Agree to use your “professional best” ? You may lose insurance coverage! (law note)

mistakesYesterday, I was part of a panel at the NC Bar Association Construction Law Winter Meeting, discussing insurance issues for design professionals.

One topic we touched on was how to avoid invalidating your insurance.  As most of you know, Errors & Omissions insurance (“E&O” coverage)  is meant to provide coverage for mistakes you may make in performing your professional architecture or engineering services.  E&O coverage is important to protect you in the event of a lawsuit because, as you know, no set of plans is perfect (nor is perfection the standard of care).

Be careful, though.  Do not promise to provide a higher standard of care than the “professional standard“.

If you are asked to sign a contract that states you will use your “professional best,” “best efforts”, “highest care” or similar, you are being asked to sign something that could cost you your E&O coverage.

Examples of such language:

[Architect] [Engineer] shall perform the Services in accordance with the highest standards of professional competence in the industry.

[Architect] [Engineer] shall exercise a high degree of care and diligence in providing the professional services.

Architect’s] [Engineer’s] services shall be of first class quality and free from defects.

E&O policies cover you for failing to meet professional standards, but not in cases where you agree by contract to provide a higher/better/best standard. 

Explain the risks in such language to your owner clients.  No owner will want to put your insurance policy in jeopardy, and they should be willing to strike or modify that language to ensure that your work on the construction project is fully protected and covered by your E&O policy.

Some examples of coverable standards:

All services to be performed shall be performed in a manner consistent with that level of care and skill ordinarily exercised by members of Designer’s profession.

All services shall be performed in a manner consistent with that level of care and skill ordinarily exercised by members of Designer’s profession currently practicing in the location of the project for which the services are rendered, or similar locations.

Remember this, and make sure your future construction contracts contain favorable language that will actually be insurable.  You know– the whole reason you have professional liability insurance in the first place!

Have you ever been asked to agree to provide your best efforts?  How did you handle the situation?  Share in the space below.

Orders of Precedence in Construction Contracts, and the conflict between architects and contractors

duking it outA few years back, we discussed the Orders of Precedence clause in Construction Contracts.  I wrote a post talking about how having such a clause in a contract can help the parties navigate in the grey areas where specifications and drawings may disagree.

My post generated a follow up guest post from Phil Kabza, a MasterSpec specialist, on what he saw as the problems with an order of precedence clause in truly protecting all parties to the contract.

This week, Phil’s guest post generated a new, and thought-provoking (flame-provoking?) comment from “Joe GC”.  Joe writes:

It is another very typical situation of the Architect and Engineer doing a poor job and then trying to seek relief of their error at the contractors expense. Phil’s comments are based on the fact that all contractors are not ethical, which is simply not true. If the subcontractor is the expert, then why are the drawings and specifications prepared by Architect’s and Engineer?

This is exactly why Design Build delivery methods are becoming more popular by the day.   Single source responsibility from someone who really is an expert, not someone who has a lot of education and therefore purports to be an expert.

In otherwords in laymen’s terms “If I have to verify everything you draw and specify Mr. Architect, then why do I need you in the process at all”? If you are not responsible for the review of the submittals then why do I need to send them to you? No more “approved” stamps just “reviewed” stamps; it’s becoming a joke!

When will the Design Community wake up? That is why so many Architects and Engineers are now finding themselves working for contractors.  You are responsible for the Design Mr. Architect, it is cut and dry, simple as that, not rocket science and you do not need to be AIA or P.E. to understand it.

AIA needs to do more training, especially when it comes to spending time in the field. They need to understand what they are designing, just as the contractor needs to understand what he is building.  They have never seen it that way because they think they are above the contractor or smarter than the contractor.

Until they learn they are not better or smarter because of classroom education things will not be improving and the lawyers will continue to be the most successful.

 

Interesting perspective as to why Design Build is becoming more popular.  I think Joe is correct that Design Build is more popular now, but I think it has less to do with concerns about design professionals avoiding liability and more to do with the economic value in having the “buck stopping” at one single entity.

Is there a perception that designers are classroom educated but not field trained?  Is it a fair one?  Share YOUR thoughts with Joe and me, below.

 

Is your design professional construction contract too friendly? (law note)

not friendlyMy 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):

not friendly sign

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.

Photo (c) Melissa Brumback  Creative Commons License

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!not want to hear

 

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.

 

Photo credit.

Design-Build Advantages for Construction Projects (guest post)

Design-Build where contractors and designers work togetherToday 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

Copyright © All Rights Reserved · Green Hope Theme by Sivan & schiy · Proudly powered by WordPress