How can Third Party Claims be Minimized?

by | Sep 5, 2022 | Liability Risks, Topics | 0 comments

General Terms and Conditions, frequently referred to as “Boilerplate,” defines how the Client and Consultant will relate to each other in a business relationship without regard to a specific project. The following is a critical “Boilerplate” item that if not clearly and equitably stated will likely result in misunderstandings and confrontational situations:

Third Party Claims – Third party claims occur when a party other than the Client attempts to recover economic loss from the Consultant on whose design the third party has relied.  On the surface, this does not seem reasonable or equitable.  However, there is not consistency among the various States as to whether or not the Consultant has a duty or obligation to the third party.

Third party claims frequently come from subcontractors or vendors with whom neither the Client nor the Consultant has a contractual relationship.

The matter can be further complicated when a contractual relationship exists between the Client and say, a lender.  This is particularly applicable when the Consultant’s services include a study or analysis that may be of particular interest to the lender.  The problem occurs when that which is of interest to the Client may be very different from that of the lender’s.  In which case, the Consultant’s scope of services may not adequately address that which is of interest to the lender.  All of this points in the direction of a need for a disclaimer in the contract between the Client and the Consultant stating that neither has any obligation or duty to any third party in connection with the services provided by the Consultant.  In the case of the lender, it may be appropriate to consider entering into a co-client relationship (three-party contract) in which the needs of the Client and the lender are identified and mutual indemnifications of all parties are secured.

When there is resistance on the part of the Client to add the disclaimer to the contract due to not wanting to change a standard contract, adding the disclaimer to the scope of work may be a more acceptable alternative.

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Lowe Consulting, LLC
John M. Lowe, Jr., P.E.
Happy Valley, OR