contract and incorporated documents, as this can materially affect the scope of the consultant’s services. For example, it may contemplate certain services that do not align with those to be provided under the services agreement, which the client may believe fall under catch-all language discussed earlier.

This is particularly the case where the consultant is providing contract administration in addition to design; in this context, one potential source of trouble would be where the construction contract (which the consultant administers) includes clauses providing for quality assessment/control to be performed by the consultant, yet the services agreement is silent on or excludes this task from its scope.

Conflict between contract forms is a prime source of misunderstanding and dispute respecting the consultant’s intended role. It is important for the consultant to get clarity about the construction contract before signing the services agreement, to ensure consistency between the documents.

The following circumstances may affect the consultant’s strategy of reviewing the construction contract prior to entering a services agreement:

1. The client engages the consultant before determining the form and content of the construction contract.
2. A draft of the construction contract is provided prior to the execution of the services agreement, but the construction contract is subsequently revised to require the consultant to provide additional work not previously contemplated.

The first of these two circumstances is not common, as the client will usually have a good idea about the form of construction contract intended for use. Where this is not the case, the client’s scope with the consultant often initially includes advice regarding the appropriate form of project delivery to be used. In these circumstances, the consultant would be best advised to use a limited services agreement at the outset, with scope restricted to only providing these advisory services, then subsequently modifying or entering another services agreement once the project delivery model and its supporting contract are determined.

The second circumstance is much more common. The key to managing the situation is as set out above. First, ensure the services agreement is well-drafted, with no or limited catch-all language, and then ensure the parties follow the terms of that services agreement. This will include engaging in timely and consistent communication with the client, all with the intent of maintaining that all-important ‘no surprises’ culture amid a contract that includes a fair cost and risk allocation.

Kailey Sutton is an associate, Patrick Pinho is a student-at-law and Geza R. Banfai is counsel with McMillan LLP’s construction group. For more information, email kailey.sutton@mcmillan.ca.