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Willis A&E Presents
Taking The Pulse Design & Construction Risk Trends
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Willis AÐE Architects & Engineers Insurance Experts
Exclusively dedicated to A&E for over 30 years
Over 500 Design Firm Clients
Full-Service P&C and EB Independent Agency
In-House Claims Expertise and Advocates to our clients
Contract Review and Negotiation support
AIA Certified Education Provider
THE A&E Professional Liability Experts!
www.WillisAE.com
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True or False
The standard of care for Architects and Engineers is perfection.
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Liability of a Consultant
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.
General liability insurance covers bodily injury and property damage.
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Where are most A&E claim dollars spent?
A) Claims due to economic loss
B) Claims due bodily injury
C) Claims due to property damage
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Types of Damages
0% 10% 20% 30% 40% 50% 60%
Bodily Injury -Construction
Bodily Injury -Other
Property Damage
Economic Loss
% of Claims Dollars
% of Claims Count
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Who Sues A&Es (the most)?
A. Third Party
B. Owner/Client
C. Contractor
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Who Sues A&Es?
0% 10% 20% 30% 40% 50% 60% 70%
Claim by Contractor orSubcontractor
Owner/Client
Third Party
% of Claims Dollars
% of Claims Count
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Comparative Claims Experience
0.0% 10.0% 20.0% 30.0% 40.0% 50.0%
Architect
Civil
Structural
Mechanical
Electrical
Other Claim Dollars
Claim Count
Fees
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True or False
Most claims against A&E firms are due to technical errors.
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The Top 4Non-technical Contributors
1. Negotiation and Contract
2. Client Selection
3. Project Team Capabilities
4. Communication
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Negotiation and Contract Issues
Contract not:--The firm's own--Reviewed by counsel--Based on industry standard8%
Lack of mediation clause in client agreements 4%
Scope of construction phase services not employed12%
Unclear and inappropriate scope of services26%
Client-authored agreements not reviewed by senior management8%
Contract not in place before work began8%
Deal-breakers in contract4%
Did not formally evaluate project and associated risks before contract signed30%
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Client Selection Issues
Client not knowledgeable in project/design issues16%
Client in poor financial condition10%
Client history of claims and litigation16%
Client not paying design, contractor fees10%Other
16%
No formal review of client10%
Contractor selection: QBS vs. fee shopping22%
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Project Team Capabilities Issues
Territory of project outside of firm's normal territory4%
Unqualified design staff assigned to project45%
Other9%
Insufficient number of staff4%
Inexperienced project manager34%
Unqualified on-site staff assigned to project4%
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Communication Issues
Project staff not aware of their responsibilities10%
Scope of services were not clearly explained to client4%
Other4%
Project issues and potential disputes not handled correctly8%
Lack of documentation regarding changes in scope10%
Lack of procedures to identify or address conflicts, omissions or errors64%
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Frequency and Severity by Project Type
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
Comm/Ind <= 9 stories
Other
Schools through grade 12
Single family residence
Single Family residential subdivisions
Residential condos (new)
Malls, shopping centers, retail stores
Wastewater/Sewage treatment plant or system
% of Claims Dollars
% of Claims Count
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Elements Most Often Involved
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
HVAC
Roof
Walls
Surveying
ConstructionAdmin.
% of Claims Dollars
% of Claims Count
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Types of Claims
-Water infiltration
-Delays/Additional costs
-Violation of Code
-Coordinate Sub-consultants
-Calculation errors
-Site observation inadequacy
-Incomplete plans
-Meeting client expectations
-Outside area of expertise
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True or False
Performance of construction observation on your projects can reduce your exposure to claims.
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True or False
A design professional can amend the contract after it is signed simply by virtue of his or her conduct.
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It Ain’t Easy Being Green
-Make sure your contract has a proper discussion of Standard of Care. The idea of third-party evaluation is involved.
-Do not commit to reaching any LEED Certification Level. Endeavor to reach certification levels.
-If any developer type is involved, check their marketing plan.
-Pay close attention to documentation relative to requirements and attempts to meet those requirements.
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A&E “Deal Breakers” and “Deal Makers”
•Mediation
•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 anything)
•Indemnities (not limited to your negligence, or defend obligation)
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More Makers & Breakers
•Insurance (containing unattainable requirements)
•Jobsite Safety/Construction means, methods, techniques, sequences or procedures
•Liquidated Damages
•Permits and Approvals - “assist” only!
•Lender Requirements - mandatory cooperation clauses
•Stop Work Authority
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Design Build
IPD
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Types of Design-Build Entities
Integrated Firm
Prime
Joint-Venture
Contractor withA/E Sub
A/E withContractor Sub
In-house A/EProfessionals &
Contractors
A/E &Contractor
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Other Variables in Structuring Integrated Projects
• Engineers and major trade contractors (or even vendors) may be prime participants
• Individual companies may be “subdivided” for insurance and liability purposes
• The degree of ownership participation may vary
• The number of permutations of various project structures is too large to categorize usefully.
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IPD Is Attitude and Behavior, Not Structure
Structure is important primarily insofar as it creates incentives to cooperate closely.
The key to integrated behavior: furthering teammates’ interests as if they were your own.
“Old Dogs” need to learn “New Tricks.”
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Benefits to the Owner
Quality:
High quality design and construction because the A/E plays a major role and is responsible directly to the owner.
Direct contract and communication between owner and A/E regarding issues of quality and design.
Complete continuity regarding preferences and objectives throughout the design and construction process
A win-win process whose economics encourage participation by quality A/E and contractors.
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Benefits to the OwnerEase of Budgeting:
Early determination of project costs in the design development stage.
Cost-effective design due to the designer’s access to construction and pricing information during the design phase.
Delivery of project within budget (lump sum or GMP) with reduced likelihood of cost increases and overruns.
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Benefits to the OwnerFlexibility in Procurement:
No need for a cumbersome bidding or RFP process, but typically “open book” for the trades.
The Owner can begin a project traditionally while maintaining the option to convert to integrated delivery later in the design phase.
Fast Delivery:
Shortened project duration from fast-tracking without loss of cost control.
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Benefits to the OwnerFewer Claims and Disputes:
Avoidance of “lowball bidding” where the Contractor wins the project by bidding below actual cost, counting on change orders and claims to make a profit.
Improved and more efficient administration of construction due to absence of adversity between the A/E and Contractor.
Low incidence of claims or litigation seeking additional compensation.
Single point responsibility for the project, with the project team accepting responsibility for functional problems without the Owner having to adjudicate finger-pointing among project participants.
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Benefits to the ArchitectAdditional Profits:
Sharing in project savings.
More efficient design – less labor during Construction Documents phase.
Sharing in the construction revenue (profiting from increased efficiency).
IPD is more efficient: it minimizes waste.
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Contractor’s Design Phase Servicesin an Integrated Project
• Costing, estimating value engineering
• Assistance in analyzing owner-provided information
• Constructability analysis
• Preliminary scheduling
• Checking design to anticipate problems
• Acquisition of long-lead items
• Procuring subcontractor participation and quotes
• Negotiation with subcontractors/vendors
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Architect’s Design Phase Servicesin an Integrated Project
• System-by-system design, with “looping” feedback from trade contractors
• Informal communications rather than “defensive detailing”
• Greater number of alternative designs
• MEP design only schematic, completed by trade contractors
• Acceptance of greater-than usual price constraints
• Out-of-sequence provision of design details, bid packages
• Heavier reliance on performance specifications
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Construction Phase Servicesin an Integrated Project
By the Contractor:
• Anticipation and avoiding or minimizing the consequences of design problems
• Fast-tracking the construction
By the Architect/Engineer:
• Informal provision of supplemental design information
• Cooperative approval of substitutions
• Cooperative trouble-shooting and problem-solving
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Benefits to the Architect/Engineer
Marketing Advantages:
Ability to guarantee price and schedule.
Offering Owner the option of delaying the project structuring decision.
Cultivating contractors as a source of work.
Ability to promise maximum efficiency.
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Benefits to the Architect/Engineer
Control Over Construction:
Avoiding unwise design changes.
Minimizing bad publicity from design problems.
Increased satisfaction from accepting responsibility for entire project.
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Benefits to the Architect/Engineer
Reduced Liability:
Minimizing claims due to cooperative rather than adversarial administration.
No claims from obvious design omissions.
Construction accidents insured by Contractor.
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Benefits to the Contractor
Projects often developed by A/E and presented to Contractor “on a silver platter.”
Negotiated pricing rather than competitive bidding.
Enhanced relationships with Subcontractors/Suppliers.
Reduced likelihood of claims/litigation.
Increased profits from reduced overhead (see next slide).
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Increased Profits for Contractor
Little or no marketing overhead for the project.
Cost analysis virtually certain to result in winning the project or being compensated.
Minimal contingency for bidding errors/oversights.
No contingency for adversarial administration.
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Thank You!
Willis AÐE Architects and Engineers Insurance Experts
www.WillisAE.com
