Mitigating Design Risks for Architects & Engineers
From supply and demand fluctuations to new types of project delivery, the commercial construction industry is changing constantly. Besides the normal pressures of a complex building project on a tight timeline, added external pressures can impact the successful execution of construction projects. Regardless of who was at fault, seemingly minute mistakes can be costly and even lead to a lawsuit.
Design errors are one of the most common catalysts for a construction dispute. This involves not just GCs (general contractors), but especially any architects and engineers involved in the project design stages.
For brokers looking to serve this industry, this article will explain what architects and engineers do and how their work fits within a construction project, common risks that could lead to lawsuits, and ways to mitigate risk in this profession.
What Architects and Engineers Do
The design phase begins once a site has been purchased. From there, the owner and the architect work together to establish the program, the design criteria and the performance requirements of the building, for the project. Based on the program, the designer can then draw up the first round of designs of the building’s interior layout and floor plan.
Now, how does the architect ensure the new design is structurally sound? The answer is to bring on a structural engineer to evaluate the site investigation reports to determine the foundation design. The structural engineer’s fee is typically part of the architect’s fee proposal.
Once the owner approves the preliminary design, the architect creates the construction documents. Construction documents contain site building design specifications and all the fine details of the project. These are hefty documents, usually exceeding 100 sheets of drawings!
Now there is just one final step before the project can be handed over to a GC. The architect needs to apply for permits. To qualify, the architect and the engineers need to submit their own respective documentation.
Putting their Plans to Work
Because the designs and documents have been passed off to the GC, does not exclude the architect and engineers from liability risks. Industry experts attribute the risk to a number of factors.
First of all, the architect and engineer are trusted with the design of the project to the point where the GC may build solely based on what is on the plans. So, any missed detail in the plans could have disastrous effects, adding a huge amount of work and stress to the owner, GC, and subcontracts.
Consider, for example, what could happen if a design for a new home failed to account for a steep street, meaning the garage entry was too low for the car to enter. As a result, the property owner had to seek government permission to reduce the driveway incline. The amount of time and money involved in such a small mistake could lead to a lawsuit to recover some of that cost.
According to a recent study of 1,100 construction projects conducted by HKA, a leading global consulting firm in risk mitigation and dispute resolution, incorrect design was one of the top drivers of construction disputes. (1) From a risk management perspective, GCs have a huge incentive to hire designers that carry their own professional liability insurance.
A second risk factor is ongoing changes in the construction industry. Methods of project delivery are shifting towards a design-build model, in which one entity (the design-build team) works under a single contract with the project owner to provide design and construction services. GCs either subcontract architects and engineers or utilize their own in-house design team. For GCs, this means that general liability is not enough to cover the risks they take on with their new scope of services.
Mitigating the Design Risk
When it comes to preventing errors and mitigating claims of negligence, experts agree that sufficient time for the design process is crucial. In an industry where projects are often rushed and subcontracts are pressured to cut corners, having enough time up-front can save an architect from costly errors down the line.
Another key to minimizing claims from the outset is in the contract. A contract that not only includes reasonable timelines for the project, with enough time for the design but also clearly defines the scope of services, is key to not just preventing claims but also in the event of a claim. (2)
Quickly becoming a requirement rather than a nice-to-have, Professional Liability Insurance is a third and final tool in the architect and engineer’s toolbox when it comes to minimizing risk.
About SWG PL: A&E Insurance
SWG PL – Architects & Engineers Liability insurance offered as a combined E&O and CGL policy, covers the exposures faced by architects and engineers of various disciplines. Our policy is ideal for small to large-sized firms operating in various disciplines, from mechanical, electrical, structural, and civil, to architectural.
Coverage Highlights
● Combined E&O and CGL form
● Limits range from $250,000 to $5,000,000 on a claims made basis for E&O
● Limits available up to $10M for CGL
● Single Project Policies
● Excess Policies
● Defence Costs outside of the limits available
● First Dollar Defense available
● Pollution Coverage available
● Mould Exclusions Buy Back
● Asbestos Exclusion Buy Back
● No Condominium Exclusion under the program
● Water ingress coverage for buildings with “rain screen” technology
● Broad appetite of risk types, such as structural, oil & gas, mechanical, civil, landscape architects, urban planners, electrical engineering, HAVC engineering, Interior design and Construction project manager etc.
● 15% commission to our brokers
Please see our product page at https://swgins.com/product/architects-and-engineers.html for more info.
**Insurance coverage may differ across provinces.
*Content is current as of the date of broadcast and is subject to change without notice.
Sources:
1. Covering all the ‘foundations’ with contractors professional liability
