Basic Risk Management For Consulting Engineers

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Course P-3006
Basic Risk Management for Consulting Engineers

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BASICRISKMANAGEMENT for CONSULTINGENGINEERS

i BasicRiskManagementforConsultingEngineers|PDHengineer.com
2011W.L.Christy,Jr.,TCCG.Portions2011DecaturProfessionalDevelopment,LLCAllrightsreserved
BASICRISKMANAGEMENTforCONSULTINGENGINEERS TABLEOFCONTENTS
Section1 OVERVIEW 1
Section2 RISKMANAGEMENTSTRATEGIES 2
Section3 CONCEPTSandTHEORIESofLIABILITY 6
Section4 CONTRACTS 12
Section5 INSURANCEANDBONDS 22
Section6 SUMMARY 38 PROJECTRECORDS& PROFESSIONALCONDUCT 28
ii BasicRiskManagementforConsultingEngineers|PDHengineer.com
BASICRISKMANAGEMENTforCONSULTINGENGINEERS
Section1
ConsultingEngineeringencompassesavarietyofdisciplinesandaverywidevarietyof professionalservices.Itisinherentlyariskybusiness.Themerefactthatanindividualmust becertifiedandissuedalicensetoperformcertaintechnicalservicesimpliesthataminimum levelofcompetenceisrequired.
OVERVIEW
Regardlessofhowcompetentanengineerisorthecaretakentoperformimpeccably,conflict, atsomelevelofcriticality,caneasilyariseatsomepointduetomiscommunication, unforeseencircumstancesorjustplainoldunintentionalmistakes. Whetherwelikeitornotweliveinalitigioussociety.Duringthepasttwentytotwentyfive yearstherehasbeenanexplosionofclaimsagainstarchitectsandengineersprecipitatinga liabilitycrisiswithintheprofessions.Simultaneouslyandlargelyinresponsetothese circumstances,theconceptandpracticeofriskmanagementhasbecomemoreandmore relevantandnecessaryforsurvival.Beforeanindividualororganizationcaneffectively develop,implementandpracticeriskmanagementitisessentialtounderstandthefollowing: TheoriesofLiability(mostlythosethattypicallyconfrontaconsultingengineerona daytodayorprojectbyprojectbasis), Conflict, Claimsand, Litigation Riskmanagementcanbedescribedasacollectionofrelatedguidelines,rules,practicesand proceduresdesignedto: Assesspotentialriskinparticularsetsofcircumstances(e.g.adefinedscopeofworkor project) Preventcircumstancesoreventsthatcanleadtoconflict,claimsorlitigation Mitigateconflictifitarises Minimizeliabilitythroughouttheprocessofdisputeresolution
Aneffectiveriskmanagementprogramshouldemploybothproactiveandprotective strategies.
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Section2
RISKMANAGEMENTSTRATEGIES
ProactiveStrategies:
ElementsofaSoundProactiveStrategy 3 3 3 4
ImportanceoftheIndividualinEffectiveRiskManagement IndicationsandSignsofPotentialConflict
ActionItemsforConflictManagementandMitigation
ProtectiveStrategies:DisputeResolutionviaLegalProcesses
Litigation Mediation Arbitration 5 5 5
Section2
ProactiveStrategies:
ElementsofaSoundProactiveStrategy:

RISKMANAGEMENTSTRATEGIES
ContinuousEnhancementoftechnicalexpertiseandcompetence Readyavailabilityofcompetentbusinessandlegalsupport Effectivedesignmanagement Thoroughunderstandingofprojectscopedefinition Strongqualityassuranceprogramsandeffectivedocumentationprocess Establishmentandnurturingofpersonal/professionalrelationshipswithclients, subcontractors,vendors,andifapplicable,withthepublic Regular,periodictrainingorcontinuingeducationonthenatureoflegalliability andriskmanagement
ImportanceoftheIndividualinEffectiveRiskManagement:
Regardless of the thoroughness of a risk management program, its effectiveness is largely dependent on how well an individual exercises good risk management practices on a day to day,projectbyprojectbasis.
IfanindividualiswelltrainedinthecomponentsoftheProactiveandProtectiveStrategiesand is able to immediately recognize the signs leading to conflict or litigation, chances are the situationcanbemitigatedataveryearlystageminimizingoreliminatinganypotentialloss.
IndicationsandSignsofPotentialConflict:
Thefollowingaresomecommoncircumstancesorsituationsthatcanbeanindicatororsign ofimpendingconflictthatcouldleadtoclaimsorlitigation: Initiating or performing out of scope work without written authorization, a contract or proper documentation. Such action most typically results in confusion over the scopeofwork,termsandconditions,and/orchangeorders. Vagueorambiguousscopeofworkdefinition. Any injury on the job site or a job site condition that is recognized by more than one individualas"hazardous".
Use of the word '"estimate." In the world of service contractors, the word estimate typically infers a not to exceed cost for performing a specific technical task that may or may not include parts and materials. For the consulting engineer a more appropriate and less binding term to convey similar information would be the phrase "opinionofcosts." Trading: Persuading a contractor to perform extra work (made necessary by an omission or error in the drawings and/or specifications) by allowing him, in return, to omitanotherspecifiedrequirement. The gratuitous gesture: Providing a contractor with more information than required implies a voluntary sharing of his problemsolving tasks and may lead to a sharing of potential liability for the contractor's performance. The engineer should focus on his/herownclearlydefinedtasksduringaconstructionprocess. Unreturnedphonecallsduringaperiodofattemptedproblemresolution. Inabilitytocollectfees.
ActionItemsforConflictManagementandMitigation:
ActionItem1: Remaincalm.Emotionservesnopositivepurposeinsuchsituations.It actuallyworsensthesituation.Whenaclientorcontractormakesanaccusation,donot retaliatebycounteringorattemptingtoinjurethepersonororganizationmakingthe accusation. ActionItem2: DONOTautomaticallyassumeresponsibilityforthesituationnomatterwhat thefactsappeartobeatthemoment.Oncetheengineerdoesthisandcommunicatesitto theotherpartiesconnectedwiththelossorpotentialloss,itisvirtuallyimpossibletoundothe resultingdamage.Thishabitorpracticeofacceptingblameorresponsibilityprematurelyisso prevalentamongwellmeaningbutuninformedengineersthatmanyotherprofessionalshave categorizeditasTheGoodGuySyndrome. ActionItem3: Communicate.Whileoneshouldnotassumeresponsibility,neithershould onefailtocommunicate.Shyingawayfromthesituationandhopingitgoesawaywillonly causethesituationtoworsen.Bealertingatheringasmuchpertinentinformationaspossible. Ifapersonalattorneyoracompanyattorneyisinvolvedatthispoint,carefullyadheretotheir adviceregardingthesharingofinformation,andkeeptheattorneyinformedregardingall developmentsinthesituation. ActionItem4: Notifythepersonalorcompanyattorneyimmediatelywhenthereare indicationsthatthepotentialforaclaimorlitigationmightbeimminent.DONOTwaituntil thesituationhasdevelopedtosuchastatethatnegotiationsareimpossibleandspecial strategiesareuseless. 4 BasicRiskManagementforConsultingEngineers|PDHengineer.com
ActionItem5: DocumentandPhotograph.Whenthereisevidencepointingtoapotential liabilityclaim,immediatelygatherallprojectfilesandmakedetailednotesofanyandall relatedcommunications.(SeeRecordsareDiscoverableinSection6).Neverrelyonrecall. ActionItem6: Keepseekingalternativesandsolutionswithguidancefromtheattorney.
ProtectiveStrategies:DisputeResolutionviaLegalProcesses
Litigation
Litigationistheactorprocessofbringingaboutorcontestingalawsuitutilizingthetraditional courtsystemandisthemostwidelyusedmethodofdisputeresolution.Therearetwo reasonsforthis: (1)anindividualorcompanycanexercisegreatercontroloverlitigationthanoverotherforms ofdisputeresolution,and (2)ifaformofdisputeresolutionotherthanlitigationisused,manyinsurancecarrierswill waivecertaininsuranceandlegalrights.
Mediation
Mediationisaprocessinwhichaneutralintermediaryagentworkswithbothsidesfacilitating communicationbetweenthepartiesinadisputeinanattempttobringconsensusoutof dispute. Mediationcanbegenerallydescribedasanonbindingconciliatoryprocesswhereinthe partiesspecifytheleasttheywilltake,andarbitrationisoftentermedasanadversarial processwhereinthepartiesaskforthemosttheycanget.
Arbitration
Arbitrationistheprocessofresolvingdisputesbetweenpeopleorgroupsbyreferringthemto athirdparty(notajudge),eitheragreedonbythemorprovidedbylaw,whosubsequently makesajudgmentatahearing. Manycompaniesdonottypicallysubscribetoarbitrationsincegreatercontrolcanbe exercisedinlitigation.However,arbitrationmaybeappropriateincertaincircumstances. Advanceagreementtoarbitrationshouldbeavoided. Thearbitrationprocessprovidesthepartiesinvolvedwithavoiceinselectingthearbitrator(s). Thearbitratorisgrantedsignificantpowersbythepartiesandbylawandhastherighttoissue subpoenas,fixthedateofhearing,grantpostponement,andproceedwiththehearinginthe absenceofapartywhofailstoappear. 5 BasicRiskManagementforConsultingEngineers|PDHengineer.com
Section3
CONCEPTSandTHEORIESofLIABILITY
FormsofLiability:
ContractualLiability ProfessionalNegligence 7 7
TheoriesofLiabilitythatCommonlyConfronttheCE
BreachofContract Negligence 8 8
NegligentActsorOmissions Negligenceperse
BreachofWarranty
TheoriesofLiabilityEvolvinginProfessionalLiabilityClaims
StrictLiability 9
ProductsLiability Ultrahazardousactivities
Fraud
10 10
CriminalLiability
CommonDefensesAgainstTheoriesofLiability
ContributoryNegligence ComparativeNegligence AssumptionofRisk 11 11 11 11
StatuteofLimitationsandStatutesofRepose
Section3
CONCEPTSandTHEORIESofLIABILITY
TwoFormsofLiabilitythatCommonlyConfronttheConsultingEngineer
ContractualLiability,and ProfessionalNegligence
Twoseparatetheoriesofliabilitycomprisethelegaldefinitionofprofessionalmalpractice: 1) contractualliability(liabilityarisingoutofcontract)and, 2) professionalnegligence(liabilityarisingoutoftort). Professionalmalpracticeisanareaoflegalpracticethatdealswithanindividualprofessionals orabusinesswrongdoingornegligencethatcausesinjuryordamageandtypicallycarries connotationsofimpropriety.Examplesofprofessionalmalpracticearebreachoffiduciary duty,fraud,mismanagement,errorsinjudgment,misconductandcarelessness. Atortisaprivateorcivilwrongfulact,independentofacontractortrust,thatresultsininjury toanother'sperson,property,reputation,orthelike,andforwhichtheinjuredpartyis entitledtocompensation. Themajorityoftortsarecompleteandcompensationmustbemadewhenthereisconduct, causation,faultanddamage. "Faultassumesthreeforms:malice,intention(includingrecklessness)andnegligence. Moresimplyput,inatortcase,threeconditionsmustexist:
1. 2. 3. Existenceofalegaldutyfromdefendanttoplaintiff Breachofduty(resultofnegligenceorintentonthepartofdefendant) Damage(plaintiffsuffereddamagesasprobableresultofdefendant'sbreachofduty)
Withintheboundsofcontractualliability,therelevantquestionis: Didtheprofessionalreasonablysatisfythespecificobligationsdefinedinthe contract? Regardingprofessionalnegligence,thequestionwouldbe: Weretheprofessionalservicesreasonablyperformedinamannerconsistentwiththe education,experience,andskillordinarilyexercisedbyreputablemembersofthesame profession,inthesamegenerallocalityand,undersimilarcircumstances? Amongotherfactors,negligenceisthefailuretoapplyastandardofcareinasituationthat resultsindamagestopropertyorinjurytopersons. 7 BasicRiskManagementforConsultingEngineers|PDHengineer.com
"StandardofCare"canbedefinedas: Thewatchfulness,attention,cautionandprudenceordinarilypossessedbyengineersofgood standing,practicinginthesamelocalityatthesametimetheirservicesareperformed.
TheoriesofLiabilitythatCommonlyConfronttheConsultingEngineer BreachofContact
Acontractcarrieswithitanimplieddutywhichistypicallydefinedinanattachedscopeof work.Oneofthemosteffectivemeasurestopreventeventhethoughtofbreachof contractisawelldefined,explicitlywrittenscopeofwork.Addontopofthatadiligent personalpolicyofdowhatyousayyouwilldoandprojectstypicallyruntheircourse uneventfully.Inaddition,acontractcannotberevokedunilaterally.However,acontractcan belegallyterminatedbyitsterms,byanactoftheparties(e.g.,breachofcontract),byforceof law,orbecauseitwasillegalbeforeitwasexecuted.Whenacontractisbrokenorbreached, paymentofdamages,howevermodest,canbeorderedbyacourt.
Negligence
NegligentActsorOmissions
Negligenceisessentiallythefailuretoexercisethestandardofcareprovidedthatsuch failureresultedindamages.Forachargeofnegligencetobevalid,thefollowingelements mustbeproven: 1. 2. 3. Alegaldutymusthaveexisted, therewasabreachofthatdutyand, thatbreachofdutymustbetheprobablecauseoftheactualinjuryordamage.
Negligenceperse
Aconductwhichmaybedeclaredandtreatedasnegligencewithoutanyprooforcontention astothespecificsurroundingcircumstancesisconsideredNegligencePerSe.Conduct treatedassuchresultsfromtheviolationofastatute,validmunicipalordinanceorofficial regulationandisgenerallyarebuttablepresumption. 8 BasicRiskManagementforConsultingEngineers|PDHengineer.com
BreachofWarranty
Awarrantyisanobligationorpromisetoattainaspecificresultincontrasttoperforming serviceswithastandardofcare.Anexpress,oractual,warrantyisconferredwhenlanguage explicitlystatesthatsomethingisdesignedfororadaptedtoitspurpose,whereasanimplied warrantyisinferred.Anexampleofthelatterisacontentionthatanengineerimplieda warrantythatplans,specificationsand/ordrawingswerecompleteandsufficientforthe purposeintended. Thevastmajorityofjurisdictionshavefoundthat,absentanagreement,professionalservices arenotsubjecttotheprincipleofimpliedwarranty.Thefoundationforthisissimilartothat expressedinproductsliabilitycases.Asengineersworkwithinexactsciencestheymust dependlargelyontheirjudgment,andeventhefinestengineeringmindissubjecttoerror. Engineers,therefore,cannotberequiredtobeinfallible,butonlytouseastandardofcare consistentwiththeirexperienceandcompetence.Whilethedesignprofessionalisnotan insurerofperfectplans,heimplicitlywarrantsthat,ifadheredtobytheconstructors,hisplans willresultinadesignstructurereasonablyfitforitsintendeduse.
TheoriesofLiabilitySurfacinginProfessionalLiabilityClaims StrictLiability
Liabilityfordamagesistypicallyimposedonlyuponprovingthatanengineerwasnegligent (i.e.,failedtouseduecare)orsomehowintendedtobringaboutaninjuryordamageto another.Therearecases,however,whereanengineercanbeheldresponsibleforaninjury evenwherenonegligencecanbeshown.Entertheprincipleofstrictliability. Thefoundationforthetheoryofstrictliabilityisthatpublicpolicyrequiresthatliabilitymust arisefromadefectinaproduct(sometimes,thoughmuchlessoften,aservice),evenifthe product(service)wasproduced(rendered)withoutnegligence.
ProductsLiability
Productsliabilitycanbeaformofstrictliability,andisbeginningtoappearinconstruction litigation.Itholds,asitspremise,thatthe"object"resultingfromthedesignengineering processhaspotentialtocausedamageorinjurytopersonsorproperty.Thistheoryisusually appliedtodesignengineering,wheretheresultorobjectofthedesignissaidtoberesponsible forinjuryordamages.

UltrahazardousActivities
Strictliabilitycanalsobeimposeduponengineersengagedinultrahazardousactivities,such asblasting,oildrilling,environmentalremediation,andotherdangerousbutbeneficial enterprises.Iftheroadconstructionnearyourbuildingcausesdamagetoyourbuildingdueto blasting,youneednotshowtheywerecarelesstoprevailinalawsuit.
Fraud
Fraudistypicallyverydifficulttoprove.Toconstitutefraudthemisrepresentationoromission mustbemadeknowinglyandintentionally,notasaresultofmistakeoraccident,orin negligentdisregardofitstruthorfalsity.Alsothat, theplaintiffmustprovethatthedefendantintendedfortheplaintifftorelyuponthe misrepresentationand/oromission, theplaintiffdidinfactrelyuponthemisrepresentationand/oromissionand, theplaintiffsufferedinjuryordamageasaresultofthefraud.
Damagesmayincludepunitivedamagesasapunishmentorpublicexampleduetothe maliciousnatureofthefraud. Insummary,thesecomponentsmustexistandbeproven: 1. 2. 3. 4. 5. Knowingandintentionalmisrepresentationoffacts Fullknowledgeandawarenessofthefalsityofthefact Intenttodeceive Relianceonthepartoftheplaintiffonthemisrepresentation Damages
Misrepresentationisperhapsthemostcommonassertionusedagainsttheengineerandcan belistedintheformalcomplaintasanallegation,but,whichbyitself,isbutoneelementof thetheoryoffraud.
CriminalLiability
Inassigningliabilityundercriminallaw,societycanprotectthebroaderinterestsofthepublic (asawhole,notasindividuals).Criminalliabilityhasalwaysbeenapossibletheoryagainst corporateofficersanddirectorsintheirmanagementofanengineeringbusiness.However,in thepasttwentyfiveyearsthetheoryhasbeenextendedsuchthat,criminalliabilitycanbe alleged,forexample,whenthereisfailuretoreporttheexistenceofcertaincontaminantsor theneedforremediation.Whenthisfailureexists,thereistheappearanceofconspiracywith ownersand/oroperatorstoconcealthepresenceofcontamination.Generallywhencriminal 10 BasicRiskManagementforConsultingEngineers|PDHengineer.com
liabilitybecomesanissuearisingoutoftechnicalactivities,avigorousattemptismadeto includeofficersanddirectorsofacompanyaswellasthefrontlinetechnicalemployees.
TheoriesofLiabilityFrequentlyUtilizedDefenses ContributoryNegligence
Themostfrequentlyutilizeddefenseagainsttheoriesofliabilityiscontributorynegligence. Contributorynegligenceisveryeffectivewhenandwherethedefendantcanprovethatthe plaintiffwasalsonegligent,ormighthavepreventedthedamagesthatweretheproximate causeofinjury,iftheplaintiffhadexercisedareasonablestandardofcare.Inthiscasethe plaintiffwouldnotreceivecompensationfordamages.
ComparativeNegligence
Inacomparativenegligencesystem,theinjuredpartymaystillrecoversomedamagesevenif theinjuredpartywaspartiallytoblame.Injurisdictionsutilizingacomparativenegligence system,ajuryorjudgedeterminestheproportionoffaulttobeassignedtoeachresponsible party.
AssumptionofRisk
Theprimaryassumptionofriskdefenseistypicallyutilizedwhereaplaintiffvoluntarily participatesinanactivitywhere"inherentrisks"areinvolved.Whenaparticularactivity necessarilyinvolvesrisksthatareinherentinthenatureoftheactivity,thereisnodutyto protecttheplaintifffromthoserisksortotakestepstoreducethoserisks.
StatuteofLimitationsandStatutesofRepose
Thestatuteoflimitationsandthestatutesofreposecreatelimitationsinwhichatortor contractclaimmaybedisallowedwhencertain,predefinedtimelimitshavebeenexceeded.
Section4
CONTRACTS
13 14 14 15 15
NatureofaContract BenefitsofaWrittenContract ImportanceofWrittenContracts RoleofOrganizationsorIndividualsinConstruction DutiesandHowTheyareCreated

ByContract ByLaw ByConduct
SelectedCrucialProvisionsofContracts
ScopeofWork PaymentTerms StandardofCare Insurance
19
Section4
CONTRACTS
NatureofaContract
Acontractisavoluntary,deliberate,andlegallybindingagreementbetweentwoormore competentpartieswhichcreatesdutiesforoneorbothoftheparties,forthebreachofwhich thelawprovidesaremedy.Theproperfunctionofawellwrittenandcarefullynegotiated contractisthedocumentingofanexplicitunderstandingbetweenthepartiestothe agreement,toeliminatetheneedforinterpretationinacourtoflaw. Increasingly,thecourtsarefindingthatA/Eshaveadutytoothersnotapartytosuch agreements.InrecentyearsthecourtshavebeenextendingthedutyofA/Estothoseothers whomaybereasonablyanticipatedbytheA/EtorelyupontheA/E'sworkorjudgment.The dutyoftheA/Ehas,forexample,beenextendedtothegeneralcontractor,subcontractors, injuredworkers,suretiesoftheownerorcontractor,subsequentpurchasersofthecompleted projectandeventounrelatedpartiesorthegeneralpublic.Thesedutiesmaybefoundbothin tortandcontract. Therearecertainelementsthatmustbepresentforacontracttobevalid:anoffer, acceptance,consideration,andtermsofwhicharenotinconsistentwithpublicpoliciesofthe stateinwhichthecontractisexecuted. Anofferdenotesaproposaltoperformanactorserviceinreturnforsomevalidformof consideration.Anoffermaybeexplicitoritmaybemadewithconditions.Theoffermaybe openforvariousperiodsoftimesuchasafewminutes,afewhours,daysorweeksorlonger. Theofferisconsideredtobeoutstandingandopenuntilitsacceptance,rejectionor withdrawalbythepersonmakingtheoffer. Acceptancemeanstheintendedbeneficiaryoftheproposedservicesagreestothescopeand termsoftheproposal. Considerationisdefinedasanythingofagreedorperceivedvaluewhichisgivenbyeither partytoacontract.Thevalueoftheconsiderationneednotbegreat.Courtsrarelyintervene inacontractdisputewherethemajorissueiswhethertheconsiderationisadequate. Considerationmaybeintheformofmoney,anexchangeofservicesorevenanexchangeof promises. Followingaretheessentialelementsofeverycontract: 1. 2. 3. Thepartiesinvolvedmusthavealegalauthorityorstatustocontract. Thepartiesmustconcurtothetermsofthecontract.(Whileacontractdoesnot necessarilyhavetobeinwritingtobeenforced,thisisnotgoodpractice.) Theremustbeabindingconsideration.
4. 5.
Theremustbeasubjectmatteruponwhichthecontractcanoperate.(Ascopeof services.) Theremustbesubstantialcompliancewithanylegalrequirementsregardingform.
BenefitsofaWrittenContract
Facilitatescollectionoffeesearnedorcollectionsofpastdueamounts Liens Baddebtswriteoff Providesthefoundationforclientcommunications Providesdefinitionofthedutiesoftheinvolvedparties Limitsliability Firstlineofdefenseshouldconflictarise
TheImportanceofWrittenContracts
Whileacontractdoesnotnecessarilyhavetobeinwritingtobeenforceable,itdoeshaveto beinwritingtobeexplicit.Awrittencontractisalsolastingandpermanentwhilememories andrecollectionsarenot.Intheabsenceofawrittencontractthereisalsotheriskthatoneof thepartiesmaynotbeavailableatsomefuturepointintimetoeitherconfirmordenythe originalintent. Acontractisdocumentationdescribingthemutualunderstandingofthescopeofwork,the resultantdutiesandobligations,expectationsoftheclient,whatisandwhatisnotgoingtobe done,andwhatandwhenyoupaymentwillbemade.Itisalsoareflectionoftheclient's expectationsandunderstandingoftheengineersresponsibilitiesandoftheclients obligationstotheengineer.Itisawrittenrecordoftheextentofthe"meetingoftheminds," sothatintheeventofalaterdisagreement,itcanbedeterminedjustwhatitwasthatone partyoranothershouldhavedoneorshouldnothavebeendone. Writtencontractsarenecessaryto: definethescopeofservices, establishfeesandpaymentschedule, createthescheduleforworkprogressandcompletion, describeotherdutiesandresponsibilities(ifapplicable)betweenpartiesand provideacommonframeworkfordisputeresolution. 14 BasicRiskManagementforConsultingEngineers|PDHengineer.com
RolesofOrganizationsorIndividuals(Parties)inaConstructionProject
OWNER:Generallyrecognizedasthatpartywithaconceptandadesiretoevaluatea problem,todevelopanewfacility,ortoexpandanexistingfacility.Theownerisresponsible forprojectfinancing,cleartitleand/oraccesstotheparcel,timelypaymentstotheparties involved,andadherencetolocalgovernmentrules.Inconstruction,anowneroftenwill contractdirectlywithageneralcontractor;however,itisnotuncommonforthegeneral contractortobecomeathirdpartybeneficiaryoftheagreementbetweentheownerand/or theA/E. ARCHITECT/ENGINEER:Generallyrecognizedasthatpartywhotraditionallydevelopsdesigns toaddressandsatisfytheconceptandprovidesplansandwrittenspecificationsforbuildings and/orotherworks.Intheclassicproject,theprofessional'sdutiesarederivedfrom provisionsoftheapplicablestandardcontractformspreparedbythevariousinstitutessuchas AIA.InotherprojectstheA/Emaybetheprojectmanagerresponsibleforcoordinationofall contractors,engineersandsuppliers. CONSULTANTS:Generallyrecognizedaspartiespossessingspecializedexpertisethatis requiredforaccomplishingtheproject. CONTRACTOR:Generallyrecognizedasthepartywhoconstructsorbuildstheprojectutilizing eitherhisownlaborresourcesorthelaborresourcesandexpertiseofsubcontractors. SUBCONTRACTOR:Generallyrecognizedasthepartywhoisutilizedbyacontractortoprovide specializedexpertiseandassistanceinbuildingtheproject. SUPPLIERS:Partiesprovidingsuppliesandmaterialsfortheproject.
DutiesandHowTheyAreCreated
Liabilityarisesoutoftheconceptof"negligence"specificallyinthosesituationswherean engineerfailstoactreasonablywhereadutyexists,andthatfailureisadirectandproximate causeofdamageorinjury. Anengineersconductwhileperformingservicesinaprofessionalcapacityisusuallyoutside thecommonknowledgeofmostindividuals.Therefore,thepreviouslydiscussedconceptof "standardofcare."isappliedtoanengineersactsorfailurestoacttomeasureanddefinethe reasonablenessoracceptabilityofconduct.Intheengineeringandtechnicalprofessions, dutiesarecreatedanyoffourways: 15 BasicRiskManagementforConsultingEngineers|PDHengineer.com
1. 2. 3. 4.
Bycontract Bylaw Byconduct Bythepoliciesofanengineeringfirm(ifemployedbyanengineeringfirm,the firmsstandardclientformofagreementbecomesthepolicy)
ByContract
Therearegenerallytwotypesofliabilitywhichanengineermaybesubjecttoinprivate practice. TortLiability:Tortariseswhenprofessionalsperformtheirservicesinanegligentmannerand causeinjuryordamagestotheirclientorathirdparty. ContractualLiability:Thiswillarisewhenaprofessionalbreachesacontractualduty. Understandingthedifferencebetweenthetwoisimportant.Contractliabilityarisesfromthe breachofapromiseandtortliabilityarisesfromtheviolationofadutyimposedbycommon (nonstatutory)andstatutorylaw.Themostcommonexampleoftortliability'isthefailureto useastandardofcare(negligence). Inengineeringmalpracticecases,theengineeralmostalwaysperformsservicesbecausehe hascontractuallyagreedtodoso.Hisduties,therefore,wouldlogicallybeviewedas emanatingfromthecontractand,generallyspeaking,theyaredefinedinthecontract.The measureof"standardofcare",however,becomesanintegralandinseparablepartofthe work,notonlybyvirtueoftheengineerscontract,butalsoasamatteroflaw.Itisnot uncommonforengineeringmalpracticecasestobegroundedon"breachofcontract"andalso on"tort"principles.Thedifferencesaremoretheoreticalthanpracticalasbothareasofthe lawhaveprinciplesthatnormallyleadtosimilarresults. Somejurisdictionsattempttodrawdistinctionsbetweenvariousdegreesofnegligenceinan efforttoestablishdegreesofculpability.Whilemanyinterpretersbelievetheexerciseisfutile, mostjurisdictionsdifferentiatebetweenslight(passive)negligence,ordinarynegligenceand grossnegligence.Slightnegligencehasbeencharacterizedasthefailuretousegreatcare, ordinarynegligenceasafailuretouseordinarycare,andgrossnegligenceasafailuretouse evenslightcare. Willfulmisconductiscommonlyreferredtoas"wanton"or"reckless."Itisconductthatis moreculpablethannegligence,(evengrossnegligence)andcanincludeanintentionalwrong. Thetermisgenerallyusedtoindicatethatthedefendanthasintentionallyperformedanactin totaldisregardofaknownriskorarisksoblatantlyobviousthattheengineermusthavebeen awareofit.Theimportanceofwillfulmisconductbyanengineeristhatitcouldconceivably giverisetotheapplicationofpunitivedamages. 16 BasicRiskManagementforConsultingEngineers|PDHengineer.com
ByLaw
Whenanengineersworkintheprocessofdesignorotherconductisinviolationofanexisting statute,municipalordinance,oragoverningbuildingcode,noexpertmaybeneededto establishaviolationofthestandardofcare.Rather,theviolationofastatuteorordinance maybesufficienttoinvoketheprincipleofnegligenceperse.Thatprinciplehasbeen interpreteddifferentlyinthepastbyvariousjurisdictions,butgenerallytheprerequisitesfor theapplicationoftheprinciplearesimilartothoseprovidedbelow.Thefailureofapersonto exerciseastandardofcareisacknowledgedif: 1. 2. 3. 4. Theengineerviolatedastatute,ordinanceorregulationofapublicentity, theviolationmostprobablycauseddeathorinjurytoapersonordamageto property, thedeath,injuryordamageresultedfromanoccurrenceofthenatureofwhich thestatute,ordinanceorregulationwasdesignedtoprevent,and thepersonsufferingthedeathortheinjurytohispersonorpropertywasoneof theclassofpersonsforwhoseprotectionthestatute,ordinanceorregulationwas adopted.
Ifalloftheaboveconditionsaremet,thereisapresumptionofnegligencewhichcanonlybe overcomebythepresentationofsubstantialevidencetotheeffectthattheengineeracted reasonablyunderallthecircumstances. Ingeneral,somevarioustypesoflawthathavethepotentialtoaffectaconsultingengineering practiceoranindividualengineerareasfollows: CommonLaw.LaworiginatinginEngland,handeddownthroughtheEnglishspeakingculture, andbasedprimarilyonhistoricalprecedents.Itsauthoritycomesfromthecourts.Adecision reachedinonecasebyacourtofsufficientstandingisconsideredprecedenceorthebasisfor decisionsinfuturesimilarcases. StatutoryLaw.Contrastedwithcommonlaw,statutorylawislegislatedlaw.Itiswrittenand stipulatesspecificactionsthatapplytospecificsituations.Statutesmaycodify,modify, reverse,orabolishcommonlawprinciplesonthesamesubject,andmaythemselvesbe changedorabolishedbyfurtherlegislativeorjudicialaction. MunicipalLaw.Asasubclassofstatutorylaw,thisbodyofstatutesispassedbylocal governmentsandisgenerallyreferredtoasmunicipalordinances. ConstitutionalLaw.Asetofrulesfoundedonastate'sornation'sconstitutionanddesigned todefineandcontrolareasofgovernmentalactionandsecurefundamentalrightsforthe individualcitizen.Itisalsoconcernedwiththepreservationofthefederalsystemandits relationshiptostategovernments.
AdministrativeLaw.Abodyoflawfoundedupondecisions,rulings,andregulationsofvarious federal,state,andlocalagenciesotherthanlegislaturesandcourts.Onceempoweredwith generalguidelinesbytheLegislatureorCongress,theagenciescreateenforceablerulesthat applytotheirspecificareas,suchasinterstatecommerce,laborrelations,environmentand immigration.Administrativelawisacombinationofconstitutionallaw,statutorylaw,case law,andagencyrulesandregulations.Examplesofadministrativeagenciesinclude: OccupationalSafetyandHealthAdministration EnvironmentalProtectionAgency. FoodandDrugAdministration FederalCommunicationsCommission
FederalLawandStateLaw:BodiesoflawcreatedattheFederallevelortheStatelevelcanbe Statutory,Constitutional,orAdministrative.ExamplesofFederalLaware: AmericanswithDisabilitiesAct(ADA) NationalEnvironmentalPolicyAct, FederalWaterPollutionControlAct, DavisBaconandRelatedActs(DBRA) CleanAirAct.
Examplesofstateandlocallawsare: Licensingstatutes, Buildingcodes, Safetyregulations, Zoningandlandusecontrols, Coastalmanagement, Engineeringlicensingstatutes, Selectionofengineersandcontractorsforpubliccontracts, Publicutilityregulationand, Waterresourceslaw.
Themajorityofordinances,statutesandcodesconcerningthedesignandconstructionof buildingsareenactedtoestablishspecificminimumstandardsfordesignandconstructionthat areintendedtoensuretheintegrityandsafetyofthestructureandpreventdamageorinjury totheownerofthebuildingorpeoplewhomightutilizethestructure.Accordingly,whenthe engineer,eitherbyhisdesignorsupervisionofconstruction,participatesintheconstructionof astructurewhichviolatesastatute,codeorordinance,theprincipleofnegligenceperse generallyapplies. 18 BasicRiskManagementforConsultingEngineers|PDHengineer.com

ByConduct
Anengineersconductcan,inandofitselfalone,inadvertentlycreateaduty.Followingare somecommonbehaviorsthatcanandoftendoleadtothecreationofaduty: 1. 2. 3. 4. 5. Routinelyperformingservicesoutsidethescopeofwork, Routinelyadvisingtheclientorotherpartiesofmattersforwhichyouare notresponsible, Performingserviceswithoutawrittencontract, Deviatingfromstandardindustrypractices, Performingserviceswithoutappropriatequalificationsorexperience;e.g., civilengineerperformingelectricalengineeringservice.
SELECTEDIMPORTANTCONTRACTELEMENTS
SCOPEOFSERVICES
Followingisatypicalcontractclauseregardingscopeofservicesthataddressesmorethanone formofunderstanding. SERVICESTOBEPROVIDED:(engineersname)isanindependentconsultantand agreestoprovideCLIENT,foritssolebenefitandexclusiveuse,withtheconsulting servicesdescribedanddefinedintheattachedScopeofWork("Services"),whichis madeapartofthisContract.TherearenothirdpartybeneficiariestothisAgreement. Theuseoftheterm"independentconsultant"aboveisintendedtoemphasizethatthe engineerdoesnotnormallymanageordirectanyoftheclient'spersonnelorregularactivities. Thephraseabovealsoestablishesthattheengineerisnotapayrollemployeeoftheclientand incorporatestheengineersproposalaspartoftheoverallAgreementbetweentheengineer andtheclient. Oneotherveryimportantfacettothisclauseisthatitalsoinformstheclientattheonsetof theprojectthattheresultsoftheservicestoberenderedareNOTtobereliedonbythird partiesforanyreason.
PAYMENTTERMS
Itisveryimportantthattheclientunderstandandagreeupfrontwhatthetermsofpayment aregoingtobe.Thetermscanbenegotiatedfromclienttoclientorprojecttoproject dependingonavarietyofcircumstancesandsituationsbut,regardlessofthetermsagreed upon,itneedstobeclearfromthebeginningandmadeanintegralpartofthecontractso therearenomisunderstandingsregardingthiselementoftheagreement.Atypicaland reasonablepaymenttermsprovisionisasfollows: CLIENTagreestopayeachandeveryinvoiceuponreceipt,timebeingoftheessence.If paymentisnotreceivedwithinthirty(30)daysfromthedateoftheinvoice,CLIENT agreestopaythelesserof1%permonthorthemaximumlegalrateonthepastdue amountuntiltheamountispaidinfull,plusthehourlyratefor(engineers)time, reasonableattorneysfeesandallothercostsincurredby(engineer)incollectingthe amountsdue(engineer)underthisAgreement.IfCLIENTreasonablyobjectstoallor anyportionofaninvoice,CLIENTshallnotify(engineer)inwritingwithinten(10)days fromthedateofreceiptof(engineer's)invoice,givereasonsfortheobjection,andpay thatportionoftheinvoicenotindispute.FailureofCLIENTtoprovidesuchwritten noticewithintheallowedten(10)dayperiodshallbedeemedtobeawaiverofall objectionstothatinvoice.(Engineer)maysuspendanyandalloftheServicesif paymentofanyinvoicedamount,notreasonablyindispute,isnotreceivedby (engineer)withinsixty(60)daysfromthedateof(engineer's)invoice. Insummary,thisclausespecificallystipulateswhentheclientistomakepaymentandthe coststotheclientintheeventpaymentisnotmadeinatimelyfashion.Withtheacceptance ofthisclause,theclienthasagreedtointerestchargesonpaymentsoverthirty(30)daysold andourrighttosuspendservicesaftersixty(60)days.
STANDARDOFCARE
ThelanguagebelowmightatfirstappeartobeaProtectiveStrategybutitisactuallymoreofa ProactiveStrategy.Itsetstheframeworkforthefirststepofconflictresolutionfromtheonset oftheproject.Thisistypicallyaveryeffectivemethodofpreventinganyescalationofa problem,realorperceived. (engineer/firm)willperformtheServicesdefinedanddescribedintheScopeofWork attachedtoandmadepartofthisAgreementutilizingthatdegreeofskillandcare ordinarilyexercisedundersimilarconditionsbyreputablemembersoftheprofession andpracticinginthesameorsimilarlocalityatthetimeofperformance.NOOTHER WARRANTY,EXPRESSORIMPLIED,ISMADEORINTENDEDANDTHESAMEARE SPECIFICALLYDISCLAIMED. CLIENTshallnotbeentitledtoassertaclaimagainst(engineer)basedonanytheoryof professionalnegligenceorviolationofthestandardofcareunlessanduntilCLIENThas 20 BasicRiskManagementforConsultingEngineers|PDHengineer.com
obtainedthewrittenopinionfromanindependentthirdparty,licensed,andreputable engineeringprofessional,knowledgeableofthenatureoftheServicesinquestion,that (engineer/firm)hasviolatedthestandardofcareapplicableto(engineers) performanceofthoseServicesunderthisAgreement.CLIENTshallpromptlyprovide suchindependentopinionto(engineer/firm)andthepartiesshallproceedfromthat pointingoodfaithtoresolvetheclaimwithinthirty(30)days. Thisclauselimitsperformancetogenerallyacceptedstandards. Theomissionofthislanguageinsomecontractscan,insomeinstances,violateprofessional liabilityinsurancecoverage,whichisfornegligence.Aclientmaywishtoelevatethe standardstothe"highest"practicedbytheprofession,however,thiswilltypicallyfostera greatdealofuncertaintyastospecialprecautionsthatmightberequiredandwillinevitably resultinhigherfees.Thisclause,unaltered,providesmorecertaintyinrecommendations. Thelastsentencedisclaiminganywarrantiesisrequiredinmoststatestomakeclearthat impliedcommercialwarrantiesintheUniformCommercialCodeandtherelatedstatutesdo notapply. Thesecondparagraphstipulatesthattheclientmustobtainathirdpartyopinionthatthe engineerhasbreachedthestandardofcarebeforetheclientcanbringaprofessional malpracticeactionagainsttheengineer.Placingsuchanadditionalobligationontheclientwill helpminimizeanddeterfrivolousactionsagainsttheengineer.
INSURANCE
Notall,butmanyorganizations,fortheirownprotection,willrequireanengineeror engineeringfirmprovidingservicestocarrycertaintypesofinsurancecoverageandnamethe organizationasanadditionallyinsured.Followingaretypesandlevelsofcoveragethatare commonlycarriedand/orrequestedtobeinforceatthetimeofcontractexecution. Governmentinstitutionsalmostalwaysrequirethisasamatteroflaworordinance. GENERALLIABILITY
EACHOCCURRENCE DAMAGETORENTEDPREMISES(EachOccurrence) MEDICALEXPENSES(AnyOnePerson) PERSONAL&ADVERTISINGINJURY GENERALAGGREGATE PRODUCTSCOMPLETEDOPERATIONSGENERALAGGREGATE COMBINEDSINGLELIMIT(eachaccident) EACHOCCURRENCE AGGREGATE EACHACCIDENT DISEASEEACHEMPLOYEE DISEASEPOLICYLIMIT $1,000.000 $300,000 $10,000 $1,000,000 $2,000,000 $2,000,000 $1,000,000 $5,000,000 $5,000,000 $1,000,000 $1,000,000
AUTOMOBILELIABILITY EXCESS/UMBRELLA LIABILITY WORKERS COMPENSATION& EMPLOYERSLIABILITY
Section5
INSURANCEANDBONDS
Insurance
23 23
TypesofInsurance
CommercialGeneralLiabilityInsurance Workers'CompensationandEmployer'sLiabilityInsurance BusinessAutomobileInsurance PropertyInsurance ProfessionalLiabilityInsurance
WhatPoliciesTypicallyDoNotCover CertificatesofInsurance Bonds,Types

BidBond PaymentBond PerformanceBond
24 25 25
MiscellaneousTerminology
27
ExperienceModificationRating(EMR)? Subrogation "ClaimsMade"versus"OccurrenceBased"Insurance LimitationofLiabilityversusAmountofInsurance
Section5
INSURANCE
INSURANCEANDBONDS
TypesofInsurance
CommercialGeneralLiabilityInsurance
Generally,commercialgeneralliabilitycoverageisintendedtoprotectanindividualor engineeringfirmfrominjuriesthatmayarisefromworkbyengineersortechniciansatjobsites duetonegligenceinthehandlingormisuseofcertaintypesofequipmentorotherincidental actions. Commercialgeneralliabilityinsurancecoversbodilyinjuryandpropertydamageclaimsona peroccurrencebasisthatmaybeassertedagainstandengineerorengineeringfirmbythird parties.Thiscoveragespecificallyexcludesanddoesnotapplytobodilyinjury,property damage,personalinjury,oradvertisinginjuryarisingoutoftheengineersortheengineering firmsrenderingoforfailuretorenderanyprofessionalservices,including (1)thepreparationof,approvalof,orfailuretoprepareorapprove,drawings,opinions, reports,surveys,designsorspecifications,and (2)supervisory,inspection,visualobservationorotherengineeringservices. Generalliabilityinsurancealsocoversoperations/premisesliability,which,forallpractical purposes,meansbodilyinjuryorpropertydamagecausedbyanoccurrenceinbuildingsoron premisesownedorleasedbytheinsuredandtheirbusinessoperationsinprogress.
Workers'CompensationandEmployer'sLiabilityInsurance.
InaccordancewithspecificprovisionsoftheapplicableWorkers'Compensationand OccupationalDiseaseActsofthevariousstates,workers'compensationinsuranceprovides statutorycompensationandmedicalbenefitstoaninjuredemployee. Thiscoverageisbasically"nofault"coveragemeaningthatanemployeeisnotrequiredto provethenegligenceofhisemployertocollect,andtheextentofcoverageisalways determinedbystatelaw. Employersliabilityinsuranceprovidescoverageforanemployer'sliabilityforbodilyinjuryto employeesoccurringwithinthescopeoftheiremploymentwhenthatliabilityisnotcovered byWorkers'Compensation. 23 BasicRiskManagementforConsultingEngineers|PDHengineer.com
BusinessAutomobileInsurance.
Businessautomobileinsurancepoliciesguaranteethattheinsurancecompanywillpayall sumstheengineer/firmthatisinsuredmustlegallypayasdamagesbecauseofbodilyinjuryor propertydamagetowhichtheinsuranceappliesandwhichiscausedbyanaccidentand resultingfromtheownership,maintenanceoruseofacoveredvehicle.Thiscoveragealso includeslegaldefensecostsbutdoesnotextendtoemployeeownedvehiclesusedinbusiness travel.
PropertyInsurance.
Propertyinsurancecoverslossordamagetocompanyownedproperties,personalproperty, andvarioustypesofequipmentthatisownedorleased.Inthecaseofownedrealproperty, thecoverageinsuresthevalueofthebuilding,excludingthecostofreplacingthefoundation. Personalpropertyinsurancecoversitemssuchasfurniture,fixtures,andvarioustypesof equipmenttotheextentoftheirrespectivefairmarketvalue.
ProfessionalLiabilityInsurance
Professionalliabilityinsurancecoversclaimsallegedlycausedbytheprofessionalerrorsor omissions.
WhatPoliciesTypicallyDoNotCover
Insurancepoliciestypicallydonotcoverthefollowing: HoldHarmlessandindemnityclausesexceptwherean"insuredcontract" containslanguageconsistentwiththeinsurancepolicytocoveranindemnity agreementfortortliability,i.e.,typically"negligence"(nottobeconfusedwith contractsliability) Warranties Certifications Penaltyclauses Suretyorbonds Jointventures Punitivedamages Intentionalwrongdoingorcrimes Fraud
CertificatesofInsurance
Duringthecourseofrequestingbidsforaparticularproject,organizations,bothprivateand public,mayrequestproofofinsurancefromallcompaniessubmittingaBidforthework.This proofisalmostalwaysprovidedwithaCertificateofInsurancewhichistypicallygenerated andprovidedbytheBiddersinsurancerepresentative.TheCertificateclearlyshowscurrent coverageaswellastheamountofcoverageforthevariouscategoriesandwasdiscussedin Section4ofthisdocument.PublicentitiessuchasState,Countyandlocalmunicipalitiesare typicallyrequiredbylaworordinancetorequestthisinformationforthebiddersandarenot allowedtoissueacontractintheabsenceofthisinformation.
Bonds
Thethreemostcommontypesofbondsintheconstructionindustryare: BidBonds. PerformanceBondsand, PaymentBonds.
PerformanceandPaymentBondsprovidethegreatestbenefittotheowner.Thesetwotypes ofbondsinuretothedirectbenefitoftheowner,andalsoproduceanindirectbenefitinthat subcontractorsandsuppliersonabondedprojectgenerallyprovidebetterperformancethan thosenotbonded.
BidBonds
Generally,therearetwotypesofbiddepositsecuritymethods: 1. providesthat,intheeventthebidderdoesnotenterintothecontractwhentheaward istendered,thebidderforfeitstheamountofthebidbond,regardlessoftheextent,if any,ofowner'sactualdamagesmightbeinhavingtoawardthecontracttothenext lowbidder. 2. providesthatthebiddepositisapplicabletowardsthedifferencebetweenthelow bidderandthebiddertowhomthecontractisactuallyawarded.
PaymentBonds
Paymentbondsaredesignedtoprotecttheownerbyensuringthatsubcontractorsand suppliersarepaidfortheirservices,materials,partsandsuppliesaspartoftheproject.The MillerAct,40U.S.C.270a,mandatespaymentbondsonallfederalprojectsexceeding $25,000.Additionally,moststateshave"LittleMillerActs"placingsimilarrequirementson stateand/orlocalconstructioncontracts.Paymentbondsalsobenefitsubcontractors, workmen,andmaterialssuppliers,whocanmakeaclaimonthebond. 25 BasicRiskManagementforConsultingEngineers|PDHengineer.com
PerformanceBonds
Theperformancebondprovidesafinancialguaranteetotheownerthattheprojectwillbe completedinaccordancewiththeoriginalconstructioncontract.Itrequiresthesuretynot onlytoperformthecontractor'sobligationsbutshouldrequirethesuretytopayany subcontractorsandmaterialssuppliersuponthefailureofthecontractortomakesuch payment.Performancebondsareoftenrequiredbystatute.
MiscellaneousTerminology
ExperienceModificationRating(EMR)?
TheExperienceModificationRate(EMR)canhaveastrongimpactuponabusiness.Itisa numberusedbyinsurancecompaniestogaugebothpastcostofinjuriesandfuturechancesof risk.ThelowertheEMR,thelowertheprojectedworkercompensationinsurancepremiums willbe.AnEMRof1.0isconsideredtheindustryaverage. IfanengineeringfirmhasanEMRgreaterthan1.0thereasonsaresimple.Therehasbeena workercompensationclaimthattheinsuranceproviderhaspaid.Tomitigatetheinsurance companysrisk,theinsuranceproviderwillraisetheworkercompensationpremiums.The newincreasedEMRremainsasthebasisforthecalculationofpremiumsfor3years.
Subrogation
Webster'sNewCollegiateDictionarydefinessubrogationas"toputintheplaceofanother." Aspertainstoinsuranceitmeansthatafteraninsurancecompanypaysaclaimitthengoes afterthepersonwhocausedthedamage(bymeansofcollectionproceduresorlawsuit).The insurancecompanyisexercisingitsrightofsubrogation.Inotherwords,theinsurance companytakestheplaceofitspolicyholderandsuesthedefendantdirectly.
"ClaimsMade"versus"OccurrenceBased"Insurance
WithaClaimsMadepolicy,thepolicythatwasinforcewhentheclaimwasactuallymadeis thepolicythatpaystheclaim.AfeatureofClaimsMadepoliciesisthatifthepolicyisnot renewed,thenthereisnocoverageforanyclaimsmadeaftertheterminationdate.Whilethis makesoccurrencebasedinsurancethepreferablepolicyform,occurrencebasedinsuranceis notalwaysavailableforE&Ocoverage. Withanoccurrencebasedpolicy,thepolicythatwasinforcewhentheincidentactually occurredisthepolicythatpayseveniftheclaimismadeafterthepolicyhaslapsed.
LimitationofLiabilityversusAmountofInsurance
Themerefactthatanengineer/firmprovidesforinsuranceonaprojectwithinthecontract doesnotmeantheclienthaslimitedtheengineers/firmsliability.TheLimitationofLiability mustbeaddressedseparatelyinthecontractbyinclusionoftheprovisionasanadditional terminanyclientcontractagreement.LimitationsofLiabilityarenotdeterminedorcreated bytherequiredminimumlimitsofinsurance.
Section6
PROJECTRECORDS&PROFESSIONALCONDUCT
ProfessionalConduct
29
EffectiveClientCommunications Safety Inspections
ProjectRecords
32 32 32
BillingPracticesGuidelines Documentation
ReportWriting CategoriesofWordstoAvoid Engineering"Vernacular"toAvoid
ProjectRecordsRetention
RecordsareDiscoverable
37
RecordsCommonlyRequestedinLiabilityActions
Section6
PROJECTRECORDS&PROFESSIONALCONDUCT
ProfessionalConduct
EffectiveClientCommunications
Theclientshouldclearlyunderstandthatthenatureoftheengineersbusinessis therenderingofopinionsbasedonprofessionaltechnicaleducationand experienceforwhichtheengineeriscompensatedbyanhourlyfee. Donotpromise,represent,guarantee,orpredicttotheclientanyspecificresult. Beforeperforminganyservicesadvisetheclientoftheamountofthefeesorthe basisforcomputingthefees. Continuouslyinformtheclientofwhathastranspiredbyperiodicstatusreports. Iftherearelongperiodsofdelay,explaintotheclientthereasonforinactivity. Don'tputtheclientinapositionwheretheclientmustcallforanupdate. Ataminimum,sendcopiesofreportsandselfexplanatoryletters. Returnallclienttelephonecallsonthesamedayevenifthereisnovalidanswerat thatpointtoanyquestiontheclientmayhaveposed. Donotwithholdanyinformationfromtheclientregardinganyseriousproblems thatdevelop.Itisveryrarethatsuchsituationsimprovewithtimeorjustgo away. Doadvisetheclientoflikelyrisksthatmaybeinvolvedanddocumentwithletters and/oremails. Iftherearealternativedesignsoroptionsinvolvingrisks,involvetheclient,make theclientveryawareoftherisksandlettheclientchoosewheneverpossible. Confirmalloralinstructionsorimportantconversationswiththeclientinwriting, specificallythosepertainingtochangesinscopeandcost.
Safety
Duringthenormalcourseofprovidingengineeringservicestoaclientaspartofateameffort withothercontractedindividualsorcompanies,situationsmayarisethat,inanengineers professionalopinion,arepotentialsafetyissues.Inthesesituations,adedicatedengineers instinctiveresponseistodosomethingbeforesomeoneisinjured,however,theengineer mustavoidassumingauthoritytostopworkuntiltheissueisaddressed.Thisauthority technicallylieswiththegeneralcontractorandthereistypicallyanacceptedprotocolfor communicatingthistypeofinformation. Occasionally,inclientprovidedcontractdocuments,therewillbeaclausethatrequiresthat theengineerhastherighttostopthework.Itisimperativetorecognizethatthisparticular clauseimposesupontheengineeradutytostoptheworkshouldsafetyhazardsbeobserved.
Theengineershouldmakeeveryefforttoavoidresponsibilityformethodsofperformanceof constructionwork,theroleofsuperintendent,sequencingofconstruction,orsafetyin,on,or aboutthejobsite. Ifitisnotmadeclearthroughthecontractthattheengineerisnotresponsiblefortheabove, theengineeris,bylaw,apotentialtargetforlawsuitsbyinjuredworkersandotherinjured thirdparties. Theengineershouldbewaryofclausessuchasthefollowingwheretheclientproposesthat "theengineershallberesponsibleforanylossesorinjurieswhichoccuratthejobsite duetounsafeconditionswhichresultfromtheplansandspecificationsprovidedbythe engineer." Thisisatypicalclausethatshouldbeavoidedatallcosts. Nonetheless,intheeventthattheengineerobservesorbecomesawareofaspecificjobsite safetyissuerelatedtotheengineersareasoftheengineersexpertise,theengineershould immediatelynotifythecontractorofthesafetyissuebyahandwrittenfieldnote.Next,the engineershouldnotifytheownerortheownersrepresentativeinwritingastothenatureof theissuesuchthatappropriateactioncanbetakentocorrecttheproblem.Theengineer shouldNEVERrecommendacorrectiveactionforthesafetyissue.Simplynotifyingthe contractorthatasafetyissueexistsissufficient.
Inspections
Whilenotnewtotheprofession,duringthepasttwentyfiveyears,thedemandfor engineeringservices,whicharegenerallyreferredtoasPropertyConditionAssessments (PCA),hasincreaseddramatically.Theneedforthistypeofservicegenerallyarisesfromone ofthefollowingsituations: 1. Ownerdesiringtosellaproperty 2. Buyershoppingforproperty 3. Organization/InstitutiondevelopingalongtermCapitalRenewalPlanforinternaluse. Thisisverycommonwithcollegesanduniversities. 4. Inconstruction,engineeristaskedwithmonitoringconstructionactivitiesforcontract and/orspecificationcompliance. Dependingonthescopeoftheparticularproject,aPCAcanpotentiallyinvolveteamsof engineersfromeveryfacilityrelateddiscipline. Ifpossible,thewordinspectionshouldbeavoidedandreplacedwiththetermvisual observation.Thewordinspectionhasaconnotationthatoncesomethinghas"passed inspection,"itissomehowcertifiedasmeetingcontractspecificationsorthatthereareno existingflaws. 30 BasicRiskManagementforConsultingEngineers|PDHengineer.com
Followingisalistof"DOs"andalistof"DON'Ts"toassistwith"inspections,"orvisual observations:
"DOs"forINSPECTORS/OBSERVERS
DOinspectandtestinatimelymannersuchthatthecontractor'sworkisnot delayed. DOkeepadailyreportorlog. DOaskthecontractorhowheproposestocorrectamistakeratherthantelling himhowtodoit. DOnotewhethertheprimecontractorisdoinghisjobtoassurethathis subcontractor'sworkmeetscontractstandards. DOknowtheplansandspecifications. DObefriendlywitheveryoneonthejob.butfamiliarwithnone. DOgivenoticeofrejectioninareasonabletimeaftercompletionoftestsor acceptancemaybeassumed,orworse,implied. DOinsistthatthecontractortakepositivestepstoprovideasafejobandcomplies withOSHAinyourworkareas.However,DONOTdirectthecontractor'ssafety operationsorenterareasyoufeelareunsafe. DOsettlemattersofacontroversialnaturebymutualagreementonthejob wheneverpossible.Avoidformaldisputes.
"DON'Ts"forINSPECTORS/OBSERVERS
DON'Tdemandahigherqualityofworkorbettermaterialsthanwhatisspecified intheplansandspecifications. DON'Twasteworkmen'stimebycarryingonlongconversationswiththem. DON'Tdictateorevensuggestamethodofconstructiontothecontractor.Being wrongcouldopenareasofenormousliability. DON'Tcausethecontractortoconstructivelyacceleratehiswork. DON'Tgivedecisionsonmattersstrictlyofadesignnature.Leavethattothe properpartysuchastheArchitectorDesignEngineer. DON'Tdealwithasubcontractor.DOgothroughtheprimecontractorwithproper communicationsandprotocol. DON'Tdiscussdifferencesofopinionamongtheinspectionstaffinthepresenceof thecontractor. DON'Targuewiththecontractor'spersonnel.IfadisputearisesDOreferittothe residentengineerorprojectmanager.
ProjectRecords BillingPracticesGuidelines
Invoicingonaregularbasisaspercontractoragreementisasimpleandeffectivemethodto reducemalpracticeclaimsexposurebydiscoveringproblemsor,situationsthatcouldbecome problems,early,whentheycanbemoreeasilyresolvedandbeforetheyescalatetocrisisor emergencylevels.Someguidelinesineffectivebillingpracticesare: Provideafullanddetaileddescriptionofallapplicablerates,billingpracticesand estimatesduringinitialmeetingsandrepeatwithintheproposaldocument. Determininganyclientspecificbillingrequirementsandwillinglyaccommodating thosewillusuallyhelpexpeditepaymentofallfutureinvoices. Providetheclientwithaclearitemizedstatementofchargesbasedonthe proposalandthecontract.(Becertaintheinvoicesarepreparedinaccordance withtheclient'sinstructions.) Haveastandardizedmethodforconfirmingreceiptofthebill,correctingerrors promptlyandremindingclientsofoverdueaccounts. Submitinvoicesforworkperformedonaregularandtimelybasisasshouldbe definedinthecontractdocuments.Donotaccumulatechargesoverlongperiods.
Documentation
Asuccessfullegaldefensedependsheavilyonaccurateandcompleteprojectrecords.The costofgeneratingandmaintainingprojectrecordsduringthecourseofaprojectisminiscule comparedtothecostofpreparingalegaldefensewithoutthedocumentation. Usepreprintedformsandphonelogs,identifyingindividualparticipantsonthe projectpreferablybynamebutatminimumbyinitials. Maintainaccuraterecordsofalltelephoneconversationspertainingtoanyissueof substanceandisprojectrelated. Makenotesofallfieldvisits,owner/clientvisits,meetingsandothersimilar activities. Usedigitalrecordersanddigitalcamerastotheextentthatatanyparticulartime thereismoredocumentationthannecessaryratherthanalackthereof.
ReportWriting
Perhapsthetwomostfundamentalrulestowritingengineeringreportsare: 1. BEEXACTANDPRECISE. 2. SAYWHATYOUMEANANDMEANWHATYOUSAY. Stateaclearpurpose. Identifyowner/clientinformationprovided. Clearlydefinehowtestsorevaluationsaretobeaccomplished.Comparereport withrequirementsofproposalforconsistencyandexplainanydeviations. Choiceofwordsshouldcorrectlydescribeyourintent.Forexample,"will"or "shall"areappropriateattimes,butifyoucan'tbethatdefinite,"may"isperhaps moreappropriate.
CategoriesofWordstoAvoid
Wordstoavoidgenerallyfallintothreecategories: Extremewords Any All Optimize Minimize Maximize Final Full Equal
None Wordsofambiguity Inspect Wordsofpromise Guarantee Warrant
Supervise
Ensure Insure
Assure Certify
Engineering"VERNACULAR"toAvoid EngineeringVernacular
Approve Certification Control(thejob),(Regulate,Direct,Manage) OrEqual Essential(itis) Examination(Determine) Inspection Insure(tobesure) Investigation(soil) Necessary(itis) Required Satisfactoryoperation Supervise Assure(toinsure) (Estimate)
PreferableWord(s)
Review(Decide.Judge.Consider)Workisin generalconformance Memorandum ControlTests,CompactionTests.Guidance OrEquivalent Considered.Advised,(Suitable.Satisfactory) Observation,Reviewing.Study.Evaluate.Look over(thejob) Periodicobservationofworkinprogress:Look over(thejob),Review.Study Sothat Exploration.Reconnaissance(Probe. Sounding.Search) Considered,Advised.Study.Observe (Suitable,Satisfactory) Considered,Advised Operationasspecified Observe.Review.Lookover(thejob).Guide. Guidance Sothat (Approximate)

Superlatives
All Atleast,Alltimes AllCircumstances Any Bet Complete(investigation) Critical Essential(itis) Extremely Final Inevitable (Is,Are,Will,Shall) Maximum Minimum Must,Mustalways,Mustdo,Shall Never No,None Notlessthan(Morethan) Obvious Possible Properly Readily
SuggestedSubstitutes
Some,Most.Usually Allifpracticable,Sometimes Inmostcases Whenpracticable Recommended Scopelimitedto: Mightormaybe... Recommended.Advised (donotuseorqualifyverycarefully) (donotuseorqualifyverycarefully) (donotuseorqualifyverycarefully) (qualify) ((donotuseorqualifyverycarefully)e.g.to thefullestextentpossible) ((donotuseorqualifyverycarefully)e.g.to theleastextentpossible) Should Usually Usually Usually Apparent Practicable Recommended Maybe
Safe,unsafe Sound Stable Suitable Sufficient Thorough
(qualify,explain,ordefine) (qualify,explain,ordefine) (qualify,explain,ordefine) (qualify,explain,ordefine) (qualify,explain,ordefine) (qualify,explain,ordefine)
ProjectRecordsRetention
RecordsareDiscoverable
PROPERandcompletedocumentationisthefirstlineofdefense,butknowingwhatNOTto documentisalsoveryimportant. Avoidrecordingopinions,conclusionsandreferencestopersonalities. Donotincludeprofanityordisparagingcommentsinanyfieldorinformaloffice notesunlessspecificallyquotingsomeoneelse'spersonnel. Unlessyouhavetheauthorityand/orarewillingtochargeoffanactivityto marketingorsales,donotperformgratuitousservices. Donotassumeresponsibilityforanysafetymattersunlessclearresponsibilityhas beenestablished.
RecordsCommonlyRequestedinLiabilityActions
Recordsthatmayberequestedduringthecourseofliabilityactionandthediscoveryprocess includebutarenotlimitedtoALLOFTHEFOLLOWING: Contractdocuments Correspondence,memorandaandemails Progressreports Dailyreportsandfieldnotes Engineerscalculations,conclusionsandrecommendations Projectmeetingminutesandnotes Projectphotographs Costrecords Testreports Invoices Changeorders Designdrawingsandsketches Shopdrawingsandshopdrawinglogs
SUMMARY
Whileriskmanagementisfarfromanexactscience,agreatmanyoftheareasof potentialconflictandultimateliabilityhavebeenidentifiedandguidelineshavebeen establishedtohelpavoidtheconflictandavoidorminimizepotentialliability. Regardlessofhowcompetentanengineerisorthecaretakentoperformimpeccably, conflict,atsomelevelofcriticality,caneasilyariseatsomepointdueto miscommunication,unforeseencircumstancesorjustplainoldunintentionalmistakes. Beingwellpreparedcouldbedescribedasanotherformofvaluableinsurance.

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Basic Risk Management for Consulting Engineers

BASICRISKMANAGEMENT for CONSULTINGENGINEERS

Section6 SUMMARY 38 PROJECTRECORDS& PROFESSIONALCONDUCT 28

ConsultingEngineeringencompassesavarietyofdisciplinesandaverywidevarietyof professionalservices.Itisinherentlyariskybusiness.Themerefactthatanindividualmust becertifiedandissuedalicensetoperformcertaintechnicalservicesimpliesthataminimum levelofcompetenceisrequired.

"StandardofCare"canbedefinedas: Thewatchfulness,attention,cautionandprudenceordinarilypossessedbyengineersofgood standing,practicinginthesamelocalityatthesametimetheirservicesareperformed.

Misrepresentationisperhapsthemostcommonassertionusedagainsttheengineerandcan belistedintheformalcomplaintasanallegation,but,whichbyitself,isbutoneelementof thetheoryoffraud.

NatureofaContract BenefitsofaWrittenContract ImportanceofWrittenContracts RoleofOrganizationsorIndividualsinConstruction DutiesandHowTheyareCreated

Theremustbeasubjectmatteruponwhichthecontractcanoperate.(Ascopeof services.) Theremustbesubstantialcompliancewithanylegalrequirementsregardingform.

Bycontract Bylaw Byconduct Bythepoliciesofanengineeringfirm(ifemployedbyanengineeringfirm,the firmsstandardclientformofagreementbecomesthepolicy)

FederalLawandStateLaw:BodiesoflawcreatedattheFederallevelortheStatelevelcanbe Statutory,Constitutional,orAdministrative.ExamplesofFederalLaware: AmericanswithDisabilitiesAct(ADA) NationalEnvironmentalPolicyAct, FederalWaterPollutionControlAct, DavisBaconandRelatedActs(DBRA) CleanAirAct.

AUTOMOBILELIABILITY EXCESS/UMBRELLA LIABILITY WORKERS COMPENSATION& EMPLOYERSLIABILITY

CommercialGeneralLiabilityInsurance Workers'CompensationandEmployer'sLiabilityInsurance BusinessAutomobileInsurance PropertyInsurance ProfessionalLiabilityInsurance

WhatPoliciesTypicallyDoNotCover CertificatesofInsurance Bonds,Types

ExperienceModificationRating(EMR)? Subrogation "ClaimsMade"versus"OccurrenceBased"Insurance LimitationofLiabilityversusAmountofInsurance

PerformanceandPaymentBondsprovidethegreatestbenefittotheowner.Thesetwotypes ofbondsinuretothedirectbenefitoftheowner,andalsoproduceanindirectbenefitinthat subcontractorsandsuppliersonabondedprojectgenerallyprovidebetterperformancethan thosenotbonded.

EffectiveClientCommunications Safety Inspections

ReportWriting CategoriesofWordstoAvoid Engineering"Vernacular"toAvoid

None Wordsofambiguity Inspect Wordsofpromise Guarantee Warrant

Safe,unsafe Sound Stable Suitable Sufficient Thorough

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