Design service agreements prepared by architects and engineers frequently contain a limitation of liability clause. This caps the design professional’s liability to the project owner at the fee or a multiple of the fee paid. The rationale is that the limited role of the designer and the fee received do not justify open-ended liability on costly projects. The design service agreement therefore allocates risk between the designer and the owner.
In a recent case in Colorado, a limitation of liability clause was attacked on the grounds it was worded ambiguously. The architect argued it was an “exculpatory clause,” which disclaims responsibility for one’s own negligence, and was therefore unenforceable. An appellate court agreed the clumsy wording of the clause rendered it ambiguous; however, this was not an exculpatory clause disclaiming all liability. It was a contractual allocation of risk between two commercial entities. The clause was enforceable despite its ambiguity. The intended meaning of the clause would have to be determined using normal rules of contract interpretation.
The other case in this issue involved a guaranteed maximum price on a cost-plus contract. The guaranteed price could be increased only by bilateral written change orders. A contract clause authorizing an equitable adjustment of the contractor’s 5% fee did not apply to the increased construction costs the contractor was seeking.
