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SECTION IV. - CONTRACTS FOR ENGINEERING SERVICES The relations of the Consulting Engineer with his Client should be clearly defined by a written instrument before commencement of actual work. Whether this is expressed by an exchange of letters or by a more formal legal agreement is immaterial, as long as all the terms are clearly defined. It should state the parties to the contract, and define the extent and character of the work to be performed, as well as conditions relating to any time limitations which may be involved. The terms and payment for various services should follow. In periods when the economy is experiencing inflationary rates that substan- tially affect both the Consulting Engineer's cost of performing various services and the construction costs of projects, consideration should be given to these factors when establishing the terms and payments for work to be performed. This is especially important for agreements that will extend over a proionged period of time. For those contracts in which the Consulting Engineer's compensation is de- termined from his actual costs for performing the work, e.g., in salary costs times a multiplier plus direct non-salary expenses or a cost plus a fixed payment arrangement, the Consulting Engineer's increasing cost is automatically accom- modated, provided the contract includes provisions for recognizing these in- creases as they occur or at specified intervals.. However, this automatic adjust- ment does not occur when the compensation is not determined on the actual costs for performing the work, as in the instance of per diem and hourly rates, lump sum, or percentage of construction cost arrangements. In the instance of per diem and hourly rates, a provision in the agreement for services, stipnlating the time period for which the rates hold and after which appropriate adjustments will be made, will provide a means for adjusting to the inflationary effect on the Consulting Engineer's costs. For lump sum arrangements, a similar provision in the agreement for services should be provided or the lump sum amount should be negotiated on the basis of cost projected to the midpoint of the engineering services performance period and once negotiated on this basis it should remain finn. When the percentage of Construction Cost method is used, determination of equitable compensation for the Consulting Engineer should include the inflation- ary effect of the Consulting Engineer's costs and the escalating construction costs for projects. Provisions in the contracts recognizing these factors will serve to prevent future misunderstandings. Contract provisions for accomplishing this are difficult to suggest since costs and conditions vary widely during uncontrol- 19