My husband often travels the back roads between Chapel Hill and Fuquay Varina to visit friends. En route (a circuitous route that goes past Sharon Harris Nuclear Power Plant, among other places), he passes by the “Friendly Grocery”. For those who haven’t had the pleasure, here is a photo of the side of the building in all its glory.
In case you cannot read the list of forbidden activities, I’m re-printed them here (complete with spelling error):
I’m not sure which is the “friendly” part of that sign. In fact, the sign seems to be the antithesis of friendly.
What does this have to do with your construction contracts? Sometimes, in an effort to please the client and/or secure the project, architects and engineers have the habit of being too friendly in their contract language. That is, you make promises or proposals that may promise too much of a good thing for the client. This can cause big problems. Bigger than being towed away from a rural grocery store in the middle of nowhere. You could be putting your insurance coverage at risk.
Have you ever promised to use “best efforts” in your design or plans? Promised to design to a specific LEED standard? Guaranteed 100% satisfaction? You might be putting your errors & omission coverage at issue. By warrantying or guaranteeing something, you are assuming a level of liability well beyond the standard of care required by law. By law, you only need to conform to the standard of care, and your insurance will only provide coverage up to that standard of care. In other words, if you make guarantees or promise “best efforts,” you are contracting to something that will *not* be insured. If something goes wrong, you will be without the benefit of your professional liability coverage.
Instead, make sure that your contracts, and proposals, are not too friendly to the client. Sure, agree to work in accordance with the standard of care of professional architects/engineers. But don’t make guarantees, or promise “best” efforts. In fact, you might want to educate your client on why you cannot make such guarantees, and why anyone who does (i.e., your competition) is putting their insurance coverage at risk. Owners want and need you to stay within the bounds of your coverage. You need to, also. Maybe the owner of the Friendly Grocery was on to something there.
Your turn. Have you ever used language that jeopardized your insurance protection? Uncertain if you have? Drop me a line and we can talk.
Adding an “Additional Insured” in the Professional Services Agreement: an exercise in futility! (law note)
As an architect or engineer, you may be asked to sign a contract that has a requirement of adding the Owner (or Contractor, in a design-build project) to your own insurance as an “additional insured”. This is usually a fall out of the fact that the Owner is treating you like a contractor and using “stock” contract language. It is not appropriate, nor sometimes even possible, to add the Owner to your professional liability policy.
This is beacuse professional liability insurance only provides coverage for “professional services”. That is, if it is even possible to buy such coverage, it won’t work to avoid any risks the Owner is seeking to avoid, because the Owner is not providing licensed architectural or engineering services on the Project.
In fact, because of the way professional liability policies are generally written, naming the project Owner as an additional insured essentially voids any coverage for the owner for your Firm’s design errors & omissions.
What should you do with a stubborn Owner who insists he wants to be an additional insured under your E&O policy? Explain the facts to him, and point out he is risking voiding coverage all together. Tell him to call me, or point out this post to him. Also, several insurance brokers, agents, and companies have simple one or two page information sheets that you can provide to the Owner to help with his education.
Remember, having an “Additional Insured” in an Errors & Omissions policy is a true exercise in futility. It may not be what the Owner wants to hear, but such is life!
Question time: have you ever been asked to add an Owner to your E&O insurance? How did you handle it? Share in the comments section, below.
And if you haven’t already, be sure to download your free white paper on the 7 Critical Mistakes that Architects & Engineers make– it’s in the box on the top right hand side of the blog.
Today we have a guest post from the folks at McCree General Contractors and Architects, located in Orlando. The McCree folks, naturally enough, think Design-Build has many features that make it advantageous over the traditional Design-Bid-Build method. Here are their thoughts:
Many construction projects are designed by an architect, and once the client is happy with the design a contractor is then hired to build it. While the client may have been told one estimate by the architect, once the contractor gets the plans the costs may change. There may be aspects of the design execution the architect didn’t think about, or parts that won’t work with the landscape of the construction site. This can result in changes to the original design, higher costs, and delaying of the project. Not to mention the frustration this can create for everyone involved.
Because of these obstacles that often arise between architecture firm and contractor firm, many people are now turning to a Design-Build Construction Firm. At these firms, the architects, designers, and contractors work together from the beginning. The firm takes responsibility for the project in its entirety, from design to execution. If the architect makes and adjustment to a design, the contractor will be right there to let him know if this may violate a regulation or if it won’t work with the topography of the site. Adjustments can be made without ever involving the client. The price quoted is more likely to be accurate, because a contractor and project manager will have also agreed that this design can be executed in the space allotted. There is no finger pointing and blaming the other firm, leaving the client in the middle, frustrated and spending more money than he originally thought. A Design-Build firm is also easier on the client because he only needs to contact one project manager. This streamlined process leads to a more efficiently run project, and efficiently run projects typically cost less and are finished quicker.
A Design-Build firm is advantageous for the client also because these firms typically allow the client to be as involved as he wants. As the design is developed and changed according to the client’s specifications, the contractor will be on hand to let the client and architect know if these changes are possible. There is no need for ordering design changes, which an architect working on his own would charge the client for. Because the contractor works for the firm, and not for himself, he is not looking to protect his own self-interest once building starts. Since the contractor has been involved from the beginning, there should be no surprises or setbacks once ground is broken. If there are, the Design-Build firm should take responsibility, instead of the contractor telling the client to go back to the architect.
All the decisions regarding the design and building of a project will be taken into account from the very beginning with a Design-Build firm. When using separate design and contractor firms, an architect will simply tell the client what will be the most cost effective design, and then a contractor will decide the most cost effective way to build this design. The schedule of the contractor’s team is not on the architect’s mind, and the contractor may not know the most cost effective materials needed to execute the design. These problems are also eliminated with a Design-Build firm. The experience of the team, quality and availability of materials and schedule of the contractor and construction crews are also taken into consideration from the very beginning of the project. This further streamlines the process, making it quicker and more painless for everyone involved.
Melissa again: Design-Build projects definitely present unique opportunities, and unique challenges. If you are considering entering into a design-build contract, considering a joint venture with a contractor on a project, or otherwise undertaking a corporate organizational change, make sure you have a good lawyer (or three) on board for the myriad issues that such ventures present.
Now it’s your turn: What do you think? Is Design-Build the next best thing since sliced bread? Have you had issues, problems, or good results as part of a Design-Build team? Share your thoughts below.
Copyright Info for Shutterstock Photo: Image ID: 61778761 Copyright: sam100
I have previously discussed the ABCs of Lien Laws for those making claims on a project (that is, architects, engineers, contractors, subcontractors, and suppliers) and the 123s of Lien Laws for project owners. Now, time to learn some new tricks: enter, the Lien Agent.
In case you’ve been hiding in your man-cave waiting for warmer weather to arrive and missed all the hoopla, as of April 1, 2013, North Carolina has a new lien law act. Essentially, for *most* construction projects [there are a few limited exceptions for low dollar work or single family, owner occupied residences], owners will need to file a notice of an entity to be their “Lien Agent”, and contractors will file notices within a short window of starting work. If done correctly, it should keep everyone aware of who is on the project, who is doing what work, and who may have a lien.
The most pertinent part that affects architects and engineers? This:
N.C. Gen. Stat. § 44A‑11.2
(h) When a lien agent is not identified in a contract for improvements to real property subject to G.S. 44A‑11.1 entered into between an owner and a design professional, the design professional will be deemed to have met the requirement of notice under subsections (l) and (m) of this section on the date of the lien agent’s receipt of the owner’s designation of the lien agent. The owner shall provide written notice to the lien agent containing the information pertaining to the design professional required in a notice to lien agent pursuant to subdivisions (1) through (3) of subsection (i) of this section, by any method of delivery authorized in subsection (f) of this section. The lien agent shall include the design professional in its response to any persons requesting information relating to persons who have given notice to the lien agent pursuant to this section. For purposes of this subsection, the term “design professional” shall mean any architects, engineers, land surveyors, and landscape architects registered under Chapter 83A, 89A, or 89C of the General Statutes.
In other words, if the owner designates a lien agent up front, you follow the process and note your involvement for the record.
What if the owner does NOT designate a lien agent up front? You are covered by default, once he does so. And he will do so, as before the owner can get a building permit, he will be forced to designate a lien agent. Nice, right? You have built in protections, and you don’t need to worry about filing a lien and damaging a relationship with an owner if they are slow to pay.
The on-line system for selecting Lien Agents (for owners) and notifying Agents of your work (for everyone else) on a project is LiensNC. A helpful tip sheet produced by the Title Insurance industry walks you through the process.
Many other fine folks have weighed in on the nuts & bolts of how the new system works, so I will not repeat it all here. Instead, let me direct you to a few of these resources (apologies in advance for anyone I may have slighted):
Bryan Scott: A good place to start for a broad overview of what you need to know
For the designer’s perspective, from Matthew Bouchard:
I’m a design professional providing services prior to the execution of a contract for construction. What if there’s no lien agent in placing during my pre-construction performance?
That depends on whether your contract is with the owner or with another design professional. If you are in direct contractual privity with the owner and your contract does not include the lien agent information, the owner is responsible for providing your contact information to its lien agent upon the owner’s appointment of same. If you are a design subcontractor, you should make a written request to the owner for the lien agent’s contact information. By statute, you will have no obligation to comply with the preliminary notice requirements until you receive the contact information you have requested.
I believe that the new lien law will help design professionals, as you no longer have to worry about alienating the owner by filing a lien or risk losing your lien priority. Instead, the lien agent will be as common as a building permit. You will be protected from the beginning with little effort, and without even having to depend on the owner. What do you think?
Comments? Questions? Share you thoughts in the comments box, below.
Photo (c) Seattle Municipal Archives.
Today, we welcome back Christopher G. Hill as guest author. Chris is a LEED AP, Virginia Supreme Court certified mediator, lawyer and owner of the Richmond, VA firm, The Law Office of Christopher G. Hill, PC. Chris has been nominated and elected by his peers to Virginia’s Legal Elite in the Construction Law category on multiple occasions and is a member of the Virginia Super Lawyers “Rising Stars” for 2011 and 2012. He concentrates his practice on mechanic’s liens, contract review and consulting, occupational safety issues (VOSH and OSHA), and risk management for construction professionals.
Chris authors the Construction Law Musings blog where he discusses legal and policy issues relevant to construction professionals. Additionally, Chris is active in the Associated General Contractors of Virginia and the Board of Governors of Construction Law and Public Contracts Section of the Virginia State Bar. Most importantly, Chris’ blog was a personal inspiration to me as I set about my own blog back in 2009. Welcome Chris!
First and foremost, thanks to my pal Melissa for the opportunity to post here at her great blog.
Now that the formalities are out of the way, I will explain the title of this guest offering. When Melissa first contacted me for my thoughts on poor project management from the contractor’s perspective, my first thought on how to avoid causing friction was “Don’t think like an architect.”
Before you flip the switch and head off for another post, possibly even another blog, hear me out. Yes, I know that much of the audience for this piece is likely to be architects and other design professionals. Yes, I know that all of you try hard. But no, not all of you can run a job smoothly when acting as an Owner’s representative on a project (as opposed to designing a great building). I’m here to help with my “musings” (see how I did that?) gained from years of representing the folks that you all seem to think are trying to ruin a project: contractors and subcontractors.
The main thing that both “sides” of this equation need to remember is that you are all in this together. Without your approval, the GC (and by extension the subcontractors and suppliers) on the project won’t get paid. Without the GC and its cohorts, you, the architect, will have to listen to an Owner complain about the pace of the project and the fact that you aren’t running the project how that Owner wants it run. See? All of us are in the same boat.
Failing to row in the same direction (to continue to beat this metaphor over the head) as the GC and seeing the GC as one that seeks to undermine your beautiful and artistic design sensibilities can only undermine those sensibilities. GC’s and subcontractors, if asked nicely early on, can give you great insights into the scheduling, proper materials, and even the best and most efficient building design.
For example, an HVAC subcontractor can help you with the ductwork design in the beginning so that later on you aren’t barking at the GC because the subcontractor requested a change order (now waiting on your desk for approval) due to the fact that a load bearing wall would have to be moved in order for the ducts to go where you wanted them. This minor bit of early discussion avoids the issue and keeps the GC and its subs happy, keeps the project on track and avoids messy things like liens and bond claims.
Failure to consult early and often, in a cooperative manner, leads to grumpy GC’s, ticked off subs, and a project that slows to a glacial pace. This keeps everyone, including you, from being paid.
I could continue to rant, but you are smart folks. You can do all of that engineering type math and all of that geometry and work with CAD that I decided was too hard so I went to law school. You get the point: you and those that perform the construction at your project are not adversaries. Yes, you represent the owner and want to make sure that the building is built right. However, the best way to do this is to consult early and often. Free information flow is the best way to keep everyone happy and everyone paid.
Thanks again to Melissa for letting me rant.
Thanks, Chris. Ranting with a purpose is always welcome on my blog! Readers, it is your turn. Questions, comments, or rants for Chris or me? Comment below.