Termination provisions have already caused hardship to at least one practice, says OAA president
Ontario Construction Report staff writer
Several architects have expressed concern about Infrastructure Ontario’s (IO) new Vendor of Record (VOR) contract supplementary conditions, which the Ontario Architects Association (OAA) considers “unbalanced and lacking fairness.”
The complaints relate to similar contract concerns among general contractors and other professional and trade service providers, as IO’s contract language shifts risk and liability to the professional service providers or contractors.
In some respects, there is nothing new about this issue. Industry leaders, represented by the Construction Design Alliance of Ontario, have been raising contract payment and risk transfer liability issues since at least 2009.
However, the recent complaints, spurred when architects who had applied for IO Vendor of Record status began receiving their Letter of Award acceptance, resulted in the OAA issuing a special E-Bulletin on July 15, which the Ontario General Contractors Association (OGCA) promptly also redistributed to its members.
“Based on feedback received by members now and over the past few years, the OAA continues to recognize that the contracts being issued by IO, including the new MSA (Master Services Agreement) contain elements that are unbalanced and lack fairness,” the OAA bulletin reports. “A number of specific concerns have been raised by members, for example most recently there is the proposed termination clause which unfairly limits the architect’s ability to recover costs as a result of IO’s termination of the project, at their sole discretion.”
OAA president Bill Birdsell says this termination clause has already caused at least one architectural practice some serious hardships.
The practice, which he declined to name, had a contract cancelled by IO, causing a loss in the “small six figures.”
“It shook them greatly,” he said. “They have recovered and they have maintained the ability to practice” but they felt the hardship because the lost income represented a significant part of their expected revenues.
Birdsell and says there isn’t much the approximately 200 architectural firms who have applied for IO’s Vendor of Record status can do about the contract language. They agreed to it by asking to be considered in the VOR program, and they are now left open to risks not covered by OAA’s affiliated Pro-Demnity Insurance Company.
Some architects may feel it is okay to take the risks assuming they can handle them if they occur, or “they will never happen” but Birdsell says this behaviour is somewhat similar to deciding to speed down the highway well above the posted limit, believing you won’t get caught or have an accident.
Birdsell cited the gas plant fiasco, where the government was forced to pay out billions of dollars in obligations because of its abrupt decision to cancel the project. The much smaller architecture practices, facing the same situation, would be unable to claim for losses under their IO contracts – and would face much relative hardship, with comparatively small risk to the provincial treasury, if the contract language had been more balanced.
He said that, while the one-sided contract language was apparent when architects submitted their VOR applications some time ago, now that they’ve received their acceptance letters, some of them have become aware of the risks and problems.
“Members are reminded … that while the OAA, along with other industry stakeholders, provided advice to IO on the development of the SCs (Supplementary Conditions) to OAA Document 600, 2008, IO does not always take the advice, and for this reason, the OAA does not endorse those SCs.”
IO has generally accepted Document 600 – the architect’s standard design contract – as the basis for contract language. The problem relates to the “Supplementary Conditions/Schedule A.”
“OAA Council is committed to continue the discussion with IO as they contemplate an update to the SC’s as a result of the OAA’s release of Document 600, 2013,” the e-bulletin reports.
“We have noted concerns raised since these SC’s were originally issued and will continue to press forward for a fairer and more balanced contract with Ontario’s largest public client. A task group will be meeting this week to complete the OAA’s detailed analysis of the new SCs drafted by IO and will also be meeting with our industry partners to discuss mutual concerns.”
“While the OAA cannot guarantee that the outcome of these discussions will result in a fairer consultant contract, the time and resources to further the efforts have been committed. We anticipate as well that the new SCs would replace the existing Schedule A of the MSA (Master Services Agreement) once issued by IO.”
However, the OAA bulletin notes that “these current efforts are not likely to have an effect on the existing MSAS and/or SCs.”
“You must decide individually if your practice is able to manage the associated risk,” the OAA told its members.