Viewpoint
When Scope Creep Leads to Unexpected Professional Liability
A warning about structural condition assessments
Plans of Cambridge, Massachusetts City Hall. Photo via Wikimedia Commons
When a client asks for design alterations, perhaps requiring a structural condition assessment (SCA), your firm’s professional liability can increase significantly. Here is a fictional, but instructive, example of the covert risks of scope creep for architects and engineers.
A client retained architect SE Design to design a new 10-story office building along an urban riverfront. During the design development phase of the project, the owner purchased an adjacent property, an existing office building constructed 80 years prior under now-outdated codes and environmental conditions. As a design change, the developer directed SE Design to connect the new building with the existing one.
The owner requested that SE Design perform a “cursory assessment” of the existing building and SE Design, after initially recommending that the developer retain a building inspection engineer, agreed to provide a limited assessment. It included reviewing the incomplete set of existing building documents and conducting a visual review for a $2,500 fee. This cursory assessment indicated “no apparent issues with the existing building structure” but did not sufficiently define the limitations of the study.
The added cost wreaked havoc with project financing and the owner sued SE Design for negligent performance of professional services in conducting an improper assessment.
During construction of the now-expanded project, workers uncovered floor-level problems in the existing building and discovered settlement at a building corner along the riverfront. The developer retained a forensic engineer, who conducted subsurface investigation and close examination of the structural piers. The piers had deteriorated, the investigation showed.
Remedial work was needed to reinforce the concrete piers and columns to stabilize the foundation and correct the misalignment. The cost to the owner was more than $1 million, driving the owner’s contingency past the $50 million that had been set.
The added cost wreaked havoc with project financing and the owner sued SE Design for negligent performance of professional services in conducting an improper assessment.
In defending against the professional liability claim, SE Design retained its own specialist engineer. With that consultation, the firm’s legal defense team confirmed that SE Design’s assessment report and contract modification for assessment services lacked proper clarity in scope of services and absence of meaningful disclaimers or limitation of liability.
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Defense counsel and expert witness opined that SE Design did not meet the standard of care in providing even a limited assessment.
Mendelson
SE Design’s professional liability insurance carrier, with the firm’s consent, negotiated a payment to the developer of $600,000. This was less than the owner’s $1 million demand, because the “betterment” component of the remedial work meant the owner would have incurred some of these costs had SE Design provided a sufficient assessment.
So that “cursory assessment” that SE Design provided as an add-on to architectural services was costly.
How should a design firm approach a request like this?
First, understand the risks of services that appear limited in scope. Such services can generate liability out of proportion to fees earned. Approach limited scope projects with proper contracts and documentation to clarify the scope and limit liability.
It's also vital to be qualified to provide an SCA. International Building Code Chapter 17 on Special Inspections identifies the qualifications.
In my hypothetical example, the structural engineers on SE Design's staff did not have sufficient expertise to perform a proper SCA. It can be prudent to decline an opportunity to perform an SCA and refer it to a more qualified engineer, even if it means giving up a fee.
If your firm does perform an SCA, it’s a must to craft an appropriate scope of services and services agreement. It can be wise to turn down the SCA if the scope the client is willing to authorize is insufficient.
The SCA report must document the process followed and exclusions that may apply and include a summary of services and methodology used. It must include qualifying statements―such as, “The report contains professional opinion based on the engineer’s knowledge, information, and belief, limited services, and an investigation conducted at a specific date and time”―and state that no warranties are expressed or implied.
A disclaimer of third-party reliance―meaning the assessment report is intended for the client only―should also be included.
A Needed Indemnification
Lastly, an SCA agreement must require the owner to implement repairs, maintenance and operations and specify indemnification for the engineer if corrective actions aren’t taken.
Buildings and infrastructure age, so SCAs present a growth opportunity for qualified engineers. Proceed cautiously with these assignments in ways that are consistent with your firm’s skills and capabilities. Keep everything consistent, also, with your firm's ability to negotiate proper terms and conditions in the professional services agreement, and with your risk appetite. Use an informed “go-no go” process to determine if you should take on the opportunity in the context of key risk management principles.
While my example is fictional, the risks are real and so you should do all you can to protect your company.
Andrew D. Mendelson, FAIA and senior vice president and chief risk management officer of Berkley Design Professional, joined the company in 2013 after a 35-year career as an architect and A-E firm principal. He can be reached at amendelson@berkleydp.com.
