drone

They offer a bird’s eye view of construction sites. They provide breathtaking photographic opportunities for architects looking to showcase their work. And they’re fun to fly. However, while they may be intriguing tools for architects and engineers, drones open up the design firms that use them to many possibly unanticipated risks. These days, obtaining a drone is as simple as stopping at your local WalMart, but all drones are not created equal, nor are all drone pilots equally skilled and certified.

Victor O. Schinnerer’s Risk Management Blog recently offered an overview of this issue. Should your design firm use a drone in your administration of contracted services? Read on:

“Professional service firms have to be aware that the use of drones is not a simple transition in the process of observing the work on a project site. As with web cameras, drone cameras often produce far more images than are used in the evaluation of a project. If not properly denoted in a contract, the scope of the firm’s services could include the use of all the available images as part of the firm’s duty to observe and evaluate the project as part of construction contract administration duties.

“Additionally, while licensed drone operators are undoubtedly careful about having general liability insurance that protects others from their negligence in aerial activities, and follow the FAA’s rules and guidelines, many firms using drone photography are doing so as amateurs. Turning hobby activities into commercial uses is likely to be unlawful, dangerous, and uninsured.”

Continue reading Drone use can put firms at risk beyond their knowledge by Frank Musica

pronetengineeringscholarshipAttention engineering students! This year, a/e ProNet has partnered with the American Council of Engineering Companies (ACEC) to offer a brand new scholarship:

The a/e ProNet Engineering Scholarship
Award: $2,500
Deadline: March 7, 2016

Eligibility

Students must be entering their junior, senior, fifth, or master’s degree year, in the fall of 2016 to qualify for the general scholarships. In addition, a student must be a U.S. citizen pursuing a Bachelor’s or Master’s degree in engineering or in an accredited land-surveying program to qualify.

Bachelor’s students must be in an ABET-accredited engineering program; Master’s students must either be in an ABET-accredited Master of Science (MS) engineering program, or have a Bachelor of Science (BS) degree from an ABET-accredited engineering program.

You can find the ACEC Scholarship Application here.

For more information, visit the ACEC website’s scholarship page.

The scholarship will be administered by the ACEC, and a/e ProNet member Mark Jackson of JCJ Insurance Agency in Orlando, Florida will serve as our representative on the committee. Good luck to all applicants!

PNN_1505Many design firms attend risk management training sessions and implement certain practices based on an industry trend or project claim. Other firms may only concentrate on contracts and insurance coverage’s as a risk management strategy, which only addresses a portion of an effective risk management program. As they say – “you cannot manage something that is not measured.” With that said, the first question should be:

How effective is your risk management program?

An excellent method in answering that question is determining a design firms risk profile. Similar to how an insurance carrier underwrites and creates a premium for every design firm, each firm also has a different risk profile based on their unique characteristics:

 

 

• Background
• Staffing
• Experience
• Services
• Claim activity
• Project types
• Clients
• Geographic region
• Risk Management
• Business Practices
• Other features

Another way of thinking of a risk profile is similar to a physical examination performed by a doctor. The doctor will examine each individual in similar areas such as – blood pressure, blood work and physical evaluations in determining someone’s overall health. A risk profile does the same thing in assessing key categories of risk for a design firm. When I have evaluated “higher performing design firms” the first step they apply is an assessment. With this information, higher performers make decisions for improved performance and risk reduction to ensure effective practices are applied for meeting the business needs of the firm, clients, and projects.

Industry Risk and Relevance to Your Firm

One important point for managing risk is assessing the softer side of a design firms practice – business and practice management efforts. These areas routinely drive a majority of claims and litigation against design firms, approximately 60 – 75%. Do all design firms apply the same business and practice management efforts? Obviously the answer is no. Design firms apply various methods, techniques, practices, etc., with some more effective than others. With that said, a one-size fits all risk management approach is not very effective in addressing the specific needs of any design firm. Continue reading “How Effective is Your Risk Management Program?”

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!

Gearing up for EdSymposium15

EDS15_Logo_Only_no_wordsDesign firms depend on a set of very important people to keep their businesses running smoothly: office administrators. These folks “manage, market, advance, streamline, protect, and regulate firms in the A/E/C industry,” according to Natalie Newman, current President of the Society for Design Administrators (SDA).

At the SDA’s upcoming national meeting in Golden, Colorado–EdSymposium15 (October 8-10, 2015)–a/e ProNet will be in active attendance. On Friday, a/e ProNet President Eric Moore, CIC, of Moore Insurance Services, will make a keynote presentation:

Your Application Matters – How to Influence Premiums for the Better

It is important to understand what underwriters and insurance carriers look for when renewing a professional liability application/submission. In this presentation, attendees will learn how to better understand the underwriting process, how information is presented on the application, and improve their understanding of limit and deductible options when making the decision to purchase coverage.

Eric Moore, CICEric Moore specializes in providing risk management and insurance services to Design Professionals, including Architects, Engineers, Environmental Consultants and Land Surveyors.

a/e ProNet will also sponsor lunch on Friday, and our Executive Director, Dave Johnston, will be present to answer questions about our organization and how we can be of service to design administrators.

Lots of other exciting topics and activities are on the conference agenda, including a talk on Cyber Security and a chance for attendees to go rock climbing! We wish all SDA members safe travels and an enjoyable conference.

PNN_1503In the world of claims-related contract clauses for design professional agreements, the indemnity and defense clauses get all the attention.  However, lurking in the shadow of the indemnity clause is a menacing cousin with potentially even greater and more frequent impact and risk:  the prevailing party attorneys’ fee clause.  Both clauses share the common risk that they are often not covered by professional liability insurance because each represents a contractually-assumed liability which would not exist in the absence of the contract.

The indemnity clause draws the far greater attention because that obligation and exposure often arises during the claim by way of the defense obligation, as opposed to the attorneys’ fees clause which ultimately comes into play definitively only after a final judgment.  Moreover, many design professionals (and especially their CFOs) are attracted to the prevailing fees clause as a means of effectively collecting unpaid fees.  Without such a clause, they worry that the expense of pursuing collection of unpaid fees will eat up much of the ultimate recovery.  Accordingly, it has some initial positive appeal.

However, that appeal is limited in perspective and overlooks the far greater potential negative impact of the prevailing party attorneys’ fees clause in the context of a professional liability claim which is the all too common response to even justified actions to recover unpaid fees.  As opposed to the indemnity and defense obligation, the prevailing party attorneys’ fees clause will apply far more frequently.  The indemnity and defense clause applies only where the client itself is facing a third-party claim.  By contrast, the prevailing party attorneys’ fees clause will generally apply to every client dispute, regardless if third parties are involved.  Since the majority of claims against design professionals come from the project client, that makes it far more likely and relevant. Moreover, where professional liability issues are involved in the dispute, the presence of the clause may actually dilute the design professional’s fiscal advantage. Specifically, absent the perceived panacea of the prevailing party attorneys’ fees clause, design professionals frequently hold a superior financial advantage during claims by virtue of their insurance which will fund defense costs as compared to the client claimant which is often left to fund the costs of litigation from their own resources. The unfortunate reality is that pacified by the promise or potential to recover their attorneys’ fees at the end of the dispute, many client claimants and their attorneys incur far more than they would absent that prospective reimbursement—even to the point of incurring multiples in expense beyond the prospective recovery. Even if the claim is largely defeated or reduced, even a minimal net recovery may establish the client as the prevailing party entitled to recover the attorneys’ fees incurred in the action.

Whether expressly stated as such, or not, it is important to recognize that a prevailing party attorneys’ fees clause is almost always a two edged sword equally available to both parties. As a matter of consumer protection, nearly every state has statutes which refuse to recognize one-sided attorneys’ fees clauses and automatically convert the clause into a bilateral clause entitling and exposing each side to the benefits and burdens of the clause. (See for example Oregon Revised Statute 20.096 and Florida Statute Section 57.105(7).) Accordingly, a clause which purports to entitle the design professional to recovery of its attorneys’ fees in pursuit of its fees will most often to create and equivalent right of recovery in the client for contract related claim.

Whether proposed by the client or by the design professional, prevailing party attorneys’ fees clauses are a common component of many commercial contracts, including design professional service agreements. An unqualified prevailing party attorneys’ fees clause is almost never a good idea for a design professional. Where such a clause is proposed, the following five options present a descending structure of preferred approaches. In proposing or negotiating any of these five options, frequently the best rationale in support of these approaches is that any dispute should focus on resolution of the dispute and not arming the lawyers for battle.

This has been an excerpt of the March 2015 issue of ProNetwork News, titled Prevailing Party Perils: Attorney’s Fees’ Clauses in Professional Service Contracts. To continue reading about the five preferred approaches to dealing with an unqualified prevailing party attorneys’ fees clause, click here to download the full PDF version of our newsletter for free.

About the Author

David A. Ericksen is a principal shareholder in and immediate past President of the law firm of Severson & Werson in San Francisco, California, and leads the firm’s Construction and Environmental Practices. For over twenty years, Mr. Ericksen has specialized in the representation of architects, engineers, construction managers, design-builders, and other construction professionals. Mr. Ericksen’s expertise covers all aspects of such professional practice as lead litigation and trial counsel, as well as being an active resource for risk management, strategic planning, and transactional matters. He is a trusted and valued resource to design and construction professionals and their insurance carriers across the United States and beyond. He has been repeatedly recognized as an industry leader, including being named a Construction “SuperLawyer” for the last eight years. He is a graduate of Boalt Hall School of Law, University of California, Berkeley, a former law clerk to the Washington State Supreme Court, and a member of and resource to numerous construction and environmentally-related professional organizations. Mr. Ericksen is a frequent speaker before construction professional organizations such as the AIA, SEA, ACEC, CSI and others, as well as providing in-house training seminars for firms.

DesignBuildRisk management best serves design professionals when it’s put in place prior to the acquisition of risk. Not damage control strategies, but damage avoidance strategies. In the case of design-build projects–arguably some of the riskiest in the business–this preemptive management of risk should include a number of questions asked by all parties involved. Among those questions: How should the design-build project be structured?

At Victor O. Schinnerer’s most recent Annual Meeting of Invited Attorneys, Jonathan C. Shoemaker, of the Lee & McShane law firm, answered this question and others based on his own research “on the contractual and professional risks of participants in design-build projects.”

According to Shoemaker, there are many ways “to structure design-build teams, including teaming agreements, joint ventures, partnerships, and newly-formed companies owned by the design-build team.” The following is an excerpt from a post on the Schinnerer website:

[Shoemaker] defines the organization of a design-build team as either a vertical relationship (e.g., a traditional prime contractor/subcontractor organization) or a horizontal relationship. And he points out that the vast majority of design-build teams are contractor-led, with the design firm serving as a subcontractor to the contractor.

According to Shoemaker, a horizontally structured relationship is where a contractor and a design firm come together to form a joint venture, a partnership, or a new company to provide fully integrated design-build services. He defines the most common horizontal structure, the joint venture, as “a business undertaking by two or more persons engaged in a single defined project.” A joint venture structure typically includes:

joint control over the joint venture’s decisions (as opposed to the prime contractor having control);

liability for the joint venture’s losses (as opposed to liability for only the design professional’s losses);

and profit sharing (as opposed to only the profit earned under the design agreement).

Shoemaker also examines the risks to the design professional on a design-build project and discusses how the risks vary depending on the design firm’s involvement.

Visit the Schinnerer website to read the entirety of the post.

PNN_1501For 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:

  1. An employer failing to properly enroll an employee for health insurance coverage, resulting in a denial of coverage.
  2. 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.
  3. 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”

drugs_alcohol

Compared with many other industries, the Engineering and Architecture community has a relatively low abuse/dependence rate (7.9%) on any substance, and alcohol is the substance these design professionals are most likely to be dependent upon. This is according to a 2010/2011 national survey completed by the Substance Abuse and Mental Health Services Administration.

“Coping with substance abuse and dependence is a big enough challenge on its own, but balancing both an addiction and a career can pose an even bigger struggle. The impact of drug abuse on workplaces is astronomical, costing the United States $120 billion in lost productivity in 20071. Alcohol abuse is similarly widespread, with 15% of American workers reporting being impaired by alcohol while at work at least once during the previous year2. And the effect on safety can be potentially catastrophic: Employees involved in accidents were more than four times as likely to test positive for opiates3. So what are the patterns of substance use across America’s industries?” — Treatment4Addiction.com

You can visit the Treatment4Addiction website for analysis and presentation of the survey data. As you’ll see, while Design Professionals rank mercifully low on this list, Construction Trades & Extraction Workers rank unfortunately high (17.4%), with “heroin as their most disproportionately used substance. Their widespread abuse of a powerful opiate may reflect the prevalence of chronic back pain and untreated injuries in the field.”