Source: https://www.propertycasualty360.com, May 20, 2019
By: Lawrence Moonan and Laila Santana
It’s inevitable. Every project is bound to have a glitch or two. Big or small, there are far too many moving parts on virtually any job site to cover every issue.
These challenges have become even more glaring in an environment that increasingly employs design/build as a project delivery vehicle. Historically, when design/bid/build was the pre-eminent project delivery method, the roles of the design team and the contracting teams were clearly defined. Everyone knew where their responsibilities began and ended and there was little overlap. Unfortunately, that’s no longer the case as the lines between design and construction continue to blur. In addition, expediency is now a key expectation of the project owner, which increases the potential for professional liability claims to occur.
Accordingly, design professionals need to plan ahead. Although some challenges are unavoidable despite due diligence, others are actually quite easy to foresee with the proper forethought. Never ignore the warning signs. Don’t be blinded by the potential rewards.
Even relatively minor problems can negatively affect the bottom line or even prove financially ruinous. This is especially true for small to midsize design firms that can’t afford the cost overruns, the hit to their reputations or even the consequences of lengthy court battles. Caution is essential for not only prospering in this highly litigious marketplace, but also staying afloat once challenges arise.
Here are several tips to help eliminate the potentially bad deals and disastrous outcomes that can derail a design firm:
The rise in liability claims currently plaguing today’s construction industry is not coincidental. Often, they follow the need or desire of contractors or design professionals to take on projects without the proper experience or ability to deliver on the contractual demands.
Under certain design/build circumstances, the contractor could be the client, which can create an entirely different dynamic than when working directly with an owner. Trust your judgment. Do your homework. Don’t work with anyone that has a questionable background or work history. Be wary of contractors that are more concerned with the bottom line than with design integrity.
Understanding the contractor’s priorities, expectations and prior experience are all-important considerations. Underwriters give preferential treatment to design firms that demonstrate a sound strategic approach to client and project selection.
Design/build project delivery methods should spur innovation and collaboration. Nonetheless, you never want to be left holding the bag when tragedy strikes. Carefully choose and review all contract language. Every agreement should be carefully worded to clearly define each participant’s services and the associated risks.
Be sure that insurance requirements are reasonable and proportionate to the size of the project and the amount of your fee. Most design/build contracts are geared more toward trade subcontractors rather than the customized role of the design professional.
In addition, indemnity provisions may be onerous or include the requirement to defend other parties. Be prepared to push back on terms that don’t properly reflect the scope of the design firm’s services or overstate the assumption of liability.
Clearly document and amend contracts during the course of projects to properly reflect the expansion or reduction of the efforts rendered. Also, if you are the prime consultant and have subconsultants, make sure the subconsultant agreements are consistent with the agreement provided by the design/build contractor.
The failure to control escalating demands without the guarantee of additional fees or the assurances needed to protect against the accompanying risks are two dangerous profit killers. Don’t perform activities previously eliminated during the contracting stage unless those services and their fees are renegotiated and clearly defined in writing.
Furthermore, don’t accept assignments that stretch beyond your firm’s expertise. If your skill set lies in residential building, maybe it’s best to think twice before taking on the design of a massive healthcare complex. This is even more imperative if your company is unfamiliar with the pitfalls of working within a design/build environment in which a contractor is leading the project.
In certain instances, there are providers that have conditioned policyholders to expect negative outcomes when problems are reported to the insurance company. The design profession, however, has been the exception given the industry’s propensity towards reporting pre-claim matters or “circumstances” and actual claims in a timely fashion to insurers. This should always be the rule and never the exception.
Problems or potential claims should be reported as soon as possible. In such instances, insurance companies have a vested interest in working with their insureds to either rectify the situation or mitigate the damages. Some even offer early reporting incentives and cover the costs for pre-claim assistance.
Design professionals have earned a well-deserved reputation for solving problems. But the line has to be drawn when claims arise. Always enlist the advice and aid of professional brokers and insurance companies when that angry phone call or demand letter arrives.
Also, design professionals should never negotiate claim issues covered by their professional liability insurance. The effort could actually nullify the coverage, leaving the insureds to fend for themselves.
Mistakes happen. There’s no way around it. Unfortunately, this is just the reality on almost any jobsite. Nonetheless, there are numerous ways to limit the damage. Think ahead. Watch for the warning signs. And never attempt to resolve issues on your own.
Lawrence Moonan is executive vice president, chief operating officer at Berkley Design Professional, a Berkley Company. He can be reached at LMoonan@berkleydp.com.
Laila Santana is executive vice president, chief claims officer, Berkley Alliance Managers, a Berkley Company. She can be reached at firstname.lastname@example.org.