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Few professions are as bound by such strict schedules as architecture and engineering (A/E) firms. Clients of A/E firms demand and expect their projects to be completed as quickly as possible. However, they fail to realize that A/E firms cannot always control project completion dates. Therefore, effective communication and expectation management are key. Start by explaining the variables involved.
Owners may face delays in securing funding, selecting a project team, or adhering to deadlines set by others that are non-negotiable. The A/E firm must also contemplate time at the outset of their involvement. Is the proposed schedule realistic? Can they mobilize their staff as required by the schedule? What potential threats could hinder the timeline, such as labor shortages, supply chain issues, permitting problems, or public resistance? Some of these issues are not in the control of the A/E firm.
Document everything
Too often, in claims made against A/E firms, design professionals admit they were concerned about unrealistic client expectations regarding schedules and completion dates. However, project files reveal no documentation of such concerns made to the client by the A/E. Documented communication from the A/E to their clients can be critical in defending the A/E in claims.
If a schedule is too optimistic for the A/E, communicate this reality to the client and document it. The client is free to ignore your concerns, but at least you have documented them. No one likes surprises, particularly clients with expectations their project will be completed on time. Don’t let your client be surprised with bad news.
While the A/E may have little control over time, any delays can lead to legal repercussions for the design firm. If a project is delayed, owner’s attorneys often cast a wide net, which means the A/E firm could spend valuable time and resources trying to extricate itself from the situation. This underscores the importance of effective project management, particularly communication and the potential risks of delays.
Common contractual issues and how to protect yourself
- Avoid guarantees regarding time. Warranties and guarantees are not covered by your PL policy. It’s too easy to guarantee you will meet the schedules set forth by the owner without appreciating the financial risk you expose the firm to when you do. Avoid the urge to agree to an unreasonable timeline just to secure the job or make the owner happy, or you could end up with an uninsurable claim.
- Strike any time-is-of-the-essence clause. In a legal context, this clause means that timely performance of contractual obligations is crucial, transforming flexible schedules into material obligations, potentially leading to immediate claims or termination if deadlines are missed.
- Push back on Liquidated Damages clauses. Not covered by PL insurance, these types of damages are normally seen by contractors and are a risk they often assume. If they cannot eradicate the clauses, perhaps the A/E can agree to risk a small, liquidated sum, capped by a maximum number acceptable by the firm. While still not insurable, the risk can be made tolerable to some firms.
- Force Majeure – Force Majeure clauses leave an ‘out’ for the A/E if the A/E is delayed for reasons outside of its control. If written properly, the clauses do not require addressing every possible delay potential. For example, when COVID struck, many firms scrambled to specifically add COVID-19 to their Force Majeure clauses.
- Waiver of Consequential Damages — The financial damages caused by a delay in project completion can be enormous. In fact, such damages can often exceed the construction value of the project itself. This waiver is a provision within a contract in which both parties agree not to sue for consequential damages.
There are numerous methods to help reduce your risk of time-related claims. Discuss the issue with your legal counsel and insurance agent. They can help you craft appropriate contract language or guide you through a difficult project time-related issue.
This was based on an article by the Professional Liability Agents Network
