Tag: Risk Management

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”

a/e ProNet’s Annual Fall Meeting (Oct 3 – 5, 2012)

By Lynda

This week, 46 a/e ProNet members from 27 member agencies are expected to attend our annual meeting in Chicago, Illinois. Over the course of two and half days, twelve top-tier Professional Liability insurance companies will present to our membership. Each company will take this opportunity to announce policy form changes, new endorsements, and pricing expectations for the coming year; as well, they will alert us to industry trends surrounding claims and risk management.

Because a/e ProNet brokers are independent, that-is, not tied to any single insurance company, the insurance companies sending representatives to this event know that they are in competition for our business. It is in their best interest to make their programs as comprehensive and beneficial  to our clients as possible. The companies attending this event include: RLI, Travelers, Victor O. Schinnerer, Liberty, Beazley, Catlin, HCC, Hanover, Navigators, Insight, All Risks, and AXIS.

Our Thursday night reception for members and insurance company representatives will be held at a new venue this year: The Grand Army of the Republic (GAR) Rotunda at the Chicago Cultural Center.

Our clients are architects and engineers, and we appreciate what they do today, as well as what they have created in the past. We chose the Chicago Cultural Center, opened in 1897, because it is “one of the city’s most popular attractions and is considered one of the most comprehensive arts showcases in the United States.” In other words, it’s beautiful! A Chicago landmark, located in the Loop, across Michigan Avenue from Millennium Park, the GAR Memorial consists of a large hall and rotunda in the north wing of the building. The hall is “faced with deep green Vermont marble, broken by a series of arches for windows and mahogany doors. The rotunda features 30-foot walls of Knoxville pink marble, mosaic floor, and a fine, stained-glass dome in Renaissance pattern by the firm of Healy and Millet.”

If you have questions about this meeting, or a question about a/e ProNet, don’t hesitate to contact us. You can also find your local a/e ProNet broker through our website.

Blog Love: Schinnerer’s RM Blog

By Lynda

Time to return some Blog Love!

We are big fans of Victor O. Schinnerer’s Risk Management Blog. Several times a month, this long-standing professional liability insurance provider posts brief, timely, helpful articles that are relevant to the design industry. The emphasis is on risk management for design firms, and posts often include links back to pertinent studies and claims scenarios.

A few recent posts:

Building Reuse Provides Environmental Value — 27 August

“Earlier this year the National Trust for Historic Preservation released a report by its Preservation Green Lab that provides the most comprehensive analysis yet of the potential environmental benefits of retrofitting the existing building stock. The study, The Greenest Building: Quantifying the Environmental Value of Building Reuse is available from the organization’s PreservationNation.org/Sustainability website.

“The report concludes that when comparing buildings of equivalent size and function, building reuse almost always offers environmental savings over demotion and new construction. The report states that it can take between 10 and 80 years for a new energy-efficient building to overcome, through efficient operations, the climate change impacts created by its constriction. For the majority of building types in different climates, the study points to 20 to 30 years of use to offset the initial carbon impacts from construction. The study recognizes that the environmental benefits of reuse are maximized when a minimum of new materials are used; renovation projects that require many new materials can reduce or even negate the benefits of reuse.” Continue reading… Continue reading “Blog Love: Schinnerer’s RM Blog”

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”

Responding to an RFP: Risk Management Tools to Guide the Bidding Process

By Lynda

Competition among design professionals can be fierce, so it is critical to be as prepared as possible when trying to win new projects, especially those that are put out for bid.  Just as you have project quality control procedures to review a design, you also should have a similar process for responding to an RFP (Request for Proposal) to assess the appropriateness of the project for your firm, to minimize risk and to insure profitability.

When first considering whether to bid on a project, ask these questions:

  • Does our firm have experience with the project type?
  • Is our staff capable of handling a project of this size and scope?
  • Do we have confidence in our design team, including sub-consultants?
  • Can we turn in a successful project and make a profit?

Once you decide to respond to the RFP, you will take many steps to ensure your firm has a good chance at being awarded the project. You will choose a project manager and team that have the most experience with the project type. You’ll take great care in selecting your sub-consultants. You’ll follow your customary quality control procedures and review every aspect of the design phase; the costs of construction, the construction schedule and most importantly, your fees.

So, what could possibly go wrong when responding to an RFP? The answer may lie within the RFP itself.

Project Owners and Project Expectations

When you assemble your project team, you need to call upon the staff members who are best suited to understand the project and the terms spelled out in the RFP.  Your team should be asking the following questions.  Who is the project owner? Is it a government entity? A school district? Is the project publicly funded? Is the project owner a developer? If it is an LLC, who are the parties that comprise it?  Understanding who the project owner is as well as the expectations set forth in the RFP is as important as delivering the winning bid. Continue reading “Responding to an RFP: Risk Management Tools to Guide the Bidding Process”

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?”

A Reasonable Contract

By Lynda

Risk Allocation is an important part of the contract negotiation process for Architects, Engineers, and other Design Consultants.

“In allocating risks by contract terms and conditions, the goal is to allocate the specific risks to the party with the best ability to manage them. Although a contract can assign ownership of risks to any party, there can be serious adverse consequences if a party assumes risks it can’t manage. A design firm, for example, isn’t in a position to manage site safety responsibilities that most appropriately belong to the construction contractor. Despite the practicalities, however, of who is actually in the best position to manage site safety, if the design firm agrees to such responsibility by contract, the designer may be found liable for site safety by courts and possibly the Department of Labor.

“To be reasonable, a contract must be reasonable for all parties involved. If a contract attempts to shift all the risks to one party or the other, it will create problems on the project. A one-sided contract is likely to cause hard feelings during contract administration. It may also increase the likelihood of claims turning into litigation. As a practical matter, this means parties are better served by negotiators who don’t try to negotiate a contract that unreasonably shifts risk to someone who can’t logically manage it or accept legal responsibility for it. Such risk transfer will cause problems in the long run, and may even create uninsurable losses and claims.

“In evaluating who the various risks should be assigned to, parties can develop a table or list of responsibilities and risks to more easily see which risks most logically belong to each party. For example, site safety typically falls to the construction contractor. Easements and rights-of-way, as well as site data, including geotechnical information, may logically be allocated to the project owner. Responsibility for exercising due care in the planning and designing of a project generally falls to the design professional performing those services.

“Problems begin when any of these risks are allocated to the party that is not technically responsible for the related services. Unless you are in a position to manage a particular risk, it is not appropriate for you to accept contractual liability for that risk.”

This is an excerpt from a/e ProNet’s Risk Management & Contract Review Guide for Design Professionals (© Copyright 2006; a/e ProNet & J. Kent Holland, Jr.), one of the many resources ProNet Member Broker’s provide to their clients. A digital version of the full guide is available for purchase ($19.99). Contact a/e ProNet today to get in touch with your local ProNet broker.

About the Author: J. Kent Holland is a construction lawyer located in Tysons Corner, Virginia,  (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC. He is also the author of Contract Concerns, a series of articles available on our website here.

Just a Rabbit? Small Projects Can Bite

By Lynda

Who doesn’t love a good Monty Python reference? With our latest ProNetwork Newsletter, Just a Rabbit? Small Projects Can Bite, we’ve proven that the classic moments in Monty Python and the Holy Grail can be made analogous to anything, even insurance. Or, more accurately in this case, to potential professional liability claims:

“King Arthur and his knights approach a cave known to be guarded by a ferocious beast.  Upon seeing that the beast is but a wee rabbit, they let down their guards, proceed forward and are savagely attacked.  Was the mistake having approached the cave at all or having done so without anticipation of the risk and use of appropriate protection?  I sometimes ask the same question of design professionals who undertake small fee projects and unhappily receive large claims. But it has always been true that little projects can generate big claims, particularly where we let informality replace careful practice and appropriate documentation.  In a troubled economy, a/e’s want to take the work and no responsible lawyer should tell you to minimize your risk by eliminating your work. Take the work but don’t skimp on process, procedures and gut feelings in contract negotiations and documentation, even if done less formally.

Just a Rabbit

“Like King Arthur’s knights, I have frequently heard that the project was just a rabbit, or just a slab on grade, or just a retaining wall, or just a room addition, or just a (fill in the blank).  Insurance statistics prove that smaller firms do not necessarily get smaller claims, nor do smaller projects necessarily generate only small claims.   A modest structural engineering engagement for balcony maintenance on a condominium building can bring in modest fees.  When one of the balconies collapses or defects become apparent in 350 identical units with 350 separate plaintiffs, the defense and repair costs can be astronomical.  The same can be true for a small church addition, with the church school remaining open during construction.

Just a Contract

“Aside from legalities, written contracts serve two important practical purposes.  First, before work begins, the contract serves as a discussion outline with which a client can be educated about what you do for a living, what they have to give you in order for you to do the work, what work you have in mind and, equally important, what work is not included. All of these topics are much more easily and less emotionally discussed before anyone has started working and before a problem has arisen.

“I frequently receive calls about contracts just as the a/e is finishing Construction Documents and realizes either that nothing has been paid to date or that a risky project is about to go out for bid. This is not ideal, but very common, and still better than having the discussion after CDs are out or a problem has arisen.  I also frequently receive calls after the contract is signed, work is proceeding and could I just take a quick look at the contract, because it is “just a room addition” or similar small project?  Once signed, there is little I can do but warn the a/e of the teeth on that rabbit.

“Contracts serve a second important purpose as well – to tell a third party (judge, jury, arbitrator, Grand Inquisitor) what the parties thought about the scope of services, risks, rewards and the deal before they got to court.  If you show up to court with a contract calling you “contractor,” saying that you will perform your services to the “highest, best” standards of care and that you intended to “ensure” a successful project, you will be hard pressed to proclaim otherwise, even if Mrs. Justaroomaddition was a little flaky and Mr. Justaroomaddition employed his brother-in-law to do some of the work.   You will also create insurance coverage problems for the claim, perhaps ending up with two lawyers and two lawsuits instead of one of each.  Use the same scrutiny of contract language for your small projects that you use for your large projects, because the same words can cause problems regardless of size of the work.”

Visit our website to continue reading this newsletter. You may download the full PDF version 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: Eric Singer is a partner at Ice Miller, LLP. He concentrates his practice in construction law, with emphasis on the representation of architects, engineers, contractors, owners, and lenders as well as other professionals, in litigation and alternative dispute resolution of design and construction issues. Eric is an active speaker and prolific author on the subject of construction litigation and the liability of the design professional.

To Hire or Not To Hire?

By Lynda

As the American economy recovers, all eyes are on the construction design industry, a key indicator of the economic climate. Design professionals are preparing for the next phase of recovery in a variety of ways. Not only is there the hope that new projects will begin to come in soon, but there is a backlog of projects which began two or three years ago, but stalled. These projects have been pending in different stages, some abandoned completely, many without funding to continue. Unfreezing from that limbo would mean the potential for immediate work in many design firms, and that work could require additional hands.

In the April issue of CSPE Online, The Official Newsletter of the California Society of Professional Engineers, a/e ProNet Member Reno Caldwell published a column which addresses this exact scenario. For architects, engineers, consultants, and other construction industry professionals, this will bring up one very important question:

To Hire or Not to Hire?

Excerpt:

“Raise your hand if you were thinking of hiring someone this time last year.  Had I posed this question to a group of business owners in April 2011, I am confident not too many hands would have gone up.  The following two questions may still be far fetched, but if the tide begins turn and the project light-switch flicks up it’s worth asking both:

  1. When will your firm begin hiring?
  2. Will errors and omissions liability affect your hiring decision?

“You may be thinking that errors and omissions liability has nothing to do with a hiring decision.  Are you sure?  Most business owners understand the importance of balancing risk for the potential reward.   The term ‘reward’ probably seems distant, but many design and engineering firms have multiple projects that have long been in a perpetual ‘waiting’ mode.  Your office could get busy very quickly should these projects become active within a few months of each other, and as new projects come in the door.   Yes, this will be a happy day!

“However, many business owners have depleted their retirement savings in order to keep the lights on and doors open over the past three years.  It will be very tempting to replenish the bank account when the economy improves.   The risk management pendulum could swing quickly from ‘low risk / low reward’ to ‘high reward without considering risk.’  This move would be understandably tempting, but I urge you to take a closer look beforehand.”

To continue reading (and to get some valuable advice) visit IOA Insurance Services’ website for the full text of this article, as well as a downloadable PDF.

About the Author: Reno Caldwell is Vice President of IOA Insurance Services. He operates from the San Francisco Bay Area office in Pleasanton, CA, which he joined in 2007. He has specialized in providing professional liability insurance for design professionals, construction managers, law offices and other professional consultants since 1996. Reno is an affiliate member of the California Society of Professional Engineers; IOA is the exclusive broker of CSPE’s endorsed professional liability insurance program. reno.caldwell@ioausa.com