The ACEC/NC coalition which included AIA/NC, NCSS, and ASLA-NC has just completed yeoman's work to ensure passage of a landmark piece of legislation, House Bill 871, Fair Contracts.
As of July 8th the measure has passed both the NCGA House and Senate and has been signed by Governor Cooper. This is monumental change for our industry!
Indemnity/Duty to Defend Relief
In summary, this bill adds major liability protections for North Carolina design firms in contract negotiations with owners. HB 871 expands on an existing statute (GS.22B-1) to address important issues specifically related to design professional contracts:
- Design Professionals cannot be made to "defend" an owner or any other party against claims involving professional liability asserted by third parties.
- Design professionals cannot be made to indemnify an owner or any other party if the design professional was not a "proximate" (direct) cause of the alleged damages or loss.
- The existing exemptions to the current indemnity provisions of GS.22B-1 for NCDOT, railroads, and public utilities are eliminated (and also do not apply to these new provisions).
- These protections apply to both public and private contracts.
An Owners' demands for a "duty to defend" clause is a very high risk contract provision for designers because it is unreasonable, unmanageable risk, and uninsurable under professional liability insurance. The North Carolina Legislature has agreed that such terms are against public policy, and provisions in contracts obligating an engineer or architect to defend the owner against claims i
nvolving professional liability asserted by third parties
are now void and unenforceable. The new statute can be accessed
This is a huge victory for firms being forced into these duty to defend agreements in order to work for some clients. It is especially onerous for small, disadvantaged firms that do not have the resources to fight these clauses. Not only are the firms at risk of spending large sums to defend against third party claims to an owner that may not be the fault of the designer, additionally the defense costs could not be recovered through insurance.
A huge thank you goes out to our primary bill sponsors Representative Dean Arp from Union County and Senator Paul Newton from Cabarrus and Union Counties. Both legislators spent significant time and effort to sponsor and steer this bill through the North Carolina Legislature. Special thanks to the ACEC/NC-led Task Force chaired by Stephanie Hachem, Kimley-Horn, and included: Richard Cook, Kimley-Horn, Joelle Jeffcoat, Perkins+Will, Dave Crawford, AIA/NC, Stephen Safran, Safran Law Offices, Gary Hartong, the Wooten Company, and our contract lobbyist David Ferrell, Nexsen Pruet PLLC. ACEC and AIA also worked diligently with Carolinas AGC, who initially opposed the bill, in reaching a bill that made the changes to the law we requested. We would also like to thank the ACEC/NC members that attended hearings at the legislature, spoke in committee, and contacted legislators in support of House Bill 871.
There will be a review session of this legislation at the 50th Annual Summer Conference in Wrightsville Beach on July 27th, that will also explain how to use this new law in your contract negotiations.
You won't want to miss this important event.
James A. Smith, Jr., PE, Executive Director
American Council of Engineering Companies of North Carolina