Q: This question concerns a lump-sum fee contract. For the purpose of example, if our firm signed a lump-sum fee contract for $10,000 and we only performed $5,000 worth of work, can we bill the client for the $5,000 fee and call the unused $5,000 profit? Can we take the remaining $5,000 that is left in the contract and use it on another unrelated project to be charged with the $5,000 available budget that is left?

A: Fees and billing are controlled by the contractual agreement between the parties. If this a true lump-sum fee wherein the client was charged $10,000 for the work to do on the project then the fee is $10,000 whether it costs the firm $5,000 to perform or, in an unfortunate circumstances, costs more than $10,000 to perform. Clearly, the amount over and above the firm’s costs would be gross profit.

If the fee was a not to exceed $10,000 lump sum and the firm only did $5,000 worth of work, then the firm would only bill $5,000. Usually a not to exceed lump-sum fee requires the firm to bill on an hourly rate (which includes overhead and profit) up to an amount not to exceed the fee negotiated in the contract.

As far as billing another project for the unused the portion of the fee that has not been earned, this too would depend on the relationship between parties and their contractual arrangements. Absent an agreement to bill a different project for the unused fee it would not be appropriate to do so. Charging costs to a project for work done on another project, absent an agreement with the client, is not good practice. If there is unused fee which the firm would like to use for another project in the office with the same client, then that firm should discuss with that client the appropriateness and commercial arrangements of budgeting the unused fee for the other project. Billing and fee arrangements are a private contractual matter; however, the firm is required to follow its contractual terms and not engage in questionable billing practices. The phantom charges or billing to projects where services are not performed is inappropriate.

Q: Our firm commonly specifies structural services for certain specialty items to be designed and supplied by the contractor. Examples include wood roof trusses, pre-cast planks, etc. Recent changes to our building code now require certain mechanical and electrical equipment supports to meet specified structural requirements. Our firm has chosen to require the installing contractor to retain a qualified licensed engineer to design equipment supports to the code requirements. Our standard contract is silent on the issue of equipment support and we generally choose to use a performance specification. Is our firm is liable should there be errors and omissions in the equipment support design?

A: The question concerns where there is liability attached when performance specifications are in place with respect to certain component parts of an overall design that are not directly designed by the engineer. Where the specifications require that a qualified, licensed engineer design the equipment supports, then the engineer who stamps and signs the shop drawing illustrating the means and methods of attachment of those supports remains responsible. With respect to the engineer of record for the design, if that engineer has construction administrative duties, such as reviewing shop drawings, then that engineer will be required to review those shop drawings and is required to review them pursuant to appropriate standard of care. If the appropriate standard of care given a particular review requires the design engineer to discern the adequacy of the design of the shop drawings prepared by the contractor’s qualified licensed engineer, then that design engineer must meet the duty of care to promptly review the drawing and point out any errors and omissions.

As a general statement, the design engineer who reviews the design is required to exercise the appropriate standard of care regardless if the specifications state that the installing contractor retains a qualified licensed engineer to design the equipment supports. Of course, that standard of care may include reliance upon certain information, but in most instances, to the extent that there is a problem it will be fact-specific, which will focus upon respective contractual requirements of the duties of the parties involved in the situation. The far greater problem here would be drafting a specification and delegating design responsibility for the equipment support design without any requirement that a qualified licensed engineer design those supports. The practicing engineer needs to pay attention to what is being specified and the contractual duties for review.