Not Being Paid – Suspension as a Possible Alternative to Termination
By Sarah A. Johnson, Esq.
Most design professionals, including professional engineers, have been in a situation where their client has stopped paying their invoices for any number of reasons, whether it be insolvency, a lack of financing, a dispute over the quality or quantity of services, or some other reason. Many smart design professionals anticipate the possibility of nonpayment and include clauses in their contracts that allows the design professional to terminate the contract if they do not receive timely payment.
However, termination by the design professional often leads to a claim being made or litigation being pursued against the design professional. Accordingly, design professionals are often left with two undesirable choices – the first being continue working on the project despite nonpayment, and the second being terminate the contract and face a likely professional liability claim by the client (or others involved with the project).
Some design professionals have turned to suspension as a valid third option, including clauses that allow them to suspend the performance of services in the event of nonpayment. For example, AIA Document B104 – 2017 Standard Abbreviated Form of Agreement Between Owner and Architect contains the following clause:
Similarly, Sections 6.05 and 4.02 of EJCDC E-500 Owner – Engineer Agreement state as follows:
A. Suspension
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2. By Engineer: Engineer may, after giving 7 days’ written notice to Owner, suspend services under this Agreement:
a. if Owner has failed to pay Engineer for invoices services and expenses, as set forth in Paragraphs 4.02B and 4.02C;
b. in response to the presence of Constituents of Concern, as set forth in Paragraph 6.09D; or
c. if persistent circumstances beyond the control of Engineer have prevented it from performing its obligations under this Agreement.2
4.02 Payments
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C. Failure to Pay: If Owner fails to make any undisputed payment due Engineer within 30 days after receipt of Engineer’s invoice, then:
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2. Engineer may, after giving 7 days’ written notice to Owner, suspend services under this Agreement until Owner has paid in full amounts due. Owner waives any and all claims against Engineer for such suspension.3
Suspension clauses like the ones quoted above offer the design professional with an alternative to complete termination as they allow the client to remedy the situation by paying the design professional the amount due and owing after which the design professional will resume services.
While suspension clauses have been frequently used by owners/developers and less frequently by contractors, it appears that they may now be gaining in appeal to design professionals. It remains to be seen whether such clauses will be useful in assisting the design professional with collecting its fees while also avoiding professional liability claims and lawsuits. Engineers, who anticipate collection issues, should consult their local attorney regarding whether a suspension clause might be a useful addition to their contracts.
1AIA Document B104 – 2017 Standard Abbreviated Form of Agreement Between Owner and Architect, § 9.1. Although this particular suspension clause is between an Owner and Architect, an engineer could very well utilize similar language in its contracts with the engineer’s clients.
2EJCDC E-500 Owner – Engineer Agreement, § 6.05A.2.
3EJCDC E-500 Owner – Engineer Agreement, § 4.02C.2.
