Introduction

The following material is provided by Singer Nelson Charlmers for informational purposes only. Before taking any action that could have legal or other important consequences, speak with a qualified professional who can provide guidance that considers your own unique circumstances.

Architects and engineers face a constant challenge of keeping current with new developments in construction technology and materials. When there is a significant change in the construction industry, such as the trend toward sustainable or green design, that challenge intensifies. Suddenly you are asked to comply with a new set of construction standards and owner expectations and there may be scant history to rely upon as design guidelines. Over time, these developments become the new standards of care to which you must comply when specifying materials.

Unfortunately, specifying materials is a part of your design responsibilities that must largely be learned on the job. Few college-level design courses focus on this important skill.

In some cases, material specifications need only be general in nature - recommending a particular type of material or technology, for example. In other cases you may be called upon to specify a specific brand or product model. Regardless, each time you specify a material you are accepting a degree of liability. You are now responsible for the material performing its intended function in an acceptable manner that is not harmful to the health or welfare of those who work on or occupy the building, highway, etc

A Long-Term Liability

The liability related to specifying materials is both extensive and long term. Often, it takes years for a material to fail or prove harmful, by which time damages and the cost of a remedy can be astronomical. What's more, it's a professional liability that can put a designer in a precarious position even if he or she followed the prevailing standard of care at the time the material was specified.

Consider that some materials widely used in the construction industry just a few decades ago - asbestos, PCB, fiberglass and lead-based paints, for example - were eventually determined to be hazardous. Like everyone else, architects and engineers were largely unaware of any potential for serious risk and commonly specified these materials for their projects.

Who knows which of today's new and untested synthetic materials or salvaged or recycled products might eventually fail to live up to expectations or even be found to be harmful to health? Green design is a relatively new concept that calls upon new as well as old materials, technologies and systems to deliver long term cost-savings while promoting a healthy environment. Issues such as material life-cycle and environmental cost assessments come into play. Who is to say whether each new green material or technology will truly deliver on its promise?

Once a material is ultimately deemed ineffective or hazardous, clients and their team of lawyers will often try to hold design firms responsible for any financial damages or injuries that result. Never mind that these materials were widely considered safe, effective and the standard of the industry at the time they were used. These claims seem to imply that designers need to be able to predict the future. Such claims discourage architects and engineers from specifying new products in their search for more effective and economical materials.

When specifying materials, you cannot simply rely upon word-of-mouth recommendations or manufacturer claims of quality and effectiveness. The prevailing standard of care calls for you to have personal experience or knowledge that a recommended material will perform its intended function successfully under prevailing conditions. While design firms are not expected to conduct their own physical tests of a new material or system, they are required to keep up to date of the physical properties of the materials they specify and properly apply them in a generally accepted manner.

An Illustrative Court Case

In one court case, an architect was hired by a New York school district for a renovation project. The project called for the architect to replace windows with insulation panels to improve the school's energy efficiency. The architect specified a particular brand of insulation panel and the project was completed. Within two years, the panels began to warp, bow and deteriorate, allowing water and cold air to penetrate the building. The resulting damages amounted to $300,000.

During the trial, the plaintiff presented the testimony of a licensed engineer who stated that the panels were inappropriate because of their "dimensional instability" when exposed to the extreme weather conditions of upstate New York. The expert witness also testified that the architect deviated from the applicable standard of care by relying almost exclusively on the manufacturer's product literature. The architect was eventually found liable for specifying the unproven type of insulation panel.

The ruling was appealed. But affirming the court finding, the court of appeals found that the panels were indeed defective and the architect was held liable for failing to meet the prevailing standard of care. The court noted that the architect did not have personal experience with the product, nor had it conducted or requested laboratory tests to prove the product's effectiveness. (Brushton-Miora School District v. Fred H. Thomas Associates, 692 N.Y.S. 2d 551.)

How to Avoid Liabilities

Fortunately, there are measures you can take to help avoid material specification claims. First, whenever possible, specify only those materials and technologies you know will do the job, are time-tested and proven in a particular application. Ask yourself: what would other reasonable design professionals do in similar circumstances? That sets the basis for the current standard of care. Also ask yourself: how would my decision to specify the material play out in a deposition or on the witness stand? Would a judge or jury consider my actions reasonable?

When describing specified materials (as well as your services) to a client or prospect in your marketing materials, conversations and agreements, avoid using superlatives such as best, superior, state-of-the-art, or guaranteed. These words can raise your liabilities beyond the normal standard of care.

• Collect brochures, product specification sheets, test results, warranties and guarantees from the manufacturer and keep them for your records.
• Read all application instructions and label warnings carefully.
• Look for collaborating evidence to support the manufacturer's claims, such as test results of an independent laboratory.
• Document your conversations with the suppliers regarding the product and its application in the specific circumstances, including any reservations you might have raised.
• Require the manufacturers, suppliers and installers to give assurances that the product is suitable for the intended application.
• Go over your findings with your client and seek agreement that your choice of materials is prudent.
  

Don't hesitate to ask manufacturers' field representatives to be present during the installation to ensure that their material is installed properly and according to manufacturers' specifications. When feasible, ask the field rep to test the product under appropriate conditions.

When Your Client Specifies a Material

Suppose your client suggests or even insists that you specify a product you feel may not be safe or reliable. If, against your better judgment, you agree to specify a product that later proves to be flawed or dangerous, you can be liable for damages.

If your client insists on using a material that, although not life-threatening, is a product with which you are not comfortable - a question of quality, durability or ease of maintenance, for instance - put your objections in writing to your client. If the client overrules you, protect yourself by having this confirmed in writing. Ask for an indemnity. At a minimum, document these discussions and decisions.

Also, don't review any submittals that include the client's specification. That should be for the owner to approve. Going one step further, don't sign any pay applications that include the client's specifications. Deduct those items from the payout and have the owner sign.

If the material in question involves known health or safety issues, refuse to use it. You must look to the termination provisions of your contract rather than endanger the life or health of anyone.

 
When the Contractor Asks for a Substitution

What if the contractor, a subcontractor or other party to the construction suggests a substitution for your original material specification? Here are some tips for minimizing and, when necessary, handling requests for substitutions for your specified materials:

• Develop and regularly update specifications that clearly define performance characteristics and other project requirements.
• Use a "Substitute Request Form" that must accompany any proposed substitution. Set forth the criteria that will be used in reviewing the acceptability of a substitution. 
• Include in your contract steps that must be taken to request substitutions. Spell out the approval process. Also specify that you have the right to back charge the contractor for services related to the review of proposed substitutions.
• Be responsive to any substitution requests received. Should a dispute arise, courts do not look kindly upon designers who fail to respond to or arbitrary reject reasonable requests for substitutions.
• Address the issues of specifications and substitutions in a pre-construction review of the construction documents. Include the client and all design professionals, contractors and major subcontractors. This will help identify those specified materials that may cause concerns among one or more parties. Calls for substitutions can then be addressed before construction begins.
• Do not allow shop drawings to become quasi-substitution forms. Such attempted uses of shop drawings should be rejected and returned as not in compliance with the contract.

Additional Contractual Protection

You should address material specification issues in your contract agreement including a provision that spells out and limits your responsibility. You and your attorney should consider contract language that has the client waive all claims and indemnify you from:

1. The specification and use of materials that are permissible under current building codes but that may, in the future, be discovered to be defective or harmful.
2. The use of any materials specified by the client, the contractor or other party to the construction.
   

While you would ideally want a contract clause with these provisions in all of your contracts, some clients may balk at including such blanket language. In such cases, you could forgo such a clause in the basic contract and add protection as an addendum in the event of a questionable product specification from the client or contractor. Regardless, make sure you coordinate any such provisions with any code compliance clause, as well as with the provision you have concerning toxic substances.

Conclusion

Contractual protection is a recommended safeguard for shielding yourself from liability for specifying materials that later prove ineffective or dangerous. The best protection, however, is taking every reasonable step possible to make sure the products you specify will perform their intended function in a safe and effective manner. There is no substitute for experience, research and common sense when specifying materials.

A final note of caution: If you have any business association or financial interest with a supplier that could influence your judgment in specifying a material, it is always best to reveal that association or interest to your client. Otherwise, if a claim occurs, a conflict of interest can be alleged with the client claiming that you specified a material for your own interest, rather than in the interest of the client.

Can We Be of Assistance?

We may be able to help you by providing referrals to consultants, and by providing guidance relative to insurance issues, and even to certain preventives, from construction observation through the development and application of sound human resources management policies and procedures. Please call on us for assistance. Singer Nelson Charlmers is a member of the Professional Liability Agents Network (PLAN). We're here to help.

Learn more about The Total Protection Program® and The HealthPlan Optimizer™, provided exclusively by Singer Nelson Charlmers.

Introduction 

Introduction

The following material is provided by Singer Nelson Charlmers for informational purposes only. Before taking any action that could have legal or other important consequences, speak with a qualified professional who can provide guidance that considers your own unique circumstances.

In today's economy, where projects can be rare and budgets tight, it is critical that you achieve adequate fees for all of the valuable services you deliver. You also need to take steps to help ensure that the project is adequately funded so that you receive full payment for the services you have agreed to provide. Here are a few tips to help you ensure that you end up with a satisfied client and an adequate profit at project completion. Some of these tips can also reduce your professional liability risks at the same time!

Draft a Full Scope of Services

Developing a comprehensive scope of services is an essential first step to basic project and budget management. The scope should solidify in writing exactly what services you will be providing on the project and, equally important, what services you are not being paid to provide. A comprehensive scope allows you to effectively budget time and resources for delivering your services and, as a consequence, deliver a more accurate and adequate quote for the project.

Discuss your scope of services with your client at the early stages of negotiations. Explain clearly and in detail the full scope of services you feel is necessary for a successful project. If the client chooses to forgo any of your recommended services, document your client's decision in writing, explaining that those services were recommended and offered, but refused. If the client agrees to your full scope of services, this gives you documentation for establishing an adequate and itemized budget.

From a risk management standpoint, you do not want to let your client forego services that you feel are critical to a successful project. In the event of a future claim, a judge or jury is likely to believe a plaintiff's argument that you, as an experienced design professional, were in a far better position to know what services were and were not needed for successful project completion. Accordingly, you could be found negligent because you did not insist upon performing a critical service whose omission feasibly allowed a problem to occur. Never mind that you told the client that the service was needed. Never mind that the client expressly said the service would be unnecessary or performed by others. You could still be held liable.

Charge an Adequate Fee

Don't undersell your services. Sure, there is always the temptation to shave off a few dollars here or there in order to increase your chances of getting the job. But do you really want a client who is looking for the lowest bid rather than the most qualified design professional and contractor?

Keep abreast of prevailing fees in your industry and locale. Is your fee structure in line considering your areas and levels of expertise and years in service? When was the last time you increased your fees? Have your costs increased for subconsultants, overhead and other expenses? Balance these factors with what you think the market will bear.

Similarly, if you are asked to provide cost estimates in your bid, be as realistic and thorough as possible. Make sure you are using up-to-date figures for materials, systems, etc. Present these figures as "opinions of probable costs." Let your client know these are not guarantees and that actual costs may differ.

Document Scope Creep

Consider this scenario: Your client agreed to an adequate scope of services, although he did forego some of your recommendations. The project's design phase is now complete. Over the course of the project there have been several add-on requests from the client. In addition, you have performed additional services due to your own oversights - the need for these services didn't become apparent until your design work had commenced. Now you present the client with an unanticipated, several-thousand-dollar bill for a wide array of additional services you did not individually document and bring to his attention at the time each service was performed.
 
How do you suppose the client reacts to these added charges? Does he say, "No problem!" and merrily sign the invoice to authorize payment? Or does he say, "What's this? Had I known this work involved this exorbitant fee, I never would have authorized it!"

Too often, the latter attitude prevails, creating the seed from which claims and lawsuits emerge. The client can refuse to pay, and you very well could wind up having to sue the client for payment of additional services. The client's likely response would be to sue you for negligence. Alternately, to keep the client happy, you could simply eat the extras and hope for a break-even project when all of your unbudgeted bills are paid.

To avoid this problem and maximize your revenues and profits, document every change in scope, including its cost. When the client authorizes you to go beyond the original scope, prepare a written change order or memo of acknowledgement indicating what the extra comprises and how much it will cost to perform. Have the client review and approve change orders in writing. Be sure that your change orders reference the basic contract and specify that all its terms and conditions apply.

By presenting your overall change budget buttressed by individual, signed change orders, your client will be far more willing to pay the extra cost and far less likely to sue you for negligence. Better yet, submit your change-order bills on a regular basis (e.g., monthly), so you can avoid the one-time presentation of a mountain of additional charges created from multiple changes over the life of the project.

Ask For a Contingency Fund

Few, if any, projects evolve exactly as originally planned. Educate your client about the possibility that he or she will be required to pay for a certain threshold percentage of project additions, omissions and errors, as well as other unanticipated costs, and encourage the client to plan for the resultant extra costs by setting aside a contingency fund.

A contingency fund establishes a certain percentage of the project budget to cover the normal "extra" costs that pop up in almost every project despite your best efforts to provide an accurate budget and perform to the prevailing standard of care. The percentage set aside in the fund should take into account the size, complexity and duration of the project. A 5%-10% contingency fund is not unusual for a standard project while a larger fund may be necessary for a complex project or one with many unknowns. Also, try to negotiate a contract clause that states your client will not sue you for extra costs within reasonable range of the contingency amount.

All changes paid for by the contingency fund need to be documented. To an extent, these added fees will fall into the category of "known unknowns," and, because they will have been budgeted, they should create little cause for concern. Plus, this contingency fund increases the chance that money will be there to pay you for all of the extra services you provide.

Contractual Rights to be Paid

There are other contractual measures you can take to increase the chances of being paid and to help avoid the problem of a countersuit related to client nonpayment. Add language to your contract that spells out payment provisions for services rendered and your rights to remedies in the event you are not paid according to contract terms. The more precisely you define the details of these payment terms and your right to enforce them, the more likely you'll receive prompt payment -- and the less likely your client will consider a counterclaim. Work with your legal counsel to draft the following billing and payment terms:

• Retainer. Require the client to make an initial payment upon execution of the agreement. Hold the retainer and apply it to the final invoice.
• Payment terms. Specify the timing of your invoices, e.g., weekly, monthly or upon completion of project phases. Specify the period of time for payment (e.g., upon delivery, net 30) and when payment is considered past due. It is always advisable to specify that payment for services rendered shall be due regardless of any subsequent suspension or termination of the agreement by either party.
• Interest. Establish interest due on late payments and how that interest rate is accrued. Also set how future payments are applied - e.g., first to accrued interest and then to the unpaid principal.
• Collections. Address how any collection costs will be recovered. Contractual clauses often specify that the client agrees to pay for all collection costs incurred, including legal fees, collection agency fees, court costs, reasonable consultant staff costs and other expenses.

 
What If Profits Don't Materialize?

Sometimes, a design firm may get toward the end of a project and realize that unanticipated or underestimated costs in delivering contracted services will result in a project that barely breaks even or may even result in a net loss for the designer. At this point, it may be necessary to just bite the bullet.

Biting the bullet means providing everything the client has been led to expect via the scope of services at the agreed-to fee, even if it results in zero profit. The logic for biting the bullet is basic: It is likely better from a long-term monetary standpoint to keep the client happy than to make the client unhappy, thereby risking loss of the client as well as client referrals. Also, the dollar loss associated with performing professionally -- i.e., applying the appropriate amount of quality control -- is a prudent investment in risk management, especially given the costs associated with litigation.

But biting the bullet should not always be your first choice, especially with long-term clients with whom you enjoy a good working relationship. These clients may be sympathetic and willing to pay an additional amount they feel is reasonable. Regardless, quality control should not be sacrificed. Professional performance is your top priority. By taking this approach, you can avoid problems, retain a client's business in the future, and learn an important lesson on profitability.

Can We Be of Assistance?

We may be able to help you by providing referrals to consultants, and by providing guidance relative to insurance issues, and even to certain preventives, from construction observation through the development and application of sound human resources management policies and procedures. Please call on us for assistance. Singer Nelson Charlmers is a member of the Professional Liability Agents Network (PLAN). We're here to help.

Learn more about The Total Protection Program® and The HealthPlan Optimizer™, provided exclusively by Singer Nelson Charlmers.

Introducing: The Law Firm Insurance Guru Blog

For law firms, 2011 is proving to be a watershed year. The most effective Managing Partners have spent the last two years retooling their firms to compete in today's business environment. At Singer Nelson Charlmers, we are constantly upgrading our capabilities and services to firm management to meet those challenges. Towards that goal, we are filling The Law Firm Insurance Guru blog with even more content.

The Blog

The goal of the blog is to stream effective insurance and risk management strategies to law firm managers. It is written with action items that are easy to implement for today's very busy Managing Partners.

The most recent blog post is: Goodyear Tire saved 6% on their benefits costs without
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• Goodyear Tire saved 6% on their benefits costs without a single plan change -
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• The 35% Healthcare Tax you never heard about!

• The 10 Point Professional Liability Insurance Comparison Checklist
• The 10 Point Professional Liability Insurance Comparison Checklist (Part 2)
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Introduction 

Unfortunately, no one is completely immune from theft. Whether you're looking to protect your home while you are away on vacation or simply away at work, your first line of defense is to thwart burglars. Consider the following tips.