Category Archives: Contracts

“Professional Best Efforts” part 2– Reservation of Rights for Engineers who agree to “best” efforts? (law note)

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reservedRecently, a reader reached out to me to ask about case examples of an engineer losing his insurance coverage because he agreed to a “heightened” or “best” standard of care. The reader stated that he was an insurance adviser who handled various construction professional coverages, and that in his experience it was very unusual to deny or limit damages because of a heightened standard of care.

This comment led me to an informal survey of several insurance brokers that I deal with, and the general consensus is that instead of outright denying a claim, most E&O insurers will issue a “reservation of rights” letter. What that means is that the insurance company will defend the claim (i.e., pay for your lawyer to defend you and your Firm), but with the understanding that they are (potentially) denying any liability for any adverse money judgment against you.

Inevitably, most such cases settle, but if they do not, the question then is whether the heightened duty created part of the damages. The insurer may ask to intervene in the lawsuit to ask the jury that question, in an effort to limit its share of the damages.

The reader commented that he could see two related insurance limitations: (1) where the professional agreed to be liable, and (2) where the professional refused to consent to settle a claim. In such cases, many policies contain a “hammer clause” which limits the insurer’s liability and defense costs to that which would have resulted had the insured accepted the settlement.

While these are interesting fact situations to the insurance and/or law geeks among us, for those of you who would rather spend your days designing and engineering instead of in court,  the best practice still remains the same:  avoid agreeing to the highest professional standards. Being the “test case” for a novel legal issue is not in your best interest.

Thoughts? Comments? Experiences in such situations? Share in the comment section or drop me an email.

Changes to your Scope of Services on the Construction Project (law note)

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change!Our office is in the middle of a large renovation.  It’s been several months of drilling, sawing, painting, carpeting– you name it.  I’m proud to say that we have had not one change to the scope of work during that time.  <insert maniacal laughter here>.  Okay, that’s simply not true.  Change–like death, taxes, and bodily functions–happens.

In the same way that incoming wave will soon destroy that sand-written “change” sign in the picture that accompanies this post, change will happen in all parts of a construction project.

As the architect or engineer of record, you undoubtedly have a thoughtful, well-written contract or proposal.  Ideally, your contract states exactly what is, and is not, included.  But inevitably, something will slip through the cracks.  A likely scenario: the owner asks for “just a small change over here,” “one more quick site visit” over there, and hey, what’s a few extra months of contract administration among friends, right?

Whenever you experience such “scope creep”, document it.  Ask how compensation will be handled up front.  Even a quick email to the owner, stating that you’d be happy to make that extra site visit and will invoice per the contract, will make the owner aware that you expect compensation.   Have the discussion before the work is done.  When they are likely to say “great- how soon can you do it?”.  Or, if they don’t expect to pay you for your extra services, they’ll tell you that.  Either way, you’ll know what the expectations are for payment.  And, should you not get the payment later on, you have a nice piece of written evidence to show a judge or jury.

Your turn.  Have you experienced “scope creep” on a project?  How did you handle it?  Comment below, or drop me a line.  New readers: Check out the white paper on 7 Critical Mistakes that Design Professionals Make, available for free download on the right hand side of the page.

 

Photo “Change in the Sand” (c) Melissa Brumback. Creative Commons License

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

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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.

Can You Change the Scope of Work? Not in a bidding situation! (reader comment)

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biddingSetting the Right Expectations for Owner Clients is a must, as I recently wrote in my post discussing Scope of Work clauses.

According to construction consultant Tony Frisby,* scope of work issues are more important than general conditions in the management of a project.

Tony notes, however, that it is not always possible to change Scope of Work clauses in every situation:

“For example, if bidding on advertised procurement, any modifications in the bid may very well be a basis of rejection as non-responsive; the subcontractor is bound the same rule as to the scope of work in the general contract.  In negotiated contracts, two step and design build, of course, the contractor can delineate modifications or exclusions.

In subcontract agreements, we recommend that a Scope Letter do exactly what you have indicated, with emphasis on duties by others, such as hoisting and services provided by others.  Obviously, we recommend the deletion of ridiculous clauses such as No Damages for Delay.”

Tony’s point is a valid one– those dealing with a Bidding situation cannot change the Scope of Work.  Most architects & engineers enjoy more flexibility here than contractors, and can work on scope of work as part of an Request for Proposal response.  Tony’s point about subcontractor agreements is equally applicable to agreements with subconsultants as well.

* Tony Frisby specializes in prevention and non-judicial resolution of construction disputes.  He also assists companies in organizational improvements.

Agree? Disagree?  Share your thoughts with Tony and me, below.

Photo credit: Financial Times via Creative Commons license.

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

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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.