Transcript The Five Commandments of Managing Architects and

Willis A&E
THE Architects & Engineers Insurance Experts
The 5 Commandments of
Risk Management For the
Design Firm
Willis A&E
Exclusively dedicated to A&E for over 30 Years
Professional Liability Specialists
Over 500 Design Firm Clients
Offices in over 120 Countries
Full-Service P&C and EB Independent Agency
In-House Claims Expertise and Advocates to our clients
Contract Review and Negotiation support
AIA Certified Education Provider
Risk Management Education – Webinars, Resource Library and Seminars
www.WillisAE.com
Willis is a Certified AIA
Education Provider
If you would like to obtain AIA credits for
participating in this course, please complete
the AIA Credit Request form found on our
website at www.WillisAE.com
This program is registered with the AIA/CES for
continuing professional education. As such, it
does not include content that may be deemed or
construed to be an approval or endorsement by
the AIA of any material of construction or any
method or manner of handling, using,
distributing, or dealing in any material or
product. Questions related to specific materials,
methods, and services may be addressed at the
conclusion of this presentation.
Willis A&E’s 5
Commandments
1) Contracts are thy friend
2) Thou shall not assume liability above the
standard of care
3) Thou shall define thy scope
4) CYA with CA
5) Thou shall document – Wisely!
The Cost of a Claim
•Deductible out of pocket expense
•Potential loss in excess of available limits
•Insurance costs for firms with poor loss history
•The emotional stress and hassles of a claim
•Loss of client relationships
•The significant distraction to your firm’s practice
•Your firm’s reputation
Risk Management 101
•You can transfer your risks by insurance.
•You can transfer your risk by contract.
•You can assume and control your risk.
•You can avoid risk.
You better be doing all of the above.
True or False
The standard of care for Architects and
Engineers is perfection.
Insurance/Liability 101
The liability of a Consultant is based on the
principles of negligence.
The liability of a Contractor is based on warranties
and guarantees.
Professional liability insurance covers a Consultant
for their negligence and contractual E&O.
General liability insurance covers bodily injury and
property damage.
Who Sues A&Es
(the most)?
A.
Third Party
B.
Owner/Client
C.
Contractor
Who Sues A&Es?
Third Party
% of Claims Dollars
Owner/Client
% of Claims Count
Claim by Contractor or
Subcontractor
0%
10%
20%
30%
40%
50%
60%
70%
Comparative Claims
Experience
Claim Dollars
Claim Count
Fees
Other
Electrical
Mechanical
Structural
Civil
Architect
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Where are most claim
dollars spent?
A)
Claims due to economic loss
B)
Claims due bodily injury
C)
Claims due to property damage
Types of Damages
Economic Loss
Property Damage
% of Claims Dollars
% of Claims Count
Bodily Injury Other
Bodily Injury Construction
0%
10%
20%
30%
40%
50%
60%
Frequency and Severity by Project Type
Wastewater/Sewage treatment plant or system
Malls, shopping centers, retail stores
Residential condos (new)
Single Family residential subdivisions
% of Claims Dollars
% of Claims Count
Single family residence
Schools through grade 12
Other
Comm/Ind <= 9 stories
0.0%
16
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Why Are Condo Projects The
Riskiest Project Type?
1. 3rd Party Exposures
2. Emotionally Charged exposure
3. Multiple potential claimants
4. Single purpose LLC
5. Developer client
6. Plaintiff attorney
7. HO Association
17
True or False
Very few professional liability claims stem
from non-technical aspects of a design
practice.
The Top 4
Non-technical Contributors
1. Negotiation and Contract
2. Client Selection
3. Project Team Capabilities
4. Communication
Negotiation and Contract
Issues
Unclear and
inappropriate
scope of
services
26%
Client-authored
agreements not
reviewed by
senior
management
8%
Deal-breakers in
contract
4%
Scope of
construction
phase services
not employed
12%
Lack of
mediation
clause in client
agreements
4%
Contract not in
place before
work began
8%
Contract not:
--The firm's own
--Reviewed by
counsel
--Based on
industry
standard
8%
Did not formally
evaluate project
and associated
risks before
contract signed
30%
Client Selection Issues
Other
16%
Client not
paying design,
contractor fees
10%
Client history of
claims and
litigation
16%
No formal
review of client
10%
Contractor
selection: QBS
vs. fee shopping
22%
Client in poor
financial
condition
10%
Client not
knowledgeable
in
project/design
issues
16%
Project Team Capabilities
Issues
Unqualified onsite staff
assigned to
project
4%
Inexperienced
project manager
34%
Unqualified
design staff
assigned to
project
45%
Territory of
project outside
of firm's normal
territory
4%
Other
9%
Insufficient
number of staff
4%
Communication Issues
Project issues and
potential disputes
not handled
correctly
8%
Project staff not
aware of their
responsibilities
10%
Scope of services
were not clearly
explained to client
4%
Other
4%
Lack of procedures
to identify or
address conflicts,
omissions or errors
64%
Lack of
documentation
regarding changes
in scope
10%
True or False
The use of absolute words, such as any, all,
complete, final can impose absolute
conditions on you that may be impossible to
meet.
True or False
Personnel policies have very little to do with
a design firm’s risk management profile.
True or False
A simple letter agreement gives the design
professional all the protection needed for
small projects.
True or False
You should always try to get a clause in your
contracts that requires arbitration as the first
step in the dispute resolution process.
True or False
Use of the word Supervise can imply you
have control over a jobsite - and thus
responsibility for safety.
True or False
A design professional can amend the
contract after it is signed simply by virtue of
his or her conduct.
True or False
Performance of construction observation on
your projects can reduce your exposure to
claims.
True or False
The Prime A&E, and all their sub consultants,
should be named on the GC’s GL policy on a
primary and non-contributary basis.
True or False
Documentation is overrated.
#1
Contracts Are Thy Friend
•Agreements are the best vehicle the A/E has
in establishing expectations and educating
their client.
•A verbal agreement is worth the paper its
written on
•It is much more difficult to negotiate the
terms of the agreement after the work has
started
•Know your agreements. Make sure your staff
does too.
Thy Contracts Continued
•Have standard terms and conditions with
key words/phrases– use as a baseline for all
negotiations
•Get your attorney or broker to review
unfamiliar wording
•Learn how to negotiate
•Know the “deal breakers” and “deal makers”
•Remember, nobody benefits from an
uninsurable agreement
#2
Thou shall not assume liability above the
standard of care
Define the standard of care in your agreements:
“In providing services under this Agreement, the
Consultant will endeavor to perform in a manner
consistent with the degree of care and skill ordinarily
exercised by members of the same profession
currently practicing under similar circumstances”
NOTE: Legal Standard of Care is minimum a
reasonable designer would do.
Standard of Care (Continued)
•Liability over/above standard of care= potential
uninsured exposures.
•Don’t warrant/guaranty/certify success of the
project.
•Don’t agree to “perform to the highest
standard”.
•If possible, establish a contingency fund
•Educate your client
#3
Thou Shall Define Thy Scope
Important: Your scope of services should be
clearly defined and consist of three parts:
1)Services performed for a basic fee;
2)Services that are available for an additional
fee;
3)Services that specifically excluded because
the client has refused them, has agreed to
have them performed by another party or
because the consultant does not provide
them.
#4
CYA with CA
•Construction observation is important in reducing your
exposure to claims.
•Observation versus Inspection
•….shall visit the site at intervals appropriate to the stage of
construction (avoid “periodic”)
•The purpose of construction observation is NOT to “guard the
owner against all defects” or to “ensure strict conformance with
the contract documents”.
•Your contract should clearly describe the extent of your CA
services.
•In the event you are not responsible for CA your contract
should be clear in holding you harmless.
•EVERY agreement should include a clause stating that you are
not responsible for job-site safety and means and methods.
…more CYAing…
•Your contract should clearly describe the
extent of your CA services.
•If not responsible for CA your contract
should b clear in holding you harmless.
•EVERY agreement should include a clause
stating that you are not responsible for jobsite safety and means and methods.
#5
Thou Shall Document - Wisely
Every firm should have clear procedures regarding
documentation
Forms of documentation:
1. Executed agreement
2. Certified mail
3. Memo to file
The Dark Side of
Documentation
•Documentation is a double-edged sword
•Beware of documenting anything regarding
site-safety or means & methods
•Beware of email AND voicemail
•Beware of field notes
•Beware of brochures bragging to be “better
than the best”
It Ain’t Easy Being Green
•Use of innovative products and techniques
can often heighten risk to the design firm.
•Need for sophisticated maintenance and
untested/unknown life span of materials –
and benefits
•Warranty versus negligence based
exposures.
•Owner’s definition of “Green” may vary…
•Don’t warrant or guarantee anything.
Contract Negotiations
Deal Makers & Breakers
•Mediation
•Hazardous Materials
•Jobsite Safety
•LOL – waiver of consequential damages
•Ownership of Instruments of Service
•Termination (one sided)
•Assignment (without your consent)
•Certifications, Guarantees and Warranties (by you of virtually
anything)
•Indemnities (not limited to your negligence, or defend obligation)
More Makers & Breakers
•Insurance (containing unattainable requirements)
•Jobsite Safety/Construction means, methods,
techniques, sequences or procedures
•Getting Named on GC’s GL!
•Liquidated Damages
•Permits and Approvals - “assist” only!
•Lender Requirements - mandatory cooperation
clauses
•Stop Work Authority
True or False
To help keep legal fees down, it is important
to wait as long as possible before reporting a
problem to your professional liability
insurance carrier.
THANK YOU!
Dan Buelow
Managing Director
Willis A&E
312-288-7189
[email protected]
Willis Tower
Chicago, IL 60606