ARE Daily | PcM #17 — Legal Issues: Agency & Duties

Quick Recall (from #16 — Accounts Receivable & Overhead)

What should a contract include regarding fee collection, beyond simply stating the fee amount?

When invoices will be sent and in what form, when payment is due, interest charges for late payment, and consequences for non-payment — including the firm's right to stop work and halt presentations. These provisions need to be established before work begins; trying to enforce them after the fact without contractual backing is much harder.

Today's Content

The legal section of PcM covers concepts that underlie how architects interact with owners and contractors — and where liability flows when things go wrong. Today focuses on two foundational legal concepts: agency and duties.

Agency

Agency is the legal relationship in which one person (the agent) acts on behalf of another (the principal) in dealings with a third party. In architecture and construction, the architect is the agent, the owner is the principal, and the contractor is the third party. When the architect consents to act on the owner's behalf, they are empowered to create legal relationships between the owner and third parties.

This creates a real and persistent risk: contractors may assume architects have more authority than they actually do. A contractor who receives instructions from an architect may reasonably believe those instructions reflect the owner's wishes — even when they don't. Conversely, owners may later dispute actions taken by their architect on their behalf. This is why change orders must be signed by both the architect and the owner — not just the architect. And it's why architects must be diligent about keeping owners informed and acting strictly within the scope of their authority.

Contractors are legally classified as vendors — they supply a specific product (construction) for a fixed price and act primarily in their own interest. This is distinct from the agent relationship, in which the architect acts on behalf of and in the interest of another party.

Duties

A duty is a legal obligation one party owes another. In architecture, duties are established three ways:

1. By contract — written or oral agreements, including AIA standard forms, which define the architect's services and responsibilities. Services may not be extended without written owner consent.

2. By legislative enactment — building codes, architectural licensing laws, and other regulations impose duties regardless of what a contract says.

3. By conduct — courts look to how parties have actually behaved, not just what's written. Implied duties arise from the course of performance and can bind an architect even without explicit contractual language.

Common implied duties the exam tests: cooperating with contractors, not interfering with the contractor's means and methods, giving contractors relevant information that affects project progress (including observed errors), and helping the owner coordinate separate contractors and vendors not under the general contractor's control. A critical point: architects should not advise contractors on construction methods — doing so implies a level of responsibility for those methods that the architect shouldn't carry and that can create additional liability.

Today's Questions

1. In the legal concept of agency, who is the agent, who is the principal, and who is the third party in a typical construction project?
2. Why must change orders be signed by both the architect and the owner?
3. What are the three ways duties are established for architects?
4. An architect observes during a site visit that the contractor is using a structurally questionable method to form a concrete pour. The architect says nothing. What implied duty may have been breached?

Next up: Liability, Negligence & Defenses

Answers from #16 — Accounts Receivable & Overhead

1. What should a contract include regarding fee collection? → When invoices are sent and in what form, when payment is due, interest charges for late payment (typically after 45 days), and provisions for non-payment including the right to stop work. All established before work begins.
2. Invoice sent January 1 — collection sequence? → Follow up at ~2 weeks to confirm receipt and answer questions. Send past-due notice at 30 days. Make personal calls or visits after additional time. Pursue legal action if the account becomes significantly overdue. Maintain written records throughout.
3. What is an aged accounts receivable report? → A report categorizing all outstanding invoices by how long they've been unpaid — typically 30, 60, 90, and 120+ day buckets. Firms prioritize the oldest accounts because they're least likely to be collected without immediate action.
4. Principals logging 30% of time as non-billable — financial impact? → Overhead rises artificially, chargeable ratio drops, and project cost data becomes unreliable. Future fee proposals are likely to be underpriced because historical project costs look lower than they actually were. The fix is requiring accurate, timely time reporting — ideally logged daily.

Additional Quick Recalls

From #01 — Business Organization What is the main reason a general partnership is considered legally risky compared to an LLC?

In a general partnership, each partner is personally liable for the actions and debts of all the other partners — personal assets are fully exposed. An LLC limits each member's liability to their investment, protecting personal assets from business claims.

From #07 — AIA Code of Ethics Under Canon IV, what is the rule regarding false statements, and what tier is it?

Members must not knowingly make false statements — this is a Rule of Conduct (mandatory), not an aspirational ethical standard. It applies to statements about qualifications, credit for work, and professional communications generally.

From #15 — Financial Ratios What is revenue per technical staff, and how is it used?

Net operating revenue ÷ number of technical staff members. It benchmarks productivity per billable person and can be used to estimate staffing needs for future revenue targets — if you know the firm needs $X in net revenue and each technical staff member generates $Y, you can calculate the required headcount.