20 Risk Management Ideas
G. William Quatman, FAIA, Esq. Shughart Thomson & Kilroy
Kansas City – Denver – Phoenix www.stklaw.com
Risk Management Tip #1
Don’t Do Condos!
– Only true way to avoid liability
CONDOMINIUMS
Risk Management Tip #2
Do good work
–The best defense
Risk Management Tip #3
Set Up Separate LLC, like the Developer did
Sounds Good, BUT . . .
– Difficult to Insure – Developers Will Want Certificates of Insurance
Risk Management Tip #4
Disappearing Developers?
Work with Experienced Developers Who Retain a Management Interest in the Project
Ask for Project Experience & Financials Take Projects with Realistic Budget & Schedule
Risk Management Tip #4
Do A Background Check
Search Dunn & Bradstreet (D&B) Court and “PACER” Search Secretary of State Corporate Search Other Architects
Risk Management Tip #5
Property Management
Developer retains maintenance duties
And ownership of building exterior
– Roof, Walls, Windows
For period of Statute of Repose Then deed back to HOA
Risk Management Tip #6
Steel Frame or Concrete
Paperless Gypsum Board Breathable Vinyl Wallcovering Peer Review HVAC and Acoustics
Risk Management Tip #7
Require “Pollution Liability” Insurance
– from Contractors & Subs
Find Contractors with Mold programs
Awareness
Risk Management Tip #8
Mock Up Unit Mock Up Wall Systems – Water Test – “Measure Twice,
Cut Once”
Can Be Sales Office; Field Office
Risk Management Tip #9
Special Consultants for: – Roofing, Building Skin – Waterproofing – Acoustics inspections + certifications during construction
Developer Hires
Know About EIFS !!
Contractors ARE NOT Insured Are You Still Specifying It??
Risk Management Tip #10
Insist on Contract Administration
– You Cannot Fix What You Do Not See – WALK AWAY from Developer who “Just Needs Plans”
Staff Appropriately Document, photograph – everything
Risk Management Tip #11
Internal Condo-Project “Risk Management” Evaluation – Completed by Project Architect/Principal – Review by General Counsel/Executive Committee – Make list of “deal breakers” – Be Prepared To Punt !!
Risk Management Tip #12
Control Re-Use of Documents/Designs
– Keep Standard Clauses – Condos often in “phases”
Owner-Architect Contract
Contract Ideas
Risk Management Tip #13 & 14
1. Super-Majority Required (to Authorize Lawsuit)
– All Voting Members Present – 80% Must Approve Suit
2. Prevailing Party Attorney’s Fees Clause
– Unit Owners will think twice if faced with paying YOUR attorney’s fees – Even if their lawyer is free (contingent fee)
Risk Management Tip #15 & 16
3. Pre-Suit Mediation Always
– 75% to 90% Success Rate
4. Jury Trial Waiver (or Arbitration)
– May prefer Court (summary judgment) – All Jurors are Homeowners
Risk Management Tip #17
6. Independent Expert Review Before Suit “Certificate of Merit” Even if no State statute Require By Contract
AFFIDAVIT I, Joe Architect, do certify that after due investigation, I find that there has been a violation of the Standard of Care . . .
Risk Management Tip #18
7. Long Term Surety Bonds – Avoid “Last man standing” – Add 3 to 5 year “Maintenance Bond” – May be no Insurance . . . But Bond guarantees Contractor’s Warranty
No Residential, EIFS, Mold Exclusions!
Risk Management Tip #19
8. Unit Owners Inspect Unit and Sign “Certificate of Satisfaction”
– Establish a Benchmark – Photo Condition of Unit
AC D PTE CE
Risk Management Tip #20
12. Web-Based Warranty Monitoring Program
– All warranty claims reported to:
Property Manager Contractor Architect
– Use web-based program to:
Track claims & response time Look for systemic or recurring problems Show No Record of Certain “Defects”
“Right-To-Cure” Laws
As Of 2006
30 States Have Some Form
Mostly Written By Homebuilders Cover “Builder” or “Contractor” ONLY 16 Cover “Architect” or “Design”
No Protection in 34 States !!
4 3 9 8 5 6 ?? 11 10
2 34 States = No Protection 7 Architect for 1
12 13 14
15 – Alaska 16 – Hawaii
Write To AIA On Monday
Make This #1 Legislative Priority For 2007 !!
State Chapters National AIA
Right To Cure Laws
Cover “Residential” (21 say “condo”) Some Cover ALL Construction Requires Written Notice of Defects – Options: Inspection Offer to Repair Offer to Settle Dispute the Claim
Right To Cure Laws
Lawsuits Dismissed if Steps Not Followed
Mediation & Arbitration Provisions Suspension of Statute of Limitations Settlement Offer Must Be Explained to HOA members before vote to sue Contract Notice Required in 50% of States
Right To Cure Laws
Notice to Owner
[State] law contains important requirements you must follow before you may file a lawsuit for defective construction against the contractor who constructed your home. Ninety days before you file your lawsuit, you must deliver to the contractor a written notice of any construction conditions you allege are defective and provide your contractor the opportunity to make an offer to repair or pay for the defects. You are not obligated to accept any offer made by the contractor. There are strict deadlines and procedures under state law, and failure to follow them may affect your ability to file a lawsuit.
Right To Cure Laws
If Contract Notice Not Given, Statute Does Not Apply
Many, Many Variations
Don’t Wait on Legislature
If no Statute in Project State:
– Adopt this By Contract
Incorporate into Owner-Architect Contract
And HOA By-Laws And Purchase Agreements
The Condo Crisis:
Condominiums are one of the fastest growing building types in America—with a higher than normal risk for architects. Insurers report a disproportionate number of claims against architects related to multi-family housing, especially condos, leading to higher rates, higher deductibles and caps on the amount of condo work by an insured firm. Construction defect litigation related to condo projects is on the rise, particularly in certain states—leading to special legislation in at least 27 states to date. With increasing demand for urban housing, the AIA Trust believes that architects who engage in condominium projects should take special measures to protect themselves. By following the links on the right, AIA Members may access tools to help you and your clients evaluate and reduce the risks associated with condo projects.
This information is provided as a member service and neither the Author nor the AIA Trust are rendering legal advice. Laws vary by state and members should seek competent legal counsel to evaluate these suggestions and to advise the member on proper risk management tools for each project.
The Resources:
Risk Management Ideas for Condominium Projects
CLICK DOCUMENT TITLE TO DOWNLOAD:
› White Paper and Executive Summary (pdf) › A. Risk Management Ideas (pdf) › B. Sample Condominium Contract Clauses (doc) › C. Form Letter Requesting Financial Information (pdf) › D. Project Evaluation Form (pdf) › E. The Uniform Condominium Act (pdf) › F. 50 State Survey on Joint and Several Liability (doc) › G. “Right to Cure” Laws (doc).
www.theaiatrust.com