ConstructionTradeContractors

The appropriate classification of employees is a frequent source of confusion for design firms, usually coming up around the renewal of a firm’s Workers’ Compensation policy. It is an issue ripe with risk on an Employment Practices level. Recent court rulings in Arizona and Utah have resulted in construction firms paying hundreds of thousands of dollars in back wages, damages, and penalties.

As explained on the Schinnerer Risk Management Blog:

In an age of rising benefit costs and other constraints on the operations of professional service firms, some firms are turning to a range of tactics to reclassify workers to take them off the formal payroll and, therefore, lower their costs and administrative burdens. However, doing so may subject the employer to state and federal employment law fines and penalties.

All this is happening against the backdrop of a broader shifting of risk from employers to workers, who are shouldering an increasing share of responsibility for everything from health insurance premiums to retirement income to job security. While the future might present a model where everyone is truly an independent contractor and neither those actually providing services nor those using the services have any continuing or controlling interest in each other, such a situation does not currently exist and any firm that thinks it can avoid employment responsibilities, tax obligations, or employment practices liability needs to carefully consider alternatives to hiring workers.

Regulators and courts have increased their scrutiny of the relationship between business entities and independent contractors. Alleged misclassification of workers has been one of the primary battlegrounds of this shift, leading to high-profile lawsuits.

For decades, some professional service firms have shifted work from employees to independent contractors to cut their overhead and labor costs and, at times, to qualify for special government procurement assistance. Often, this has been accomplished by relabeling workers and slightly altering the conditions of their work. And some professional service firms have simply ignored regulatory and tax guidance and “informally” used the services of professionals and clerical workers as “consultants” or “leased personnel” or “temps.”

Now, however, businesses—including design firms and construction contractors—are turning to other kinds of employment relationships, such as setting up workers as owners of limited liability companies (LLCs) in an attempt to shield the businesses from tax and labor statutes. In response, some state and federal agencies are aggressively clamping down on such arrangements, passing local legislation, filing briefs in workers’ own lawsuits, and closely tracking the spread of what they see as questionable employment models.

Visit the Schinnerer Risk Management Blog to continue reading.

If you have questions about the appropriate classification of your employees prior to your next workers’ compensation renewal, contact your local a/e ProNet broker. We’re happy to help!

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Before a design professional decides whether or not to report a professional liability claim, or circumstance out of which a claim might arise, he or she must understand the definition of a claim, circumstance and what is required of them under their policy. The pros and cons of reporting or not reporting a claim are more fully explored in this Practice Notes.

Why Firms Neglect to Report Claims

From an insurance provider’s point of view, it seems that design firms faced with a claim (or a potential claim) too often come close to jeopardizing their professional liability insurance (PLI) coverage. Many firms resist calling their insurance provider to report the matter or ask for advice. Their reasons tend to fall within one of four categories:

Ignorance. They do not realize what their policy requires of them when they are presented with a claim or possible claim.

Fear. They fear the black mark on their claim history more than they fear the claimant.

Denial. They believe that ignoring the problem will produce the best result.

Resolve. They have read their policies, understand the risks, embraced that the issue exists andafter this careful analysis, choose not to report.

Know Your Terminology

Claims

It is critical that insurance policyholders understand their duties, responsibilities, and benefits under their PLI contract. One of the duties is to report all claims promptly.

What defines a claim? Most policies refer to it as a “demand for money or services.” So the telephone call from the angry client asking you to pay for damages they believe they have suffered as a result of your professional services would rise to the definition of “claim” under most policies.

Why is this definition important? Remember, you must report claims promptly. Failure to meet your obligations under the insurance policy may jeopardize your coverage.

Possible claims

It is important to know how your insurance policy defines a “claim” versus a “possible claim.” Possible claims typically do not rise to the definition of “claim” but could become one. Policies generally define possible claims as “a circumstance from which you reasonably expect that a claim could be made.”

Are you required to report these instances to your insurance company? Maybe. Most policies read, “if you report a circumstance,” but some state, “you must give written notice.” The circumstance provision in most policies goes on to say that if you follow the reporting requirements, “then any claim that may subsequently be made against you arising out of such circumstance shall be deemed to have been made on the date the insurance company received written notice of the circumstance.”

With some policy forms, firms have a fair amount of discretion on whether to report a “circumstance,” unlike the requirement that you promptly report all claims. Keep in mind that most PLI policies for design firms are claims-made, which means that insurance cove rage is not retroactive to an unreported occurrence. Continue reading “To Report or Not To Report? A Potential Claims Question…”

PNN_1407The construction phase is a dynamic time of a project and a design professional’s involvement is significant from a risk management perspective since it allows the design professional the opportunity to provide input during the construction of the project.  Since no designs are perfect (and, moreover, are not expected to be perfect to still meet the standard of professional skill and care), all designs require some level of interpretation that is best done by the design professional who created them.  During construction, the design professional can visit the jobsite to determine if construction is proceeding in general accordance with the plans and specifications and clarify the design intent when necessary.  This article addresses issues design professionals should consider if they provide services during this phase.

Do you have the resources?

The firm must have sufficient staff to devote to this important phase of the project.  The services during this phase require experienced professionals who know how to handle themselves on the jobsite and how to successfully complete tasks in the office.  If junior professionals perform construction phase services, the firm must ensure senior professionals are available to (and actually do) mentor the junior staff.  A successful mentoring program requires regular and meaningful communication between junior and senior staff who need to be proactive to nurture the mentoring relationship.  Mentoring is a two-way street:  it will not be effective if busy senior professionals do not devote time to advance junior professionals’ development and junior staff must take the initiative to seek out senior staff for guidance.

What does your contract say?

Industry standard documents have relatively balanced language regarding the construction phase.  However, design professionals are often faced with a client-

proposed document that may not include appropriate language for the design professional’s involvement in the construction phase. Continue reading “Construction Phase Services: Considerations for a Successful Outcome”

Wortham_logoJust as nobody wants to think about insurance until they need it, nobody wants to spend their time thinking about things like Crisis Management Plans. But, as with insurance, the only way a Crisis Management Plan can be useful to you is if you have established one before the crisis comes.

One of our members, Wortham Insurance & Risk Management, recently published a Risk Management Bulletin on OSHA Inspections, and it’s relevant to this precise consideration.

Who are you going to call? When the OSHA inspector shows up or a serious accident occurs at your worksite… who are you going to call? If you answered Ghostbusters… you may be in trouble. May I suggest having a system in place that outlines the procedures to be followed in the event of an emergency or OSHA inspection?

Based on the nature of the risk for construction operations it is very important for every organization to have a Crisis Management Plan which includes how to deal with governmental agencies.

What is a crisis? An explosion, a worker fatality, a bad truck accident, a hurricane? All of these can potentially be a crisis. So, when is a crisis reached? When questions arise that can’t be answered. (Kapuscinski 1932) The key to crisis management is to know the answer to the questions before they happen.

When it comes to an OSHA inspection the process should be no different.

Develop policies and procedures so all parties know the law and their individual responsibilities. The goal is to make the inspection process go as smooth as possible while maintaining control of the environment as much as possible. If you are prepared this will create a positive impression for the compliance officer and result in fewer citations for the organization.

To continue reading this valuable bulletin, including sections on knowing your rights and making a reliable plan for OSHA inspections, download the full PDF of the newsletter here.

PNN_1405Seen any changes the past thirty years in the delivery of professional design services?  Sure, you have—particularly in the area of construction documents. Raised stools and drafting tables, pounce, and lead-darkened calluses on the middle finger of the draftsmen have, for the most part, yielded to CAD. Although CAD’s promise of error-free drawing may have proven elusive, many of its other promises have been fulfilled. Some even appear understated in hindsight—in part because CAD and the Internet seem to have been made for each other. Their combined effect reduces trying to list all the ways CAD has changed project delivery to a futile exercise.

Like CAD in the ‘80’s, BIM seems to hold similar promise today—a fact not lost on contractors, A/E’s, and project owners alike. Digital models are more-and-more often offered or requested as “deliverables.”  And multiple models for the same project are not uncommon—as building team participants explore their usefulness at various stages of design and construction. Some models are used much like enhanced CAD construction documents, provided and controlled largely by the A/E. But many incorporate data contributed by sources other than licensed design professionals, including suppliers, fabricators, contractors, and subs. Not surprisingly, many contractors and construction managers view BIM as a means for carving out an increased share of the project delivery pie—and are taking full advantage of it as both a marketing and performance tool. Some of them have even become the primary creators and custodians of digital models. Of course, that is not altogether unnatural. After all, it’s hard to ignore a tool that can show what will be built—and also to be useful in actually building it. Continue reading “The Design Professional in the Age of BIM: Things that change; things that don’t.”

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Sometimes the grounds for termination are absolutely clear. And sometimes several legal options are available. But when preparing to terminate a subcontract, there’s one more question to ask: Is this the right business decision? We turn to Burns Logan’s Southeast Construction Law Blog for the answer.

The following is an excerpt from a September 2014 post on the blog titled Subcontract Termination: Not for the Faint of Heart:

After a few weeks of poor performance by the stucco subcontractor, my client and I sat down to determine all the possible avenues to resolve the issues. The first thing we did was pull out the subcontract which controlled the stucco subcontractor’s work. We wanted to be sure that the subcontract included all the necessary provisions to allow my general contractor client to remedy the situation. Some of the common default provisions in subcontracts include:

  • failure to prosecute the work promptly and with due diligence;
  • failure to prosecute the work in a workmanlike and safe manner;
  • failure to supply proper supervision;
  • failure to properly staff the job;
  • failure to supply materials and equipment of proper quality and quantity;
  • failure to promptly correct defective or deficient work;
  • failure to pay sub-subcontractors or suppliers;
  • failure to maintain the project schedule as directed by the contractor; and
  • failure to submit proper progress and completion schedules.

We found that this subcontractor had violated many of the standard default provisions in my client’s subcontract. Therefore, we felt we had the proper authority to issue notices of default.

Continue reading “Subcontract Termination: The right business decision?”

chicagobean

Dozens of a/e ProNet members from across the country are gathering in Chicago this week for the annual fall meeting. They will be joined by representatives from several top tier professional liability insurance companies and a few major design industry organizations, including the AIA, NSPE, and ACEC.

Over the course of three days, members will receive presentations from the following insurance carriers: Beazley, Ironshore, HCC, Victor O. Schinnerer, Axis, Catlin, Hanover, RLI, All Risks, Liberty, Travelers, Navigators and Arch. These presentations will help inform the specialist brokers of a/e ProNet about industry trends, policy language changes, new coverage opportunities, and the like. It will also give our members a chance to ask questions and make suggestions pertinent to their own clients.

Along with insurer presentations, there will also be ample opportunity for the brokers to network with one another, alerting the group to trends around the country and problem solving in the collective.

To open the week, the Board of Directors will meet, and to close, Kent Holland of Construction Risk will present to the membership on the second edition of a/e ProNet’s Risk Management and Contract Guide for Design Professionals.

constrobservationConstruction observation is a powerful weapon for architects and engineers (A/E) in their risk management arsenal. Certain clients understand the benefits when A/E firms offer construction phase services. However, driven by slow economic conditions, many clients are asking firms to do more, with less, including reducing or eliminating construction phase services. Other clients decide they will administer the construction contract themselves or decide to use a third party instead of the A/E firm. Clients have also held the A/E to a higher standard of care when providing construction observation services. How do these actions affect A/E firms?… It significantly increases the A/E’s risk and liability exposures.

Construction Phase Risks

Details in design documents cannot anticipate every contingency that may occur during the construction phase. If the A/E firm of record is not retained to provide clarification of the plans and specifications the risk of misinterpretation of the contract documents increases. Bad decisions can lead to project confusion, delays, increased costs, disputes and claims between the owner and the A/E.

The exposure of the A/E is increased due to certain owners and contractors asserting that the designer has a similar responsibility of the contractor for discovering all defects on the project. Based on this distortion and unrealistic expectation of construction observation services, owners and contractors have stated the A/E should be a guarantor of the contractor’s work. These expectations dramatically increase the A/E’s standard of care and risks associated with construction phase services. Court decisions have ruled in Owners’ favor holding that the A/E has a duty to guard the owner against all non-conforming work on the project, although much of that work was completed when the firm was not present on-site. Members of the plaintiff’s bar continue efforts to hold the A/E accountable for this higher standard of care for construction phase services. Continue reading “Construction Observation: Important Risk Management Service”

wooden gavel and books on wooden table,on brown background

The following is an excerpt from a recent Gordon & Rees LLP article entitled California Supreme Court Holds Principal Architects Owe Duty of Care to Future Homeowners:

On July 3, the Supreme Court of California published its decision in Beacon Residential Community Assn. v. Skidmore, Owings & Merrill. In short, the court concluded that prime architects designing residential buildings owe a duty of care to future homeowners even though they do not actually build the projects themselves or exercise ultimate control over their construction.

Of importance, Beacon involved a demurrer at the trial court level meaning that, on appeal, the Supreme Court was required to accept the facts pled in the plaintiff’s amended complaint as true. This included the allegation that the Beacon project’s designers provided their services “knowing that the finished construction would be sold as condominiums.” It also was claimed that the defendants played an active role throughout the construction process, including coordinating efforts of the design and construction teams, conducting weekly site visits and inspections, recommending design revisions as needed, and monitoring compliance with design plans. For their various services, the designers were reportedly paid $5 million. The plaintiff alleged that negligent design work resulted in several defects, including extensive water infiltration, inadequate fire separations, excessive solar heat gain, structural cracks, and other safety hazards…

Although not a total loss for the design community, Beacon will have the effect of expanding architects and engineers (A&E) liability to a broader spectrum of claimants and generally keep A&E defendants in lawsuits for longer periods of time.

For an explanation of the court’s decision, including a concise summary of the affects of the ruling on Architects and Engineers, visit the original Gordon & Rees post by attorney Dion N. Cominos.

Complex precedents like this are just one of the reasons why A&Es are best served by consulting specialist brokers about their Professional Liability insurance needs. Does your current professional liability insurance policy include pre-claims assistance? How about the latitude to choose your own council in the event of of a claim? Call your local a/e ProNet Broker and get answers to these questions today.