What Is in There? Understanding Pre-Bond Agreements

As schools begin planning for bond elections to finance large construction projects, architectural or construction management firms may offer pre-bond agreements. These agreements can provide valuable guidance in planning, estimating costs, and preparing for bond elections and projects, but they also carry potential pitfalls if not negotiated carefully.

Scope of Services

Pre-bond agreements typically outline a range of services that architects and construction managers will perform before a bond vote, including:

• conducting facilities assessments to identify project needs;
• developing preliminary cost estimates;
• establishing project timelines and milestones if the bond is authorized by voters; and
• coordinating with financial advisors, legal counsel, or other consultants.

The services may also include community engagement activities, such as public forums, surveys, or presentations at school board meetings, and assistance with the Michigan Department of Treasury preliminary qualification (PQ) application and PQ meeting.

Services should be sufficiently described in the pre-bond agreement so that all parties share the same expectations and school officials can verify that the agreed-upon services have been completed.

Payment Terms

Commonly, pre-bond services are provided at no cost, if the architectural or construction management firm is retained to perform post-election services if the bond proposal is approved by voters. If the bond proposal is not approved, firms typically do not charge for these services. If, however, the bond proposal passes and the school chooses not to retain the firm, the agreement may allow the firm to bill for actual, reasonable costs, often subject to a not-to-exceed cap. This structure protects the school from unnecessary expenses while ensuring firms are compensated if their pre-bond work is ultimately used.

Exercise Caution

Though pre-bond agreements are typically brief, school officials should still be mindful when executing them, as they may include unwanted terms and conditions regarding post-bond implementation services, undesirable limitation of liability provisions, extensive markups on reimbursable expenses, and other additional fees.

School officials must examine the proposed fee structure if the project moves forward. For example, the fee structure may be based on a percentage of an overly broad “cost of work” definition, including other consultant fees, overhead, and unused contingencies, which in turn could cause an otherwise apparently reasonable percentage-based fee to balloon.

Some firms may also seek broad rights to project documents. These terms can limit a school’s flexibility if not addressed. Pre-bond agreements should preserve the school’s ability to use any drawings resulting from the agreement, as well as the ability to terminate and the right to use the American Institute of Architects contract forms, subject to modification, for the construction project.

School officials may feel pressured to sign an agreement to obtain pre-bond services as soon as possible, especially when the construction firm agrees to delay charging for services until after bond passage. While architects and construction managers are valuable assets in preparing for a bond election, schools should approach pre-bond agreements strategically because they can affect post-bond implementation and construction services. Understanding the scope, fees, and contract terms, and insisting on legal review before signing, will support the school’s long-term construction goals without creating unnecessary obligations or risk.