FAQ Archives - Page 5 of 6

Building Commissioning: Process Types & Definitions

By Lynda

Excerpted from the August 2012 issue of ProNetwork News:

Commissioning is a quality-oriented process for achieving, verifying, and documenting that the performance of facilities and systems meets defined objectives and criteria. It is a quality-based method that is adopted by the building Owner to achieve successful construction, and it is not intended to be an additional layer of construction or project management. When applied comprehensively, the purpose is to reduce the overall cost of a construction project and increase long-term value to the building owners, occupants, and users, better ensuring reliability of performance.

New Building Commissioning (Cx)

The purpose of New Building Commissioning (Cx) is to facilitate and verify proper system performance of a new building. The Process begins at project inception (during the Pre-Design Phase) and continues for the life of the facility (through the Occupancy and Operations Phase).

Why should Building Commissioning be done?

ASHRAE performed a study of 60 commercial buildings and found that more than half suffered temperature control problems, 40% had problems with HVAC equipment and one-third had sensors that were not operating properly. Amazingly, 15% of the buildings were actually missing specified equipment.

The Commissioning Process is intended to reduce the project capital cost through the first year of operation. It also reduces the life-cycle cost of the facility. By utilizing this process a fully functional, fine-tuned facility is provided, with complete documentation of its systems/assemblies, and with operators and maintenance personnel fully trained.

Building commissioning is of greatest value to the owner when it provides a means of continuously communicating their building systems criteria and rigorously verifying compliance with them, throughout the many phases of design and construction.

Prior to design, the Commissioning Authority (CxA) will assist the Owner in evaluating the facility’s requirements regarding such issues as energy conservation, indoor environment, staff training, and operation and maintenance. Continue reading “Building Commissioning: Process Types & Definitions”

Getting Paid For Design Services

By Lynda

The last few years have been challenging for many design firms. Adding fuel to this fire, many firms are having difficulty obtaining payment for their services. In a recent and ongoing SmartRisk Survey: 81% indicated trouble with getting paid. Successful account receivable programs do not have to be time consuming or daunting. By implementing some straightforward practices, a firm can implement an effective program that gets invoices paid on time along with maintaining a positive relationship with clients.

Establishing Financial Expectations. In an initial meeting with clients, explain in a clear and concise manner exactly what your services will be and the value you bring to the project, along with clearly stating your compensation terms. Your communication should be clear in establishing the financial expectations with the client. At this face-to-face meeting, you will obtain a sense of the client’s financial capability and ability to pay for your services. If you don’t get that warm and fuzzy financial feeling, this is the time to walk away.

Contract Agreement. The boundaries discussed at the initial meeting should be outlined in the contract agreement. Include a specific scope of services for the project, associated fees, expenses and cost of additional services. In basic terms, the agreement should explicitly state your client owes you money for services you will be rendering. The agreement should also specify the terms of payment, including any payment in advance of services. Continue reading “Getting Paid For Design Services”

Employee or Independent Contractor?

By Lynda

The differentiation between employees and independent contractors is an issue which comes up regularly for Architects and Engineers, especially with regard to Workers’ Compensation insurance, where the two categories are rated differently, therefore impacting a company’s premium.

So what is the difference between an Employee and an Independent Contractor?

Generally, a person is considered an employee if the employer retains the right to control the manner and means of the work they perform (i.e., provides the work space and tools, controls working hours). An employer only controls an independent contractor with regard to the result of his work and not with regard to the means by which the result is accomplished. It is important to remember, however, that this definition is often left vague in state insurance statutes, and open to the interpretation of the courts. Contact your insurance broker if you need help making this determination about one of your workers. Continue reading “Employee or Independent Contractor?”

Is there such a thing as a Standard Contract?

By Lynda

The most common refrain I hear when talking to clients about Contract Review and Administration is: “I only sign a standard contract.”

Most clients feel there is no reason for contracts to be reviewed prior to signing, because they only sign a standard contract. Unfortunately, the only standard contract I ever see is one in which an owner or client uses and wants their consultants and contractors to sign. Ironically, one of the few things that makes any contract a “standard contract”…is the omni-present and onerous broad hold harmless/indemnity and defense clause.

Contract Review and Administration is probably one of the most important aspects of a prudent risk management and loss prevention program. A contract that any Contractor or Consultant signs should identify their rights and responsibilities to the owner and third parties. All of this should be determined at the “request-for-proposal” stage. If done here…it allows the Contractor or Consultant to identify, evaluate and treat the risks in the Owner or Client standard contract. Please remember that no one is putting a gun to the Contractor’s or Consultant’s head when he or she signs the contract; so it’s absolutely essential that the Contractor or Consultant knows what he is signing and what his rights and responsibilities are when negotiating for future work.

The prudent Contractor or Consultant should discuss all contracts with their counsel and agent before signing. Some general practice tips to consider when reviewing contracts are:

Scope of services: Think about whether the contract is exactly what you thought is was going to be in terms of encompassing more or less services, added responsibilities or services outside your area of expertise. It is also wise to describe things you are not doing to reduce the potential for misunderstandings.
Change orders: Find out if the Owner is allowed to change the scope of work once under way, and, if so, under what conditions. For instance, look at what input or options you have and what time frame you have to consider this.
Warranties and Guarantees and Performance Standards: First, you have to know if there are any. Try not to assume any and don’t agree to unreasonable ones…if you must assume any! Don’t forget that all professional liability policies exclude the assumption of liability policies which turns out to be a warranty or guarantee or performance guarantees.
Compliance with all laws, regulations, etc.: These responsibilities can be difficult to live up to since no one knows what all the laws, regulations, ordinances, rules, etc. are, much less how to comply with all of them. Continue reading “Is there such a thing as a Standard Contract?”

Your Company’s Auto Liability – What’s Covered? What’s Not?

By Lynda

Other than Professional Liability claims, Auto Liability claims are the largest exposure faced by Architecture and Engineering firms.

If your design firm is small to mid-sized, often “a standard BOP (Business Owner’s Policy) is sufficient to meet your property and casualty coverage needs. A BOP combines the basic coverage requirements a small to medium sized business owner would need in a package.” Those insurance companies that understand the specialized needs of design firms sometimes combine certain coverage enhancements within their standard BOP. These enhancements can include extended coverage for architectural models, a waiver of subrogation (as is often required by project Owners during contract negotiations), and even some limited Auto Liabilty coverage.

“If your firm does not own any autos, the BOP can usually include ‘Hired and Non-Owned’ auto liability coverage. This would pay for damages to a third party, on behalf of your company, if an employee causes an accident while using a rented car or the employee’s own car while on company business. This addresses liability to others, but what about damage to the rented car? Some but not all insurers will provide this protection in a BOP; it’s usually referred to as Hired Physical Damage coverage.”

Our latest ProNetwork Newsletter, Your Company’s Auto Liability – What’s Covered? What’s Not?, focuses on the necessity of this coverage. A coverage which, if both architect/engineer and broker aren’t careful, can be overlooked at renewal time.

What does Hired Physical Damage cover? And why/when would you need this coverage?

Your star employees requests permission to attend a conference hosted by your state professional society. The conference is about 200 miles away. Public transportation isn’t an option; therefore, with an eye toward keeping expenses down, your employee decides to rent a car to drive to and from the event in one day. He asks you about taking out the rental car company’s insurance coverage. You mean to call your insurance broker, but, pressed for time, you decide that the BOP must cover this and you know that the extra insurance from the rental company would cost anywhere between $15 and $50 for the day.

Tragically, on the way home, your employee swerves to avoid some large debris in the roadway and inadvertently hits an oncoming car with a young adult driver and three co-workers who were headed home from a client’s golf outing. No one is killed, and fortunately your employee walks away unharmed. The other four, however, are not as lucky. All four are hospitalized, miss time from work, and require significant rehabilitation. Both vehicles suffer total loss.

To read about the outcome of this “doomsday scenario,” and to understand how Hired Physical Damage coverage can help, download the full PDF version of our newsletter here.

ProNetwork News is the latest value-added resource produced by a/e ProNet. Each monthly edition includes an informative, timely article relevant to the design industry and authored by an industry expert. Contact your a/e ProNet broker for early access to these excellent newsletters.

About the Author: Barbara Sable is Assistant Vice President for RLI’s Professional Services Group. She is responsible for developing the content of RLI’s risk management programs and addressing the day-to-day needs of policyholders. RLI is an a/e ProNet Platinum Sponsor.

FAQ Arising out of Contract Negotiations

By Lynda

Contract negotiations can be tough, and this is especially true for Architects and Engineers (A/Es). When an A/E is hired by an Owner who lacks prior experience with the nuances of a design professional’s insurance policies, or when an A/E is hired by a contractor (rather than by another design professional), misconceptions and poorly worded Insurance Requirements can fuel adversity in the negotiation process.

The easiest way to avoid deadlock is for the A/E to ask questions of their insurance brokers in advance, thus preparing themselves to educate the other interested parties about the realities of an A/Es insurance coverage. Some frequently asked questions which arise in these negotiations are:

The Owner/Contractor wants to be added to my Professional Liability policy as an Additional Insured. Why can’t I add Additional Insureds to my Professional Liability (E&O) policy?

“A common misunderstanding about E&O insurance involves a client’s desire to be added as an additional insured and to gain a defense through the E&O policy. A/Es cannot add additional insureds on their E&O policies because the other entities are not providing services on behalf of the firm. E&O insurers will not provide this coverage, thus a contractual obligation to do so becomes an impossible situation for the A/E. E&O policies typically also have an ‘insured versus insured’ exclusion in which there is no coverage for claims between insureds. If a client became an insured under the E&O policy, the A/E would not be covered for the client’s claim.”

What does indemnification mean?

“To ‘indemnify’ does not mean that a claimant can profit from the A/E’s errors or negligence – it means that the claimant should be restored to the position they were in prior to the loss; they should be ‘made whole.’ As an example, if an A/E failed to specify interior doors on a new office building, the owner/client would not get ‘free’ doors as damages, but would instead be indemnified for additional expenses caused by adding the doors after the bidding process (e.g. additional shipping, extra installation charges, increased cost of the materials ordered at the later date, etc.).”

The Owner doesn’t want there to be a Contractual Liability Exclusion in my Professional Liability policy. What is a Contractual Liability Exclusion and does my policy have one?

“Yes, E&O policies also contain a ‘contractual liability’ exclusion which will not cover liability assumed by contract unless liability would exist absent the contractual undertaking.This exclusion is meant to protect the A/E from overextending themselves in an effort to protect a client.

“It is worth noting here that an Architect or Engineer does not have corporate protection (no ‘corporate veil’) from personal liability arising out of the performance of professional services. When considering the severe risks they may be assuming when providing design services, it is no wonder that the Architects and Engineers take contract negotiation and insurance coverages very seriously.”

Portions of these answers have been excerpted from one of our ProNet Guest Essays, this one titled Architects’ and Engineers’ Insurance — What does it cover? The essay, authored by a/e ProNet Member Diane Hoskins of Wortham Insurance & Risk Management, goes on to answer several other FAQs. Download the full PDF version here.

How to Choose a Professional Liability Insurance Broker

By Lynda

Recently, Bizjournals.com published an article on How to choose an Architect. The author stressed that the hunt for the right architect should include obtaining recommendations from friends and colleagues, calling a potential architect’s references, and studying his or her previous projects to ascertain quality and sustainability.

This process isn’t news to architects. Every job bid opens an architect’s firm and history to scrutiny, and that’s all part of an owner’s due diligence. What architects and engineers might not consider is that this logical due diligence should extend to them in the selection of their own insurance broker(s).

Remember, “Not every attorney can deal with the problems you are likely to find yourself faced with in professional practice; not every doctor can perform heart surgery; not every insurance broker can deliver the professional liability loss prevention and insurance services you need. Knowing this, it would seem to make sense for you to spend a certain amount of time searching for a broker capable of responding effectively to the unique requirements of your firm.”

a/e ProNet has put together a guide to finding the best specialist insurance broker for your design firm. Authored by David Lakamp, the founder of a/e ProNet, this guide addresses the qualities and qualifications you should require of the broker handling something as important as your Professional Liability policy. The following is an excerpt from our ProNet Practice Note titled How to Select a Professional Liability Insurance Broker:

Your professional liability insurance broker can deliver services of great value. This is as it should be, for you are paying for those services. Carefully selected and advantageously used, your broker can be as important to the management of your practice as your accountant or your attorney. Poorly selected and ill-equipped to advise you on the risks of professional practice, your broker may add little more of value to what you do than the cost of a few postage stamps at renewal time. The choice is yours.

There are many people in the insurance business, but finding the one broker best for you can be somewhat problematic. For one thing, your broker can be of real help to you only if he or she has a comprehensive understanding of what it is you are all about. Not all do. For another, the most valuable services your broker can deliver require an investment of time and resources few are prepared to make. Fortunately, there are knowledgeable brokers throughout the country who have made that investment. Your challenge is to find one you can rely on with confidence.

What a Good Broker Can Do For You

Your broker, first and foremost, is your advocate in the professional liability insurance marketplace. A good broker will know what the markets are doing, who the underwriters are, what they are looking for, and how to present your firm in the best possible light. This requires a thoroughgoing knowledge of the applications for insurance and a clear understanding of what the questions really mean, how the information being requested is likely to be interpreted, and how that information can best be communicated to the underwriters. The cost of your insurance will depend on this knowledge and on the skill and attention to detail with which it is utilized on your behalf.

A skilled professional liability insurance broker will be experienced in dealing with the underwriters in both hard and soft insurance markets. Today’s promises and prices may be real, or they may be of fleeting value. To evaluate the differences, you need competent, independent advice from a broker who is capable of a long look down the road ahead. Experienced brokers have been down this road before, and the value of the advice you receive as you seek to sort out the trade-offs between coverage options, company services, and premium dollars depends on that experience.

Other valuable questions answered by this ProNet Practice Note:

Why is it important to choose a specialist insurance broker?
How will I know a specialist insurance broker when I see one?
Where can I get good recommendations for specialist brokers in my area?
When I purchase insurance, why shouldn’t price be the bottom line?
What is the difference between an independent insurance broker and an insurance agent?
What questions should I ask an insurance broker to make certain he or she fits this criteria and will offer the best, specialized service to my architecture or engineering firm?

We invite you to download the full-length PDF version of this ProNet Practice Note here. For additional resources like this one, visit our website. And as always, the easiest way to find a specialist insurance broker for your firm is to get in touch with your local a/e ProNet Broker.

Professional Liability Insurance Survey – Engineering, Inc.

By Lynda

For architects, engineers and other design consultants, Professional Liability insurance (Errors & Omissions insurance) can seem like an annual headache. Once a year the app gets dropped in your lap; thus begins a process that, at times, seems fairly–er–intimate.

Cue the bright lights.

Report your billings! Tell us how many jobs you’ve completed! What kinds of projects did you do? What percentage of your billings went to subcontractors? How many employees left your firm? Describe your loss history!

Contracts require the coverage, so there’s no getting around the process, but does it really need to feel like you’re getting the third degree? Is the requested information that important?

According to the 2011 ACEC/AIA/NSPE annual Professional Liability insurance survey of carriers, Professional Liability insurance premium “rates depend largely on four main characteristics:”

Annual Billings
Type of Practice
Claims History
Project Types

So, yes. Your application matters every year. Your insurance broker will take this year’s application and place it side by side with last year’s. This can provide the kind of overarching perspective needed to secure fair renewal terms for your firm, both from your current insurance company and from other companies for your comparison. It’s a drill, certainly, but it can save you money and ensure that your firm is appropriately covered based on its unique practice.

Insurance premiums are often a major part of a design firm’s overhead, and the most commonly asked question at renewal time is usually, “Will my professional liability premium be going up this year?”

For an accurate answer, it’s best to go to the source. Sixteen Professional Liability insurance providers responded to the survey mentioned earlier; among them are several of a/e ProNet’s sponsors, including:

RLI, Travelers, Victor O. Schinnerer, Liberty, Beazley, Catlin, HCC

The results of the survey are broken down and explained in the most recent issue of Engineering, Inc. (an ACEC publication); these include some interesting projections about the future of Professional Liability insurance, its underwriting parameters and its premiums.

Though experts do not expect the long-sustained “soft market” to change dramatically, “about half of the carriers that responded… anticipate a slight increase this year. Seventy-five percent of respondents expect price hikes in 2013.”

The full article is available along with the rest of the Engineering, Inc. Jan/Feb 2012 issue here. It goes on to address several more important insurance renewal questions, including:

How do I pick a Professional Liability insurance provider?
What limits should I purchase? How high should my deductible be?
If my business is down, why should I continue to carry Professional Liability insurance?
What steps can I take to keep my premium down as the design and construction industries continue to recover?

The full results of the 2011 ACEC/AIA/NSPE annual Professional Liability Insurance survey of carriers will soon also be available at the ACEC website.

Professional Liability vs. General Liability

By Lynda

This is one of the most common insurance questions asked by architects and engineers:

What is the difference between Professional Liability and General Liability coverage?

Both coverages are integral to the protection of your firm, so it’s no coincidence that you’ll see requirements for both coverages in almost ALL contracts. But what are the differences between them?

Professional Liability (PL) vs. General Liability (GL)

GL coverage is triggered by bodily injury or property damage.
PL coverage is triggered by bodily injury, property damage, or economic (consequential) damages.

GL is typically written on an “occurrence” basis.
PL is written on a “claims made” basis.

GL covers damages arising out of an a/e firm’s day-to-day operations, excluding professional services.
PL covers damages arising out of an a/e firm’s professional services.

GL limits are not eroded by defense costs. Defense costs are unlimited and sit outside the limits of liability.
PL limits are, typically, eroded by defense costs. In other words, the liability limit covers both defense and indemnity payments.

GL allows Additional Insureds.
PL does not allow Additional Insureds.

GL may be scheduled under an Umbrella (Excess) Liability Policy.
PL cannot be scheduled under an Umbrella (Excess) Liability Policy.

(Professional Liability insurance is also known as Errors & Omissions insurance.)

The answer to this Frequently Asked Question was supplied by a/e ProNet member IOA Insurance Services of California. Visit their website for more information.