The 10 Commandments of Risk Management For the Design by pptfiles


									Willis A&E
THE Architects & Engineers Insurance Experts
The 5 Commandments of
Risk Management For the
      Design Firm
                        Willis A&E
ØExclusively dedicated to A&E for over 30 Years
ØProfessional Liability Specialists
ØOver 500 Design Firm Clients
ØOffices in over 120 Countries
ØFull-Service P&C and EB Independent Agency
ØIn-House Claims Expertise and Advocates to our clients
ØContract Review and Negotiation support
ØAIA Certified Education Provider

ØRisk Management Education – Webinars, Resource Library and Seminars

Willis is a Certified AIA
Education Provider
If you would like to obtain AIA credits for
participating in this course, please complete
the AIA Credit Request form found on our
website at
This program is registered with the AIA/CES for
continuing professional education. As such, it
does not include content that may be deemed or
construed to be an approval or endorsement by
the AIA of any material of construction or any
method or manner of handling, using,
distributing, or dealing in any material or
product. Questions related to specific materials,
methods, and services may be addressed at the
conclusion of this presentation.
         Willis A&E’s 5
1) Contracts are thy friend
2) Thou shall not assume liability above the
standard of care
3) Thou shall define thy scope
4) CYA with CA
5) Thou shall document – Wisely!
      The Cost of a Claim
•Deductible out of pocket expense
•Potential loss in excess of available limits
•Insurance costs for firms with poor loss history
•The emotional stress and hassles of a claim
•Loss of client relationships
•The significant distraction to your firm’s practice
•Your firm’s reputation
   Risk Management 101
•You can transfer your risks by insurance.
•You can transfer your risk by contract.
•You can assume and control your risk.
•You can avoid risk.

    You better be doing all of the above.
True or False
The standard of care for Architects and
Engineers is perfection.
  Insurance/Liability 101
The liability of a Consultant is based on the
principles of negligence.
The liability of a Contractor is based on warranties
and guarantees.
Professional liability insurance covers a Consultant
for their negligence and contractual E&O.
General liability insurance covers bodily injury and
property damage.
     Who Sues A&Es
      (the most)?
A.   Third Party

B.   Owner/Client

C.   Contractor
Who Sues A&Es?
Comparative Claims
     Where are most claim
        dollars spent?
A)    Claims due to economic loss

B)    Claims due bodily injury

C)    Claims due to property damage
Types of Damages
     Frequency and Severity by Project Type

     Why Are Condo Projects The
       Riskiest Project Type?
1. 3rd Party Exposures
2. Emotionally Charged exposure
3. Multiple potential claimants
4. Single purpose LLC
5. Developer client
6. Plaintiff attorney
7. HO Association

True or False
Very few professional liability claims stem
from non-technical aspects of a design
        The Top 4
Non-technical Contributors

1. Negotiation and Contract
2. Client Selection
3. Project Team Capabilities
4. Communication
Negotiation and Contract
Client Selection Issues
Project Team Capabilities
Communication Issues
True or False
The use of absolute words, such as any, all,
complete, final can impose absolute
conditions on you that may be impossible to
True or False
Personnel policies have very little to do with
a design firm’s risk management profile.
True or False
A simple letter agreement gives the design
professional all the protection needed for
small projects.
True or False
You should always try to get a clause in your
contracts that requires arbitration as the first
step in the dispute resolution process.
True or False
Use of the word Supervise can imply you
have control over a jobsite - and thus
responsibility for safety.
True or False
A design professional can amend the
contract after it is signed simply by virtue of
his or her conduct.
True or False
Performance of construction observation on
your projects can reduce your exposure to
True or False
The Prime A&E, and all their sub consultants,
should be named on the GC’s GL policy on a
primary and non-contributary basis.
True or False
Documentation is overrated.
        Contracts Are Thy Friend
•Agreements are the best vehicle the A/E has
in establishing expectations and educating
their client.
•A verbal agreement is worth the paper its
written on
•It is much more difficult to negotiate the
terms of the agreement after the work has
•Know your agreements. Make sure your staff
does too.
     Thy Contracts Continued
•Have standard terms and conditions with key
words/phrases– use as a baseline for all
•Get your attorney or broker to review
unfamiliar wording
•Learn how to negotiate
•Know the “deal breakers” and “deal makers”
•Remember, nobody benefits from an
uninsurable agreement
Thou shall not assume liability above the
            standard of care
Define the standard of care in your agreements:
“In providing services under this Agreement, the
Consultant will endeavor to perform in a manner
consistent with the degree of care and skill ordinarily
exercised by members of the same profession
currently practicing under similar circumstances”
NOTE: Legal Standard of Care is minimum a
reasonable designer would do.
   Standard of Care (Continued)

•Liability over/above standard of care= potential
uninsured exposures.
•Don’t warrant/guaranty/certify success of the
•Don’t agree to “perform to the highest
•If possible, establish a contingency fund
•Educate your client
      Thou Shall Define Thy Scope
Important: Your scope of services should be
  clearly defined and consist of three parts:
1)Services performed for a basic fee;
2)Services that are available for an additional
3)Services that specifically excluded because
  the client has refused them, has agreed to
  have them performed by another party or
  because the consultant does not provide
                     CYA with CA
•Construction observation is important in reducing your
exposure to claims.
•Observation versus Inspection
•….shall visit the site at intervals appropriate to the stage of
construction (avoid “periodic”)
•The purpose of construction observation is NOT to “guard the
owner against all defects” or to “ensure strict conformance with
the contract documents”.
•Your contract should clearly describe the extent of your CA
•In the event you are not responsible for CA your contract
should be clear in holding you harmless.
•EVERY agreement should include a clause stating that you are
not responsible for job-site safety and means and methods.
            …more CYAing…
•Your contract should clearly describe the
extent of your CA services.
•If not responsible for CA your contract
should b clear in holding you harmless.
•EVERY agreement should include a clause
stating that you are not responsible for job-
site safety and means and methods.
        Thou Shall Document - Wisely
Every firm should have clear procedures regarding
Forms of documentation:
            1. Executed agreement
            2. Certified mail
            3. Memo to file
          The Dark Side of
•Documentation is a double-edged sword
•Beware of documenting anything regarding
site-safety or means & methods
•Beware of email AND voicemail
•Beware of field notes
•Beware of brochures bragging to be “better
than the best”
    It Ain’t Easy Being Green
•Use of innovative products and techniques
can often heighten risk to the design firm.
•Need for sophisticated maintenance and
untested/unknown life span of materials –
and benefits
•Warranty versus negligence based
•Owner’s definition of “Green” may vary…
•Don’t warrant or guarantee anything.
           Contract Negotiations
          Deal Makers & Breakers
•Hazardous Materials
•Jobsite Safety
•LOL – waiver of consequential damages
•Ownership of Instruments of Service
•Termination (one sided)
•Assignment (without your consent)
•Certifications, Guarantees and Warranties (by you of virtually
•Indemnities (not limited to your negligence, or defend obligation)
     More Makers & Breakers
•Insurance (containing unattainable requirements)
•Jobsite Safety/Construction means, methods,
techniques, sequences or procedures
•Getting Named on GC’s GL!
•Liquidated Damages
•Permits and Approvals - “assist” only!
•Lender Requirements - mandatory cooperation
•Stop Work Authority
True or False
To help keep legal fees down, it is important
to wait as long as possible before reporting a
problem to your professional liability
insurance carrier.
     Dan Buelow
  Managing Director
     Willis A&E

     Willis Tower
  Chicago, IL 60606

To top