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Liability Claims Against Architects, Engineers and Construction Design Professionals

Navigating Evolving Theories of Liability and Defenses, Minimizing Risk Through Contract Provisions and Project Documentation

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, MARCH 21, 2017

​ David M. Adelstein, Partner, Kirwin Norris, Orlando and Ft. Lauderdale, Fla. John D. Broghammer, Partner, Greve Clifford Wengel & Paras, Sacramento, Calif.

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Liability Claims against Architects, Engineers, and Construction Design Professionals

David Adelstein Kirwin Norris, P.A. dma@kirwinnorris.com 954-759-0026

What is a project delivery method? A method to deliver a project to an owner that factors in risks associated w/ project size, complexity, scope, contractor input, budgetary constraints, lean construction principles, risk- allocation such as dispute resolution, sustainability (LEED), emerging technology (BIM), collaboration, owner control… After considering these factors/ risks, owner selects project delivery method that provides it the best value allocating the responsibility of the design and the construction of the project

David Adelstein dma@kirwinnorris.com

6

• I. Design Professional Risks Associated with

Project Delivery Methods

• I. Design Professional Risks Associated with

Project Delivery Methods

More conventional project delivery methods



Design-Bid-Build



Multi-Prime



Design-Build



CM-Agency



CM-At-Risk *Evolving delivery methods (that may include more integrated design roles)



Integrated Project Delivery (IPD)



Green – Sustainable Projects (SP)



Public-Private-Partnership (P3)

David Adelstein dma@kirwinnorris.com

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Collaboration Lean Construction Principles Emerging Technology (BIM) Green / Sustainability Dispute Resolution Complexity, Scope, & Risk

8

You are Here

David Adelstein dma@kirwinnorris.com

IPD

American Institute of Architects A project delivery approach that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to optimize project results, increase value to the owner, reduce waste, and maximize efficiency through all phases of design, fabrication, and construction. ConsensusDOCS The Parties agree that the Project objectives can be best achieved through a relational contract that promotes and facilitates strategic planning, design, construction and commissioning of the project, through the principles of collaboration and lean project delivery. This approach recognizes that each Party's success is tied directly to the success of all other members of the Collaborative Project Team and encourages and requires the Parties to

• rganize and integrate their respective roles, responsibilities and expertise, to identify and

align their respective expectations and objectives, to commit to open communications, transparent decision-making, proactive and non-adversarial interaction, problem-solving, the sharing of ideas, to continuously seek to improve the Project planning, design, and construction processes, and to share both the risks and rewards associated with achieving the Project objectives. What do these definitions mean? Collaborate=working and cooperating with others to perform a task to achieve a common goal by maximizing coordination, efficiencies, waste reduction, and profitability (all while reducing overall costs)

9

IPD

Considerations:  Shared risk/reward through “transparency”  Waiver of claims among project team  Collaborative relationship between design and construction  Need sophisticated leadership team  Funding requirements  Procurement requirements  Technology (BIM) requirements (for collaborative design)  Sustainability  Lean construction principles  New school thinking regarding risk allocation  Contingency? (unlike GMP contracts)  Insurance considerations (e.g., project specific professional liability

/ manuscript policies with extended reporting period, make sure PL covers negligent design conveyed in digital data, rectification coverage… 

Note: professional liability coverage centers on conventional notions of professional liability / E&O

David Adelstein dma@kirwinnorris.com

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IPD

BIM  Digital 3D (virtual) modeling of project  Promotes sharing of digital information among project team to

increase coordination, planning, efficiency and constructability of design—optimize design at all phases (preconstruction, during construction, post-construction)

 E.g, BIM would be virtual model of structure (load bearing walls,

slabs, windows, etc.) and utilities (duct, piping) and can include real-time scheduling information in the model (manpower, coordination, etc.) and budgetary information (cost)  Transparency-All this data is shared to try to imitate actual

construction for the purpose of better coordinated design and construction

 Note: Think also 3-D laser scanning and drone imagery

David Adelstein dma@kirwinnorris.com

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IPD

BIM Owner wants Building Information Modeling (BIM) more so than in conventional project delivery methods Willingness to invest in a longer, more detailed design phase using BIM to make key design and cost decisions collaboratively to produce a fully coordinated design with an emphasis on prefabrication and procuring long lead items

David Adelstein dma@kirwinnorris.com

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IPD

BIM & Objectives

 Less on site administration effort as conflicts and questions resolved virtually  Fewer RFIs because stakeholders collaboratively involved in design (and longer

precon phase) and better communication of design intent

 Less shop drawing and submittal approval time  More prefabrication and procurement of long lead items  Less waste and inefficiency  As builts incorporated into the virtual model  Schedule tied to virtual model (allows for visualization of deviation from planned

sequences and durations)

David Adelstein dma@kirwinnorris.com

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IPD

IPD

Standard Form Contracts

Both the ConsensusDOCS and AIA have standard documents addressing BIM and IPD (legal and administrative issues and risk allocation):



ConsensusDOCS 300 Multi-Party IPD Agreement

 ConsensusDOCs 396 Tri Party Agreement for IPD 

ConsensusDOCS 301 BIM Addendum



AIA E203 BIM and Digital Data Exhibit



AIA G202-2008 BIM Protocol Form



AIA B195, A295 and A195 Transitional Documents between O-C and O-A for IPD



AIA C195-2008 Single Purpose Entity Agreement for IPD



AIA C191-2009 Multiparty Agreement for IPD



AIA C196-2008 Single Purpose Entity and Owner for IPD

David Adelstein dma@kirwinnorris.com

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Considerations:

 LEED certification  Financial incentives and projected cost savings  Claims associated with achieving certification,

incentives, projected cost savings

David Adelstein dma@kirwinnorris.com

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SP

Identify objectives relating to sustainable design / green building elements such as LEED certifications, energy efficiency, product ratings, etc.

 AIA A101-2007 SP Agreement between O-C  AIA A201-2007 SP General Conditions  AIA B101-2007 SP Agreement between O-A

*Note: See AIA Document D503-2013 Guide for Sustainable Projects

 ConsensusDocs 310 Green Building Addendum

David Adelstein dma@kirwinnorris.com

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SP

 Partnership between public and private entities to

deliver project for public purposes (e.g., infrastructure) where private entity finances (and perhaps operates and maintains) project in consideration for revenue (or % of revenue) completed project will generate for “x” number of years

David Adelstein dma@kirwinnorris.com

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P3

Considerations:

 Sophisticated leadership teams with understanding of

process

 Cost of private financing (cost associated with debt)  Increased private party participation in delivering public

project

 Risk transfer to private consortium (e.g., design,

construction, financing, operations and maintenance, etc.)

 Insurance considerations (similar to design-build or

potentially IPD)

David Adelstein dma@kirwinnorris.com

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P3

Contract Forms

 EJCDC P3-508 (premised on design-build delivery)

David Adelstein dma@kirwinnorris.com

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P3

• II. Theories of Liability

Design Professional Liability:

1) Common Law (Tort) 2) Statutory / Administrative Obligations 3) Contractual (breach of contract) * Note: Contractual liability becomes VERY important with evolving delivery methods where A/E’s role falls

• utside of more conventional delivery
• methods. Reason insurance considerations applicable

to design errors & omissions become major criteria

David Adelstein dma@kirwinnorris.com

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Design professional’s standard of care gaged under negligence theory (hence, importance of professional liability coverage…)  Failure to use use reasonable / due care which reasonable,

careful design professional would use under like circumstances

 Failure to use reasonable / due care that conforms to

acceptable standards that is detrimental to client or public

David Adelstein dma@kirwinnorris.com

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• II. Theories of Liability

Common Law



• Ex. Lochrane Engineering, Inc. v. Willingham Realgrowth Investment Fund, Ltd., 552 So.2d 228, 232

(Fla. 5th DCA 1989) –”However, the duty imposed by law upon professionals rendering professional services is to perform such services in accordance with the standard of care used by similar professionals in the community under similar circumstances.”  Note: FL- duty of care of supervising design professional not extended to subs. See Spancrete, Inc. v. Ronald E. Frazier & Associates, P.A., 630 So.2d 1197 (Fla. 3d DCA 1994)



• Ex. Overland Constructors, Inc. v. Millard School District, School District No. 17, Douglas County,

369 N.W.2d 69, 76 (Neb. 1985) -“the test is whether the architect has exercised that degree of skill and diligence ordinarily exercised under like circumstances by architects in good standing in the same or similar communities.”



• Ex. Martin v. Barge, Waggoner, Sumner & Cannon, 894 S.W.2d 750 (Tenn.App. 1994) – “Tennessee

courts have adopted the “same or similar community” standard of care with respect to professional negligence.”



But see ex. In re Parsons, Main, Inc., ASBCA No. 51355, 2002 WL 1307490, (June 10, 2002) – USACOE project near St. Louis; A/E argued that government must apply standard of care of geotechnical engineers in St. Louis; rejected local standard in favor of national standard David Adelstein dma@kirwinnorris.com

22

• II. Theories of Liability

Common Law

Design Professional’s reasonable / due care requirement based onstatutory / administrative licensing requirements: Ex: Florida Administrative Code 61G1-12.001(4)- An architect, firm, or business holding a certificate of authorization may not be negligent in the practice of architecture. The term negligence is defined as the failure, by an architect, to exercise due care to conform to acceptable standards of architectural practice in such a manner as to be detrimental to a client or to the public at large. (a) Plans, drawings, specifications and other related documents prepared by an architect shall be of a sufficiently high standard to inform the users thereof of the requirements intended to be illustrated or described by them. Such documents shall clearly and accurately indicate the design of all essential parts of the work to which they refer. An architect shall meet a standard of practice which demonstrates his knowledge and ability to assure the safety and welfare of his clients and the public. (b) An architect shall be required to coordinate his activities with other professionals involved in those projects wherein the architect is engaged to provide plans, drawings and specifications which result in the production of working documents which are used or intended to be used for the construction of a structure.

David Adelstein dma@kirwinnorris.com

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• II. Theories of Liability

Statutory

• Ex. Ohio Administrative Code 4703-3-07 (A) (1)- In practicing

architecture, a registered architect shall act with reasonable care and competence and shall apply the knowledge and skill which is ordinarily applied by registered architects of good standing, practicing in the same locality.

• Ex. Alabama Administrative Code 100-X-7-.01 (1)- In

practicing architecture, an architect’s primary duty is to protect the public’s health, safety, and welfare. In discharging this duty, an architect shall act with reasonable care and competence, and shall apply the knowledge and skill which is ordinarily applied by architects of good standing, practicing in the same locality.

David Adelstein dma@kirwinnorris.com

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• II. Theories of Liability

Statutory

Duties are imposed by contracts such as industry form contracts:

EJCDC E-500 – Standard Form Agreement Between Owner and Engineer for Professional Services

6.01.A. Standard of Care: The standard of care for all professional engineering and related services performed or furnished by Engineer under this Agreement will be the care and skill ordinarily used by members of the subject profession practicing under similar circumstances at the same time and in the same locality. Engineer makes no warranties, express or implied, under this Agreement or

• therwise, in connection with Engineer’s services.

David Adelstein dma@kirwinnorris.com

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• II. Theories of Liability

Contractual

AIA B101 – Standard Form Agreement Between Owner and Architect 2.2 The Architect shall perform its services consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances. The Architect shall perform its services as expeditiously as is consistent with such professional skill and care and the orderly progress

• f the Project.

David Adelstein dma@kirwinnorris.com

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• II. Theories of Liability

Contractual

Design Professional’s common law duty of care can be extended / broadened by contract…WATCH OUT FOR THIS!

• Ex. The School Board of Broward County, FL v. Pierce Goodwin Alexander & Linville,

137 So.3d 1059 (Fla. 4th DCA 2014)

“2.1.3 As to all services provided to this Agreement, the Project Consultant [the architect] shall furnish services by experienced personnel and under the supervision of experienced professionals licensed in Florida and shall exercise a degree of care and diligence in the performance of these services in accordance with the customary professional standards currently practiced by firms in Florida and in compliance with any and all applicable codes, laws, ordinances, etc. . . . 2.1.5 All professional design services and associated products or instruments of those services provided by the Project Consultant shall: .1 Be in accordance with all applicable codes, laws, and regulations of any governmental entity, including, but not limited to, [list of regulatory entities] with the Owner serving as the interpreter of the intent and meaning of . . . any

• ther applicable code.”

 In this contract, architect contracted to heightened standard of care and was contractually obligated to perform to more heightened standard of care than common law

• standard. Here, architect accepted risk of design plans not code-compliant (no matter

what!)

David Adelstein dma@kirwinnorris.com

27

• II. Theories of Liability

Contractual

• Ex. The School Board of Broward County, FL v. Pierce Goodwin

Alexander & Linville, 137 So.3d 1059 (Fla. 4th DCA 2014)

• Previously discussed
• First Cost Defense / Added First Cost Benefit Theory

Architect not responsible for costs of items left out of original design since

• wner would always be responsible for this cost based on cost of item if

that item was included in original design “For example, if the school board would have paid a cost for construction in accordance with the code-compliant final design plans, an award of a COI [change order item] expense against the architect attributable to a change in the initial design plans for the same cost would put the school board in a better position than if the design services had been performed as agreed. Stated another way, if there had been no change between the initial plans drawn for bidding by contractors and the final construction plans, the school board would have been solely responsible for paying all construction expenses incurred for the renovation.”

David Adelstein dma@kirwinnorris.com

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Recent Case Example

A&H Properties, v. GPM Engineering, 2015 WL 9435974 (Tex.App.-Austin 2015) –owner hired design-builder to install/design energy efficient improvement including geothermal loop. Engineer hired by design-builder. No contract between engineer and owner. Owner sued engineer for negligence for design of geothermal loop that caused it financial damages. Summary judgment granted in favor of engineer under economic loss rule. Affirmed on appeal. “[T]he Texas Supreme Court recently clarified in a similar factual scenario that the availability of contractual remedies in a vertical chain of contracts on a construction project precludes tort recovery when no personal injury or property damage is alleged. The record before us establishes that GPM [engineer], as subcontractor, was performing services part of of the overall construction project based on its contract with the general contractor, Bell. GPM’s duty to perform work on A&H’s [owner] arose of that construction subcontract, and no other duty or relationship between GPM and A&H is presented in this record. *** “Application of the economic-loss rule is particularly appropriate here, where permitting A&H to sue GPM for economic loss would disrupt the risk allocations that A&H negotiated with Bell, and that Bell, in turn, negotiated with GPM.”

David Adelstein dma@kirwinnorris.com

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Recent Case Example

Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kahl, LLP, 2016 WL 360875 (Md.Ct.Sp.App. 2016)-City hired engineer to produce construction documents for wastewater treatment plant under design-bid-build. Years later successful bidder (contractor) sued engineering firm for delays associated with defective design and negligent misrepresentations. No contract between contractor and engineer. Trial court dismissed based on economic loss rule. Affirmed on appeal. “[I]n the absence of privity, death, personal injury, property damage, or the risk of death or serious personal injury, no duty of care in tort runs from an engineer or architect to a contractor for purely economic losses on a public construction project.”

David Adelstein dma@kirwinnorris.com

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Recent Case Example

But see Gongloff Contracting, L.L.C. v. L. Robert Kimball & Associates, Inc., 119 A.3d 1070 (Penn. 2015)- University hired A/E and GC. GC hired steel sub. Steel sub hired plaintiff (sub-sub) to erect steel. Concerns were raised with A/E roof design. During construction it was determined that roof design not sufficient to bear loads. There were 3 shut-downs of steel erection due to redesigns. Plaintiff submitted 81 change order requests resulting in itbeing unable to pay vendors, laying

• ff its crew, and leaving site. Plaintiff sued A/E for negligent

misrepresentation re: the design of the roof. Trial court granted judgment on pleadings based on economic loss rule. Reversed on appeal. “We conclude that the amended complaint's allegations that Kimball's [A/E] design documents constituted negligently-supplied false information have been pled with the appropriate level of specificity to state a cause of action for negligent misrepresentation…. While Kimball might prove later in the litigation that the allegation that it provided false information concerning the integrity of its roof design was unsubstantiated, it is not entitled to judgment in its favor at this stage of the proceedings.” (relying on case that A/E can be liable for negligent misrepresentation when it negligently supplies information knowing that 3rd parties will rely on such information)

David Adelstein dma@kirwinnorris.com

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Recent Case Example

• THE ART OF WAR -

32

EFFECTIVE PROJECT DOCUMENTATION

Using Documentation For Risk Allocation and Warfare.

John D. Broghammer

Sun Tzu…With A Twist 34

“It is said that if you know your enemies and know yourself, you will not be imperiled in a hundred battles; if you do not know your enemies but do know yourself, you will win

• ne and lose one; if you

do not know your enemies nor yourself, you will be imperiled in every single battle.” Sun Tzu

YOUR ENEMY IS YOU!!

• Per a large A/E insurance carrier, a

dispute is ALMOST ALWAYS caused by a documentation error— not a design error.

– 1. No or poorly drafted contracts; – 2. Failure to manage expectations; – 3. Failure to document and follow up.

36

Studies have shown the genesis of most lawsuits, in one way or another, is a contract problem.

37

“Thus it is that in war the victorious strategist only seeks battle after the victory has been won; whereas he who is destined to defeat first fights and afterwards looks for victory.”

• -Sun Tzu

38

39

Your Contract is Your Castle’s Defense

39

Preparations for War

CLAUSES, WORDS AND EXHIBITS ARE LIKE RAMPARTS, MOATS, AND GATES. Each word is like brick and mortar. Your client wants you to have fewer defenses.

John Broghammer john@gcwp.com 40

GET IT IN WRITING!!!

• Contracts should be in writing and many

states require a written contract with specific provisions for inclusion.

• Ancient Chinese proverb: “The faintest of

ink is worth more than the strongest memory.”

41

FROM THE “DUH” FILES:

“An oral contract is not worth the paper it is written on.”

42

YOU DON’T WIN UNTIL YOU DRAG THE SIGNED CONTRACT HOME.

43

READ YOUR CONTRACT…..PLEASE!!

I’ve never been told by any client embroiled in a lawsuit that he or she regretted taking the time to read and understand the contract.

44

MORE “DUH” STUFF:

• Keep a copy of the contract in

separate file.

• Add papers or e-mails that impact the

contract and/or your scope of work.

• Scan your contracts and related

documents an electronic file.

45

NEGOTIATIONS

• It is unsexy, non-paying and

drudgery.

• The other side fights you on issues

which you think are stupid.

• And as Colin Powell once said: “No

battle plan survives contact with the enemy.”

46

SUN TZU

“The general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand.”

• BE PREPARED….

47

Sun Tzu

Chinese Military Strategist, Commander and Philosopher

NEGOTIATIONS

• Your contract is your friend…maybe your
• nly friend on a project.
• It is the single most critical thing on a

project.

• Never give contract negotiation short shrift.

50

CONTROL THE NARRATIVE

• “Those skilled in war bring the

enemy to the field of battle, and are not brought there by him.”

Sun Tzu Draft your own contract!

51

NEGOTIATIONS

• Be specific. Let others review your drafts for

content and errors.

• Better yet, use stock contracts (e.g., AIA).
• Read the RFP (or similar documents) closely.
• Memorialize in writing additions/subtractions.

52

Competitive Arousal

Competitive arousal is the visceral urge in negotiating to “win,” rather than get the best deal.

53

Confirmation Bias

Confirmation Bias describes the psychological process where we seek information that confirms our beliefs.

54

Bartlett’s “THE war of the ghosts”

55

FREDERIC BARTLETT AND MEMORY RECONSTRUCTION— THE WAR OF THE GHOSTS

PROCESS OF DISTORTION

ASSIMILATION—facts CHANGED TO FIT BRITISH NORMS LEVELING—”UNIMPORTANT” DETAILS OMITTED SHARPENING—EDIT/ADD DETAILS TO FIT BRITISH NORMS

56

People infer information that supports their existing beliefs, even if the data support an

• pposing view.

Confirmation bias is a problem to

• vercome when you need to make

a fact-based decision.

57

THE CURES?

1.Get the opinion of others. 2.Then listen to the voices of dissent. 3.Play “devil’s advocate” and view the deal from the other side. 4.Work to build empathy and relationships then share WHY you need certain language.

58

“If asked how to cope with a great host of the enemy in orderly array and on the point of marching to the attack, I should say: “Begin by seizing something which your opponent holds dear; then they will be amenable to your will.” Sun Tzu

59

Negotiations

First, understand that negotiations are an exchange of what each side “holds dear.”

The owner/client has money and you have your time/services.

60

Negotiations

Second, negotiations are about personal relationships….established before negotiating, not during the process.

The owner then holds the relationship “dear.”

61

CRITICAL CONTRACT CLAUSES

• A. Detailed Scope of Work Language.
• B. Construction Administration Language.
• C. Indemnity Clauses.
• D. Standard of Care.
• E. Miscellaneous.

62

SCOPE OF WORK

• From a prominent A/E insurance carrier re:

Scope of Work claims/lawsuits: “Failure to manage the owner’s expectations; failure to explain the scope of work and exclusions thereto.”

• This must be started during negotiations.

63

SCOPE OF WORK

Should always be Exhibit A to your contract.

GOOD!! UH…NOT GOOD

64

SCOPE OF WORK

65

CRITICAL CONTRACT CLAUSES

• A. Detailed Scope of Work Language.
• B. Construction Administration Language.
• C. Indemnity Clauses.
• D. Standard of Care.
• E. Miscellaneous.

66

You do not inspect… you only observe !!!

67

CONSTRUCTION ADMINISTRATION

Construction observation is the periodic

• bservation of completed work to determine

general compliance with the plans, specifications and project documents.

IT IS NEVER AN INSPECTION OR GUARNATEE

68

CUSTOM AND PRACTICE

• Observation is the visual observation of the

engineering system for general conformance with the approved plans and specifications.

• Inspection is the monitoring of materials and

workmanship that are critical to the integrity

• f the project to ensure compliance with the

approved plans, specifications and applicable laws.

69

70

SAMPLE PROBLEM

• “[Design Professional] shall make…periodic
• n-site observations, not less than weekly….

Observations shall be conducted deliberately and thoroughly...”

• “Observations shall be for the purpose of

ascertaining…that the …quality and detail

• f construction…complies with…the

contract documents.”

71

Report limitation language

“Limited observation services pursuant to the contract for this Project were performed in substantial accordance with the standard of care and generally accepted field observation practices for [structural engineering entities] under similar circumstances.”

72

BAD

GOOD!!!

AWFUL!!!!

73

OMG !!!

74

EXPECTATIONS

• 1. Understand what the law in your

state/locale requires.

• 2. Understand the local customs and

practices.

• 3. Define your duties and rein in client

expectations.

75

THE PANDA EATS SHOOTS AND LEAVES.

CRITICAL CONTRACT CLAUSES

• A. Detailed Scope of Work Language.
• B. Construction Administration Language.
• C. Indemnity Clauses.
• D. Standard of Care.
• E. Miscellaneous.

77

INDEMNITY

OWNER DESIGN PROFESSIONAL INDEMNITY CLAUSE

78

INDEMNITY ≈ INSURANCE

• "An indemnity contract resembles an insurance

agreement.” (MacDonald & Kruse v. San Jose Steel (1972) 29 Cal.App.3d 413, 420.).

79

INDEMNITY

• PURPOSE: Indemnity, like insurance,

seeks to shift all or part of the risk of loss from Player A to Player B.

• Usually insurance clauses are strictly

construed against insurers….not necessarily indemnity clauses.

80

INDEMNITY

• Insurer’s business model is to collect

premiums and spread risk. Insurance works by receiving more premiums than the company pays out in benefits. You do not work this way.

81

INDEMNITY

What to look for….and why to look for it?

82

“Except to the extent of Contractor’s sole negligence or intentional misconduct, and without regard to any negligence or fault on the part of Consultant, Consultant agrees to defend and indemnify …Contractor from and against any and all claims, demands, losses, damages, … and/or liabilities …, arising out of, resulting from, or occurring in connection with (a) the materials and services provided, (b) the performance or failure in performance of the work, (c) Consultant's contractual obligations, and/or (d) ….

83

“Except to the extent of Contractor’s sole negligence or intentional misconduct....” This is red flag language in any indemnity clause. It is a sure sign of trouble.

84

“and without regard to any negligence

• r fault on the part of Consultant”

“Consultant agrees to indemnify …, arising out of, resulting from, or occurring in connection with…” This is not normally insurable. You do not have to be negligent to trigger the indemnity

• bligations.

85

“Consultant agrees to defend and indemnify …Contractor from and against any and all claims, demands, losses, damages, … and/or liabilities….” Normally, the duty to defend is very broad and also not insurable. In some states the duty to defend is automatically triggered by an indemnity obligation.

86

INDEMNITY

• The Consultant will indemnify the Client for actual

damages for which the Client becomes liable if the damage upon which the liability is based was caused by the proven active negligence of the Consultant.

• If the Client is determined to be liable for damage

caused by the proven active negligence of the Consultant, the Consultant will reimburse the Client for the reasonable value of the defense costs insured to defend against the damages caused by the Consultant’s proven negligence.

87

INDEMNITY

Suppose your Client insists that you defend it if it is sued. Then, use:

Consultant has no obligation to pay for Client’s defense costs until there is a final determination of

• liability. Consultant’s obligation to reimburse Client’s

defense cost shall be limited to the Consultant’s percentage of liability based upon Consultant’s comparative fault.

88

Endowment Effect

• r Overconfidence

Bias

This bias is the tendency to place too much emphasis on your knowledge, abilities and negotiation skills.

89

Know Your Limitations

90

HIRE a lawyer!!!!

91

CRITICAL CONTRACT CLAUSES

• A. Detailed Scope of Work Language.
• B. Construction Administration Language.
• C. Indemnity Clauses.
• D. Standard of Care.
• E. Miscellaneous.

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STANDARD OF CARE

• As a general rule, NEVER, ever, agree to

contract language that alters the standard

• f care.

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STANDARD OF CARE

“A [professional] is negligent if he/she fails to use the skill and care that a reasonably careful [professional] would have used in similar

• circumstances. This level of skill, knowledge,

and care is sometimes referred to as “the standard of care.””

• Cal. Jury Instruction 600

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STANDARD OF CARE

GOOD! UH…NOT…GOOD!

Best means better than everyone else.

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STANDARD OF CARE

Any blanket promise to correct defects may alter the standard of care. Are you insured for this?

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STANDARD OF CARE

• Beware of warranties, guarantees, and

certifications which effectively turn the Standard of Care into a promise of perfection.

• You normally do not have insurance

coverage for such warranties, guarantees, and certifications.

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CRITICAL CONTRACT CLAUSES

• A. Detailed Scope of Work Language.
• B. Construction Administration Language.
• C. Indemnity Clauses.
• D. Standard of Care.
• E. Miscellaneous.

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THIRD PARTY BENEFICIARY

• The Architect’s services under this Agreement

are being performed solely for the Client's benefit, and no other party or entity shall have any rights or a claim against the Architect ….

• This provision may be waived only by express

written consent of the Architect.

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NON-ASSIGNMENT

• Neither the Client nor the Architect shall

assign this Agreement without the express written consent of the other.

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MISCELLANEOUS

• 1. Billing and Payment Provisions: Payment terms, interest,

attorney fees and collection cost provisions. Terms for suspension or termination for non-payment.

• 2. Certifications, Guarantees & Warranties: Delete whenever
• possible. Delete an agreement for code compliance or that

construction will be pursuant to “all laws, regulations and codes.” Some state laws define “certify” for architects and engineers to mean only an expression of opinion, not a warranty or guarantee.

• 3. Arbitration and Dispute Resolution: Generally avoid

mandatory arbitration provisions. Other forms of dispute resolution are acceptable.

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MISCELLANEOUS

• 4. Job Site Safety: You should not be responsible (directly or

indirectly) for job site safety. You should not be responsible for construction means and methods. Ensure language that keeps these responsibilities with contractor or owner.

• 5. Liquidated Damages: Liquidated damages provisions

should not be included in your contract. There are too many variables not in your control as the designer.

• 6. Limitation of Liability: Where possible insert limitation of

liability clause or some type of cap on damages. Be willing to receive a lower fee to obtain this protection. Try to limit damages to “available insurance limits” or similar insurance limitations.

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MISCELLANEOUS

• 7. Attorney Fees & Costs: Generally delete all such clauses

where possible. Or, limit the clause to very specific disputes, such as fee disputes.

• 8. Insurance Requirements: Assure yourself that the owner

agrees to what insurance is needed for a project (and make sure you AND subs comply). Many policies do not cover certain contractual risk assumptions.

• 9. Shop Drawing Review: Define shop drawing review
• responsibilities. Ensure non-responsibility shop drawings

and that review is only for general plan conformance. Make sure owner and contractor know the scope of your review.

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INSURANCE

Errors & Omissions Insurance is always “claims made,” meaning coverage is triggered by the date

• f a claim or suit—not the project date.

Claims made policies almost always have declining policy limits. Attorney fees and litigation costs reduce the policy limits. Consider “project insurance” which covers a specific project rather than specific insureds.

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INSURANCE

• Be aware: High deductibles = fool’s gold.

Deductibles must be paid by you first before the insurer will participate.

• Some carriers offer programs to spread out your

deductible over time, such as a 20%/80% split or “first dollar defense” with the payment of the deductible later.

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INSURANCE

• Make sure your subconsulting contracts comply

with insurance provisions of the prime contract.

• Someone in your office must be responsible for
• btaining Certificates of Insurance from subs. Get

renewal certificates.

• Have your insurance company review your

contracts for coverage issues.

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PROJECT DOCUMENTATION

Presenter:

John D. Broghammer

Greve, Clifford, Wengel & Paras, LLP 2870 Gateway Oaks Drive, Suite 210 Sacramento, CA 95833 Telephone: (916) 669-3905 john@gcwp.com Website: http://www.greveclifford.com

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