Engineering Archives - Page 2 of 10

Document Retention: More Paper or Paper-Less?

By Lynda

Which is better, more or less documentation in your project file after the job is complete? Despite recent advances in technology, document retention has become a difficult, expensive and complex proposition. Computers have changed design professionals’ work flows and methods, greatly increasing efficiencies, but also exponentially multiplying the volume of data; e-mails, attachments, drawing revisions, text and voice messages, not to mention folks are still sending faxes and letters, actual paper ones. All of this adds up and can become an unmanageable mess, even for the best of us.

Making decisions now about which project documents to keep and which to discard is like trying to pick who will win the Super Bowl in the year 2024. You never know which ones will be the most important until you are right in the middle of a claim. Experience and common sense tell us that there are certain documents that, no matter what, are probably safe bets to come in handy down the road. You may also be required by law or contract to keep certain records for certain time frames.

This article will offer suggestions on those categories of critical project documents necessary to defend claims, and which ones are better off being discarded as a matter of course after project completion. The question ultimately is framed as “what to keep and for how long?” Of course, these are only suggestions, and you should discuss implementation of any document retention program with your chosen legal and accounting advisors in your specific jurisdiction. Further, this article only addresses retention of construction project documents and not corporate, HR or tax records.

“Age of Discovery”

Modern construction projects, with all this data, are subject to modern lawsuits. These lawsuits are conducted by increasingly younger, tech savvy and sophisticated lawyers who sometimes make the litigation more about the discovery effort than about the facts of the case. Parties are allowed to submit detailed and specific “requests for production of documents” once in the lawsuit, or issue subpoenas to non-parties. State and federal court discovery rules could require parties to turn over copies of all information they have in their possession related to the project. Continue reading “Document Retention: More Paper or Paper-Less?”

Raising the Federal Gas Tax: A Debate

By Lynda

America’s federal highway system–once a source of great national pride–is disintegrating. Why? For one thing, it’s been 20 years since the Federal Gas Tax was last raised. President Ronald Reagan increased the tax to just over 18 cents a gallon, reminding the American people that the federal highway system required an ongoing source of income for maintenance. The Highway Trust Fund–where the Federal Gas Tax is collected–provides funding for road, bridge, and mass transit projects across the country. Today, it’s running out of money. Should this tax be raised?

It’s an important question, and if you’re not sure where you fall on the issue, here’s a fun place to start…

Intelligence Squared US hosted a debate in October wherein a panel of four experts, two on either side, addressed this motion: Raise the Federal Gas Tax to fund infrastructure.

“There are many arguments for a leaner fund, among them, the idea that scaling back the program would force government to prioritize projects and eliminate waste. But proponents of the tax say that it still plays a vital role in supporting infrastructure, and that perpetual shortfalls have led to construction delays and uncertainty. Should Congress raise the federal gas tax?”

Listen to the podcast for free either on the website or download via iTunes.

Managing Employee Benefits: A Three-Legged Stool of Protection

By Lynda

For many design firms, the ability to offer and maintain competitive employee benefit programs continues to be one of the keys to attracting and retaining the best available talent. Yet, the regulatory and legal environment within which these benefit plans are being designed and administered is more complex than ever. Not only are there ERISA issues, but there is a literal alphabet soup of COBRA, FMLA, HIPAA, etc. With this greater complexity and heightened scrutiny comes risk: risk for the company itself, and the executives and administrators responsible for overseeing and administering the benefit plans.

The good news is that the risks are manageable and design firms with employee benefit programs can take advantage of a three-legged stool of insurance protection – Employee Benefits Liability Insurance, ERISA Bonds, and Fiduciary Liability Insurance. Many executives and administrators are confused about what each of these covers and whether or not they need them. This article will explain how each coverage evolved and what specific exposures they address. We also examine some risk scenarios based on actual litigation.

Employee Benefits Liability Insurance

Employee Benefits Liability insurance (EBL) very simply provides protection against claims arising from errors in the administration of employee benefit plans. This coverage was developed in the mid-1970s largely in response to exposures that arose from the 1962 court decision in Gediman v. Anheuser Busch. In this case, an employer was held accountable to the estate of a former employee for providing incorrect information to the health insurance company, which then in turn denied the employee’s claim. Thus, EBL insurance addresses claims arising out of errors or omissions in the administration of benefit plans. Three typical exposure scenarios covered by EBL insurance include:

An employer failing to properly enroll an employee for health insurance coverage, resulting in a denial of coverage.
An employer not providing an employee with the appropriate COBRA information after termination, resulting in the ex-employee being unable to continue participating in the health insurance plan as required by law.
An employer incorrectly calculating the amount of an employee’s pension benefit so that the employee decides to retire early only to find that the amount is much less.

Continue reading “Managing Employee Benefits: A Three-Legged Stool of Protection”

Boxouse: Young Americans Turn to Alternative Housing

By Lynda

Signs of recovery in the American housing market–in architecture, engineering, construction, real estate–are increasing. Yet, in 2014, the market saw a new, disappointing record:

The number of homeowners under the age of 35 hit its lowest point ever.

Home ownership has long been synonymous with the American Dream. But where are the young people in this game? Some have turned to alternative housing solutions.

Pacific Standard magazine recently blogged the experience of Luke Iseman, a 31-year-old graduate of the Wharton business school, who lives in a white shipping container on a small lot in West Oakland. Driven from the traditional urban housing market as a renter by exorbitant rates in San Francisco, and holding more than $60,000 of student loan debt, Iseman is putting his burgeoning business savvy to good use for himself and others with the establishment of an alternative housing start-up called Boxouse. Continue reading “Boxouse: Young Americans Turn to Alternative Housing”

To Report or Not To Report? A Potential Claims Question…

By Lynda

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…”

The Design Professional in the Age of BIM: Things that change; things that don’t.

By Lynda

Seen 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.”

Construction Observation: Important Risk Management Service

By Lynda

Construction 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”

Waiver of Subrogation: A Valid Defense for Architects and Engineers?

By Lynda

An attorney is asked to defend an architect in a claim for defective design of a geothermal HVAC system, which allegedly caused an explosion and several million dollars of property damage to an owner’s manufacturing facility. He reviews the file, making notes. The plaintiff is the owner’s casualty insurer, which has paid the claim and sued the general contractor in subrogation. It’s actually the general contractor who has named the architect as a third-party defendant, seeking contribution and indemnity. All sorts of interesting defenses present themselves: statute of repose (work was completed years ago), no common law indemnity claim, no negligence…but what about the contracts for the original project?

Contained within the AIA A201 General Conditions is a boiler plate “waiver of subrogation” clause. It appears to bar subrogation claims for damages covered by insurance on the property. The owner’s carrier picked up the tab, so how can it sue in subrogation now? Are these waivers of subrogation provisions enforceable?

Since the project is in North Carolina, our inquiry starts with a 1987 North Carolina Court of Appeals decision, St. Paul Fire & Marine Insurance Company v. Freeman-White Associates, Inc. The case involves an architect who performed design services for a Charlotte, North Carolina hospital. During construction, a wing of the hospital collapsed, causing significant property damage. The hospital’s insurer paid the claim under an “all risk” policy and then sued the architect in subrogation. The agreements between the parties to the construction incorporated the AIA A201 General Conditions, including its standard waiver of subrogation clause, and the clause was applied by the trial court to dismiss the complaint against the architect under Rule 12(b)6. Unfortunately, on appeal, the court of appeals declined to enforce the waiver of subrogation provision and reversed the trial court’s dismissal.

The rationale? The appeals court held that because the contract required the architect to provide coverage for its own errors and omissions, the contract was susceptible to two interpretations: 1) the true intent of the contracting parties was that the owner would waive all claims for damages against which the owner had insured itself; or 2) the contracting parties intended for the architect to insure against its own negligence in order to negate the waiver as to losses caused by the architect’s negligence.

Not a great result for the client. However, St. Paul Fire & Marine Insurance Company v. Freeman-White Associates, Inc. is a 1987 decision. Surely there has been some better law made since then…

Waiver of Subrogation in General in Construction Contracts

“Subrogation is the substitution of [one person or entity] to the position of another, an obligee, whose claim he has satisfied…” Thus, in the insurance context, the doctrine of subrogation allows an insurer who has indemnifed its insured to step into the shoes of its insured and sue any at-fault party which may have caused the damages. The right of subrogation may arise by equitable, common law principles, or by virtue of any express assignment in the insuring agreement. The policies underlying subrogation are appealing: 1) it feels “fair” that the ultimate liability for a loss should land on the wrongdoer, not an insured’s insurer; 2) in theory, subrogation should keep insurance premiums down; and 3) parties remain incentivized to avoid mistakes. In addition, fault-based claims in the midst of construction can cause delays and increased hostility during the project. Costly litigation would ensue, the avoidance of which was one of the purposes for which the property insurance was originally obtained. Continue reading “Waiver of Subrogation: A Valid Defense for Architects and Engineers?”

Are You Accepting Too Much Liability on Your Construction Project?

By Lynda

The following is a re-post from the Southeast Construction Law Blog:

Contractors, subcontractors, and A&E firms all face differing levels of liability on construction projects. Managing that exposure is a key to maintaining profitability and ensuring your business is protected.

One issue I consistently see in my practice is companies taking too much liability for their scope of work on a project. For example, what should the liability of a subcontractor be who has a small $25,000 subcontract on a $15 million project? Should the subcontractor be liable for any and all damages?

Many subcontract agreements state that subcontractors are responsible for “any and all costs” caused by a subcontractor’s delay or interference with any portion of the work. While each party should be liable for damages it causes, this determination is never as clear as it seems.

General contractors (and sometimes owners) often control the timing, means, and methods of how a subcontractor performs its work. In those situations, it is difficult for me to explain to a subcontractor that it is liable for everything it does on site. Even so, many subcontractors’ feet are held to the fire for delay costs in the hundreds of thousands or millions of dollar range when their contract was initially very small.

Architecture and engineering firms face a similar dilemma. Many times A&E firms are brought into lawsuits in the millions of dollars when their scope of work may have been small. I have seen a civil engineer sued for $12 million when it performed a $1,600 staking job on a project.

In addition, A&E firms face a different challenge. Even if an architect or engineer prevails on the claim, the A&E firm has likely spent thousands of dollars in attorney’s fees, all chargeable to the A&E under the deductible in the Professional Liability Insurance policy. Continue reading “Are You Accepting Too Much Liability on Your Construction Project?”