Hey, it’s Collin. Welcome to Engineering Echelons, a newsletter full of ideas and insights to help engineers excel at management.

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Contracts are extremely useful legal instruments that allow for projects to be executed. They can also be minefields if you don’t know what you’re agreeing to.

One part of a contract that carries significant risk is the one that sets the standard of care.

The standard of care establishes the qualitative level for your work. Here are some common issues to avoid.*

Perfection Standard

Some clients try to slip in a clause about how your services or deliverables must be “free from defects” or something similar. That type of language is more appropriate for product manufacturers who have a specific, reproducible product. Professional services don’t do that type of work, and therefore can’t reasonably agree to those terms. Insurance companies know this, and so they don’t insure contracts that have this language.

Fiduciary Standard

The word fiduciary carries strong legal implications. Some professional services firms are fiduciaries—architecture, engineering, and construction firms are not. Don’t enter into agreements that explicitly use the word fiduciary, and also avoid contracts that could imply fiduciary duty, such as “forming a relationship of trust.”

Elevated Standard

Elevated standard of care isn’t as extreme as perfection or fiduciary standards, but it still carries risk. Elevated standard is simply contractual terms that increase the standard of care above industry norms. Those norms are oftentimes what professional services insurance coverages are based on. Elevating the standard above that may increase your cost to insure or bar that contract from being insurable.

Warranties

Warranties are expressly excluded from professional services liability insurance coverage. So whatever warranties you’re agreeing to in contracts are completely on you. Some are reasonable, such as warranting that you have appropriate professional licensure to provide the services you’re contracting. It’s the qualitative warranties about the services or deliverables that you need to avoid. A general rule of thumb I use is that warranting anything above compliance with professional industry standards is asking for trouble.

Silence

This is one of the trickiest parts. You may have read through a contract looking for all the above items to determine potential risk and how you’ll need to negotiate. If you don’t see anything about the standard of care, you might think you’re in the clear. And that may be true. But it’s much better to expressly state what the actual standard of care will be rather than have nothing. That way, there is no ambiguity around the matter if a dispute arises.

*As always, Engineering Echelons does not provide legal advice. This is for educational purposes only. Please consult your attorney before making legal decisions.

Ray Dalio (founder of Bridgewater Associates) on what keeps you from making good decisions:

“The two biggest barriers to good decision making are your ego and your blind spots. Together, they make it difficult for you to objectively see what is true about you and your circumstances and to make the best possible decisions by getting the most out of others.”

—

Michael Dell (founder of Dell) on hiring to build new things:

“When you’re creating a new business in an area that has never been done, or with some new technology, or new business model—there’s no playbook. And if you hire the people from the adjacent industry companies and ask them to go do it, they’re just going to go do what they were doing before.”

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Roman Tschappeler (business executive and author) on the impact of delaying decisions:

“We often defer decisions because we have doubts. But not making a decision is a decision in itself. If you delay a resolution, it is often an unconscious decision, one that you do not communicate. This leads to uncertainty in a team. So if you want to make a decision later, be sure to communicate this clearly.”

Many organizations think of change in mechanical terms—rigid, predictable, top-down. This article challenges that way of thinking and instead proposes a more organic, distributed, and adaptable model.

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Looking forward to hearing from you. See you next time.

Collin