REPORT

Minimize Risk - Maximize Performance
May 2015

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Current Survey Responses

Revenue
Increase 10% - 21%
Increase 20% - 16%
Zero Change - 16%

Claim in the Last 3 Years
Yes - 50%

Cause of Claim(s)
Technical Error, Omission - 23%
Poor Communication - 18%





 


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Claim Scenarios for Design Firms

 

Not all claims against architects and engineers (A/E) firms for errors and omissions can be anticipated. However, awareness and looking for a few common warning signs will help mitigate project risk. When and how you respond in these situations will greatly assist in minimizing risk, and the possibility of a claim for the firm.

 

 

Client Financial Difficulty
When a client is having financial difficulty, a common approach for saving money on the project includes reducing or eliminating construction phase services for the design firm. Another strategy commonly used is substituting cheaper materials for the originally specified materials without a thorough review of the materials by the design professional. Another approach is using another design or construction approach suggested by the contractor for reducing project cost. Each of these situations greatly increases the risk for the A/E firm including exposures to a professional liability claim.

 

If you are the prime design professional on a project, a common responsibility in the owner-architect/engineer prime agreement includes payment to the contractor once certain work has been completed. It is appropriate to warn the Client that in the absence of the firm providing construction phase services, you would not be in a position of observing work that has been completed at a certain phase or percentage of the project. Also, informing the Client that any interpretation, modifications, clarifications, adjustments or changes of the Contract Documents made by others shall be the responsibility, and risk to the Client.

 

Cost-cutting measures such as the lack of providing professional construction observation services, substitution of materials or a change in design could impact the overall performance and quality of the projects as well as raise public safety concerns. As a design professional, you are not only liable to your clients, but to society as a whole. It is suggested that the firm uses contractual language stating the Client shall hold the design firm harmless, and not liable for claims and damages for not performing these services, as well as the performance of such services performed by others.

 

 

Contractor Financial Difficulty
When a contractor is having financial difficulty, the likelihood increases that they will look for methods for creating extra compensation. This can be through excessive or unfounded requests for information (RFI’s) on design documents stating that a lack of sufficient details has lead to project delays and out of sequence work for the contractor. In turn the Client may state the extra compensation requested by the contractor was caused by errors and omissions of the design firm in their design drawings. It is suggested that when a contractor’s financial trouble becomes apparent, strengthen your relationship with the Client with effective communication skills and work together developing a common defense strategy.

 

 

Changes in Site Conditions
Whenever a change or unforeseen condition appears on a project site, the Client should be informed immediately. The design firm should insist that all parties discuss the changes and agree upon a course of action moving forward including the responsibilities of all parties, timelines of action items, and document the decisions and distribute this report to all parties. If the changes or unforeseen conditions result in a change in scope, schedule including an adjustment to your fess, this should be documented by a change in scope submitted to the Client. These conditions will most likely create a change order for the contractors work as well. It is recommended that you should discuss these changed conditions and options when they occur - this is the best course of action. Delaying and allowing work to continue with a promise to discuss “extras” later in the project usually results in either not getting paid, or a claim against the design firm when memories fade at project completion.

 

 

Reliance of Information
As a design firm you are often required to rely on data, information and documents prepared, collected and provided by other parties. Such information might range from the Client program requirements to soils and survey data, to the location of underground utilities, to the original plans and specifications for an older building being renovated. In most cases you are expected to accept all of this information, and use it as the basis for your designs without checking its accuracy or completeness. Although any errors or omissions in the information provided can very well cause errors or omissions in your services, a Client will seldom pay you to spend the time verifying the information. It is recommended you have contractual language stating you are entitled to use, and rely on information supplied or produced by others, including the Client, consultants and contractors, and that the Client will bear the resulting risk. If a Client is not receptive to this provision, it opens the door for discussion for additional time and fee in the review of this information.



 
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SmartRisk is a leading risk and practice management consultancy for design and building professionals. Through firm specific risk assessments, training and consulting, services focus on improving overall performance, profitability and reducing insurance costs through tailored risk management solutions.

If you have any questions about our services, or would like dicusss how we could assist your efforts, please contact us.

Thank you,

Timothy J. Corbett, BSRM, MSM, LEED GA
Founder & President
626-665-8150
tcorbett@smartrisk.biz
www.smartrisk.biz.

Copyright and Information Only. This newsletter is for information purposes only and should not be construed nor relied upon as guidance, regulatory or legal advice. Readers should consult with appropriate counsel regarding their specific situations and circumstances. SmartRisk shall not be liable for any errors in content, or for any actions taken in reliance thereon.

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