AS 4122

AS 4122-2010

Background

AS 4122-2010 came about because the 2000 version was considered to be in need of updating to address certain core insurance issues, and to reflect legislative developments such as GST.

As it stands, AS 4122-2010 is not suitable for a novation to a design and construct contractor, because it does not contain a novation clause and deed; an appropriate one would need to be inserted.

A note on Amendment No. 1

Amendment No. 1 is the current version of the standard.

The amendment corrects a few typographical errors and inconsistencies in nomenclature; it does not change intent.

Throughout this practice note, for convenience, the standard is referred to as AS 4122-2010.

Use of AS 4122-2010

AS 4122-2010 (Incorporating Amendment No. 1) achieves a reasonably fair balance between Client and Consultant.

It is recommended for commercial or government projects. It can be used on domestic projects too, but the Institute of Architects’ Client and Architect Agreement is usually preferred, being shorter and more user-friendly.

Insurance risks in AS 4122-2010

One of the aims of AS 4122-2010 was to improve some of the clauses in the previous version which raised a risk of infringing common exclusions in professional indemnity insurance policies.

The level of uninsured risk in AS 4122-2010 is lower than that of the 2000 version, and considerably better than in the pro forma consultancy agreements put forward by most commercial and government clients.

AS 4122-2010 provides greater confidence to the architect and the Client that the professional services it defines are likely to be covered by professional indemnity insurance.

However, the following clauses raise risks relevant to professional indemnity insurance cover:

• Clause 4 – The requirement to perform to 'such higher standard as the Consultant has represented in writing to the Client in relation to this Contract' risks requiring the architect to perform all of their services at a higher standard than the common law would usually require. Obligations which exceed an architect’s usual common law and statutory liability are not usually covered by professional indemnity insurance. Consequently, the architect should be alert to, and realistic about the level of service that is being represented in letters of offer, expressions of interest, website claims and the like.
• Clause 20 – This clause contemplates that the architect may engage sub-consultants.  Some professional indemnity policies provide no cover for engaging sub-consultants, and some only provide cover for engaging sub-consultants who are also architects (ie not engineers or others). Other policies provide broad cover for liability for sub-consultants. Before engaging sub-consultants, architects should check what kind of cover they have.
• Clause 23.4 – The obligation to ‘ensure’ that other consultants and contractors comply with confidentiality obligations is a guarantee which risks imposing liability that is higher than common law and therefore uninsured.  However, this risk should be viewed in the wider context of the project and the daily practicalities of business. The architect should bind sub-consultants to the confidentiality provisions that bind the architect.
• Clause 28 – An indemnity is a requirement to pay compensation to another party. The safest position from an insurance point of view is never to provide indemnities, as by their very nature they tend to impose obligations which alter the common law position. This particular indemnity is lower risk than many indemnities commonly seen in client-drafted consultancy agreements, as it is tied to fault on the architect’s part, and reflects contributory negligence and the client’s duty to mitigate its loss. However, any indemnity carries a degree of risk of increasing the architect’s liability beyond the cover of professional indemnity insurance.
• Clause 30.4 – The obligation to maintain the same level of insurance may be impractical if a long period is specified in Item 27. Professional indemnity insurance is obtained annually, for a year at a time, and if the insurance market changes, the same levels of cover may not be available.

Insurance cover varies from policy to policy, so architects would be prudent to consult their own broker for specific advice that takes into account their individual policy terms. Some professional indemnity policies contain a special policy extension confirming that the architect’s professional obligations under AS 4122-2010 are insured, so long as AS 4122-2010 is used without amending its original terms. If obtained, that extension would resolve the insurance risks in clauses 4, 23.4 and 28 above.

Commercial issues

• Clause 21 – AS 4122-2010 provides options for copyright and other intellectual property rights. The clause distinguishes between the architect’s background intellectual property (created outside the specific contract, for example typical details) and the intellectual property created for the project. The architect may either provide a licence, or transfer copyright.  Since transfer of copyright is not normally included in the project fee, Annexure A Item 20 allows a fee to be nominated.
• Clause 21.4 provides protection to the architect by revoking the licence if fees are not paid as required by the Contract.
• Clause 22 – The Moral Rights clause is relatively benign in that it does not require waivers, and does not impose practically impossible obligations.  It allows the architect latitude to agree appropriate moral rights arrangements, and provides comfort to the Client that it is not being left open to vexatious moral rights claims. The architect is strongly advised to read Part C carefully and obtain the Consents indicated.  In relation to the architect’s employees, Consent Form 1 will provide a once and for all moral rights coverage that can be supplied to any Client.

  Consent Form 2 involving contractors should be completed on a project by project basis (as for these engagements the moral rights legislation does not allow a once and for all consent).

• Clause 29 – Clause 29 allows the architect to place a contractual limit on its liability to the Client in respect of some matters. This limit will only provide protection to the architect if an amount is filled in at Item 24.

  Definitive guidance for calculating the amount (if any) to write into Item 24 is not feasible, but some factors to consider are the scale and overall risk of the project, the relative size of the architect’s fee, the amount of the architect’s professional indemnity insurance and the architect’s willingness to bear risk. By way of example, architects sometimes specify a fixed amount (such as $500,000), or an amount calculated by reference to their fees (such as twice the architect’s fee), or the actual limit of indemnity on their professional indemnity insurance.

  It should be noted that insurance companies may recommend that a defined limit be entered and that this contract clause is not left blank. The architect should check with their broker in relation to the limit of liability.

  It is important not to agree to a limit of liability to the Client higher than that limit of indemnity without careful consideration, and not one higher than that agreed with any major sub-consultant. The principle here is to consider the extent of liability that could arise if the sub-consultant made an error.

  Importantly, the limit in clause 29 only offers protection against some kinds of claims by the Client, and has no effect on claims by third parties against the architect, such as adjoining owners or passers-by.

• Clause 30.7 – Clause 30.7 addresses the relatively unusual situation in which the Client puts in place project insurance that covers the architect.  If it is not activated by a completed Item 28, it simply indicates that this type of insurance is not required.  Entering Nil or leaving a blank at Item 28 does not affect any obligation the Client may have to insure itself (eg where the Client is a building contractor).

Amending the original terms

The guidance in this note assumes that the original terms of AS 4122-2010 are being used. However, either party is free to put forward an amended version. Amendments by the Client may disadvantage the architect, or impose uninsured liability, so it is vital to be aware of whether any such amendments have been made, in order to resist them as necessary. Amendments to the standard contract are most often made to transfer increased risk to the architect, including commercial risk. Any amendment providing for the client (or builder if novation applies) to unilaterally deduct damages from the architect's fees or ‘set-off’ any cost against the architect’s fee should be rejected by all members. Set off clauses may be titled ‘set-off’ or may be included in other payment clauses. They are sometimes included in more than one place in contracts, so it is important to ensure all such clauses are found and deleted.

Architects should:

• Always check Item 31 in Annexure Part A, and Annexure Part B, where the contract requires any amendments to be disclosed.
• Keep an original version of AS 4122-2010 in the office, for cross-checking to identify any changes.
• Review all annexures to the contract when it is put forward by a client, to see if they contain any special conditions or other annexures which change the standard terms.

Clients’ lawyers are usually straight-forward about amendments and tend to mark up changes clearly within the contract.

However, not all lawyers do this and even with the best intent changes are sometimes inadvertently missed, so we recommend you always check the contract terms and seek legal advice.

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AS 4122-2000

Background

AS 4122-2000 is not suitable for novation. To make it suitable, a novation clause and novation deed would need to be added.

Use of AS 4122-2000

It is recommended that, where given a choice, architects use the more recent 2010 version, as the 2000 version does not account for legislative changes like GST. However, AS 4122-2000 is occasionally used by clients, probably due to familiarity.

Insurance risks in AS 4122-2000

In the 2000 version, the following insurance risks should be considered and, unless the architect is prepared to accept the uninsured risk, amended:

• Clause 2 (final paragraph) – This is a fitness-for-purpose clause in relation to the suitability, appropriateness or adequacy of the scope of the architect's services for what is set out in the client's brief. The architect may have no control over what has been put in the brief describing the architect's services. The use of this clause increases the exposure of architects to liability. It is recommended that this clause is deleted.
• Clauses 3(g) and 10.3 – To avoid the guarantee implied by the term 'ensure', it should be a qualified obligation on the architect, for example, 'take reasonable steps to ensure'.
• Clause 8.3 – Containing a warranty and indemnity, this clause risks imposing unqualified obligations that may exceed insurance cover. The clause is better off deleted or replaced.
• Clause 9.2 – This clause requires the consultant to indemnify the client against loss. It is recommended to delete this clause, and explain to the client that you are already obliged by law to perform in a non-negligent manner and, if you fail to do so, your client has recourse in tort or breach of contract. If this does not work, it is recommended that the clause be replaced with alternative wording which more closely reflects an architect's insured common law liability. Practices insured through Planned Cover can obtain an example replacement clause which minimises the risk.

Commercial issues

• AS 4122-2000 does not contain GST provisions (as it pre-dates the GST). Provisions should be inserted.
• Clause 8.1 – AS 4122-2000 provides options for copyright and other intellectual property rights. The clause distinguishes between the architect’s background intellectual property (created outside the specific contract, for example typical details) and the intellectual property created for the project. The architect may either provide a licence, or transfer copyright. Since transfer of copyright is not normally included in the project fee, Annexure A Item 12 allows a fee to be nominated. Unlike the later 2010 version, note that AS 4122-2000 does not provide an express right for the architect to revoke its copyright licence for non-payment of fees.
• Clause 9.1 – Clause 9.1 allows the architect to place a contractual limit on its liability to the Client in respect of some matters. This limit will only provide protection to the architect if an amount is filled in at Item 14. Regarding setting a limit of liability, see the advice under clause 29 of AS 4122-2010.

Amending the original terms

The same guidance applies as given for AS 4122-2010.

Note that, while Item 31 of Annexure Part A in AS 4122-2010 contains a yes/no option requiring the client to confirm whether it has amended the original terms, AS 4122-2000 does not have an equivalent provision. Instead, Annexure Part B should be completed to clarify whether amendments have been made.

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Conclusion

AS 4122-2010 and its predecessor AS 4122-2000 both achieve a reasonably fair balance between Client and architect, and both raise considerably fewer risks to the architect’s professional indemnity insurance cover than the pro forma consultancy agreements put forward by most commercial and government clients.

However, some clauses within these contracts (eg indemnity clauses) may impose uninsured liability, and should be deleted or revised before signing. If being engaged under AS 4122, check with your insurer to confirm which clauses may raise this risk.

Some key provisions (such as choice of copyright option and the protection of limited liability) depend upon careful and correct completion of Annexure Part A.

It is common for the standard forms discussed here to be heavily amended by clients, thus introducing additional commercial or insurance risks. Seek appropriate legal and insurance advice to satisfy yourself that the revisions have no unintended consequences.