The following is the introduction to Design Professionals and the Dodd-Frank Act, the January 2014 issue of ProNetwork News:
On September 18, 2013, the Securities and Exchange Commission adopted the final rule under the Dodd-Frank Act regarding the registration of municipal advisors. The new rules were published in the Federal Register and became effective on November 20, 2013. This article will provide a general discussion of how the Dodd-Frank Act and the final rules may impact engineers and other design professionals providing services to non-federal governmental clients. You should seek legal advice for your specific situation as this article only provides general information and is not intended to provide legal advice or interpretation of the Act for particular situations.
“Engineers providing engineering services” are specifically excluded from the statutory definition of “municipal advisor” set forth in the Dodd-Frank Act.1 As such, engineers do not need to be registered as municipal advisors provided that they are not giving advice or making recommendations regarding municipal financial products or the issuance of municipal securities. Unfortunately the Act provides no clear line of demarcation of when an engineer’s advice or recommendation falls outside of the “engineering services” exclusion. The final rule does provide some guidance as to the scope of the engineering services exclusion. Unfortunately, the exact location of the line separating permitted engineering advice from advice requiring the engineer to be a registered advisor remains blurred.2 We suspect it will take several years before enough real world situations are evaluated by the SEC to provide effective guidance of how the SEC will interpret the statutory engineering exclusion. Unfortunately, this clarity will likely develop through the court system as suits are filed alleging that engineers crossed the line into giving prohibited advice on projects where the revenue streams or operating costs do not match the projections. Consequently, until the line is clarified, we recommend a cautious and conservative approach.
However, the SEC provides a number of examples to assist in clarifying the intent of this exclusion. Permitted activities that may fall within the scope of the exclusion for “engineering advice”:
1) feasibility studies, cash flow analyses and similar activities “provided that the engineering exclusion does not cover activities in which an engineer provides advice to a municipal entity or obligated person regarding municipal financial products or the issuance of municipal securities.”
a. Example: An engineer who provides funding schedules and case flow models that anticipate the need for funding at certain junctures in a project that are based on considerations involving engineering aspects of a project (e.g. projections on output capacity, utility project rates, project market demand, or project revenues, that are based on considerations involving engineering aspects of a project);
b. Example: An engineer who provides feasibility studies based on analysis of engineering aspects of the project such as a feasibility study that includes a discussion of how much power might be generated by the installation of solar panels, or about how to increase power output based on factors such as the placement of the panels or the number of panels;
c. Example: An engineer who provides estimates of water delivery capacity or a road’s traffic capacity;
d. Example: An engineer who reports on the physical condition of infrastructure, such as roads, bridges or water and sewer systems;
e. Example: An engineer’s use of assumptions provided by a municipal entity regarding interest rates or debt levels in preparing an engineering feasibility study or cash flow analysis alone may not result in giving municipal advice.
f. Example: An engineer can typically advise a municipal entity about whether a project could be safely or reliably completed with the available funds, and provide engineering advice about other alternative projects, cost estimates, or funding schedules;
g. Example: An engineer who informs a municipal entity of potential tax savings, discounts, or rebates on supplies may be acting within the scope of the exclusion; and
h. Example: giving out, non-particularized, general information (That is: information of a factual nature without subjective assumptions, opinions or views; information that is not particularized to a specific municipal entity or type of municipal entity; information that is widely disseminated for use by the public, clients, or market participants other than municipal entities or obligated persons; or general information in the nature of educational materials).
*All footnotes are located at the end of the newsletter.
This has been an excerpt of the January 2014 issue of ProNetwork News. Download the full PDF version of this newsletter to continue reading. You can visit the a/e ProNet website for free access to the full library of this risk management publication. For early access to these excellent newsletters, or if you have questions about what you’ve read here, contact your local a/e ProNet broker today.
About the Authors
Tom Waggoner and Drew Seaman are principals with Straub, Seaman & Allen, P.C., in St. Joseph, Michigan. Thomas F. Waggoner received his undergraduate degree from Indiana State University and his Juris Doctorate from the University of Notre Dame Law School. His areas of concentration include construction matters, Owner/Engineer agreements, specifications, Green Building certification and design/build matters. He has presented lectures and seminars to various industry groups including the AIA and the NSPE. Drew F. Seaman, a founding member of Straub, Seaman & Allen, P.C., received his B.A. degree in Architecture from Iowa State University and his law degree from Washington University in St Louis. His practice focuses on the representation of Architects, Engineers and Surveyors. He is a frequent speaker at risk management seminars for design professionals.
