Design Service Requires Contract, Too

Many contractors do design work for their clients in addition to construction work. Some contractors go as far as being “design/build firms,” in which they only construct projects that they design. Whichever way you operate, you need to have a separate contract for your design services.

Why use a separate design contract? There are several reasons: (1) If the client decides not to retain you for construction of the project, you have a separate contract which you can enforce. (2) If your design services are part of your construction contract, a design dispute could be submitted to the contractor’s licensing board of your state. If the design contract is separate the board will not have jurisdiction to hear the dispute. (3) You avoid running afoul of any deposit limitations that might be placed on your construction contract, such as in California where you are limited to 10% of the contract price or $1,000 whichever is less. (4) You may decide that you don’t want to work with the client after the design phase. Having a separate contract allows you the luxury of avoiding the construction contract.

What should your design contract include? Your design contract should be written or reviewed by an attorney to make sure all necessary provisions are included. Here are a few of the important ones.

Description of the work: Much like a construction contract, a design contract should include a description of the work to be performed. Don’t just write “remodel.” Describe the work with detail: “Add 200-sq.-ft. family room or redesign kitchen with modular cabinets.” Why use detail in the design contract? You no doubt have provided the client with a preliminary estimate of construction costs or they have given you their budget. The scope of work indicates what is included in the estimate. If the client later wants to add custom cabinets or a bath remodel, the price increase will be understandable. Don’t forget to generate a change order if the client changes the scope of the project, which should include the estimated increase in the construction cost. With properly written change orders there will be no surprise at the end when you give them the construction contract with a higher price.

Price: Many contractors give their design services away for free or charge very little for the service on the belief that their money will be made on the construction. But what if the client decides not to use you after the design phase. Charge a fair price for the design services. You can always give a discount on the construction services if they use you.

Client obligations: List all the items the client must provide to you for design, including property dimensions; survey of lot lines; any covenants, conditions and restrictions (CC&R’s) recorded against the property; easements; and underground utility locations. You don’t want to discover half-way through construction that you have designed the addition into the neighbor’s yard. Ask for the information, or be liable for the results.

Restriction on use of design: If you don’t want the client to use your designs if you are not building the project, you need to put such a restriction in your contract. Most contractors will put minimal detail in the design because they know how they are going to build it in the field. If some other contractor is building from your design, they may not know what you had in mind. You may be liable if there is a construction problem later because of the lack of detail in your design.

If you feel the client has the right to use the design because they paid for it, make sure you get a full release of liability. If you feel the client should be able to use the design because they paid market value for the design services, then put sufficient detail in the design so it can be used by another contractor. And make sure you have insurance that covers design defects — your general liability policy may not.

Treat your design contract the same as your construction contract. It’s a legal document that needs to be worded properly to protect your interests.