Professional Liability/Risk Management Brief: Examining ConsensusDOCS
New to hit the world of contract documents is ConsensusDOCS, a coalition of construction industry and client groups formed by the Associated General Contractors (AGC). These documents are intended to replace the AGC contract documents and are documents that design firms should understand. The design professional sponsoring organizations of the Engineers Joint Contract Documents Committee (EJCDC), NSPE, the American Council of Consulting Engineers, and the American Society of Civil Engineers have declined to join ConsensusDOCS, endorse the documents, or encourage their use.
According to Victor O. Schinnerer & Company (VOSCO) Inc.’s Guidelines for Improving Practice Number 2, 2008, there are some issues design professionals need to be aware of with the new documents, including constraints on the role of the design professional and conflict over extent of design services.
ConsensusDOCS follows a philosophy that the relationship during construction is only between the client and the contractor. There is no recognized agency relationship with the design professional as the representative of the client (the principal) during the construction phase.
The reduced ability of the design professional to act on behalf of its client is a significant change that could create exposure problems. The ConsensusDOCS 240 Owner/Architect-Engineer Agreement system of project communication specifically states:
Except as provided in this Agreement or unless otherwise directed by the Owner, the design professional shall communicate with the Contractor and Subcontractors only through the Owner.
Although not recognized as a representative of the client in the 240 and ConsensusDOCS 200 Owner/Contractor Standard Agreement & General Conditions (Lump Sum), the design professional must perform services during the construction phase. The design professional must: review and advise the client as to the accuracy and sufficiency of the schedule of values; coordinate the project schedule for construction work; prepare design documents in connection with change orders; respond to requests for information; review submittals; and evaluate the work so that payments can be certified “based on onsite observations and other relevant information.” The design professional’s duties extend beyond inspecting for substantial and final completion by continuing through the one-year correction period for contractor deficiencies.
Although some design firms would like to avoid involvement during the construction of projects, the removal of the design professional as a formal participant does not negate the risk. Providing services under the ConsensusDOCS owner-design professional agreement diminishes the status of the design professional while subjecting the design professional to an increased scope of design services and increased risk during construction.
Along with constraints on the role of the design professional,VOSCO notes that ConsensusDOCS also creates conflict over extent of design services.
The 240 requires that the construction documents “completely describe all work necessary to bid and construct the project.” The design professiona’s fees should reflect this significantly greater scope of detailed design and comprehensive construction documents. Even if the design time and compensation are increased, issues often arise during construction that require the exercise of professional judgment.
The 240 also does not recognize the use of shared expertise in the design process or that design and construction entities communicate on specific details.
Professional services agreements that include construction phase services should match the responsibility with authority of the design firm in the construction contract. If the professional services agreement and the construction contract contain differing duties or procedures, problems occur. If ConsensusDOCS 200 is used between the client and contractor, it is reasonable that the professional services agreement should be renegotiated.
EJCDC Issues Interim Bond Payment Form
Engineers Joint Contract Documents Committee, has published a revised edition of its standard payment bond form. The new form, EJCDC C-615(A), is intended to be used on an interim basis as a substitute for EJCDC’s standard payment bond form, EJCDC C-615, pending a full review and reissuance of the standard form. The interim form addresses a concern regarding the misapplication of the standard form’s section on the time limit for the surety’s response to a claim on the bond. The concern arose as a result of court decisions in a few jurisdictions and led users and sureties to request a revisions of the form. A memo on the issue and interim can be found here.
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NSPE Education for You and Your Firm
NSPE ETHICS Forum: Public Safety - Public Welfare
Session 3: May 14, 12:30–1:30 p.m. (E.D.T.) 1.5 PDHs
Click here for the registration form (Microsoft Word document)
NSPE Interest Group Web Seminars
Concepts in Risk Management
May 8, 1:30–3:00 p.m. (E.D.T.) 1.5 PDHs
Construction Defects Part II
May 13, 1:30–3:00 p.m. (E.D.T.) 1.5 PDHs
Click here for more information on each session or to register. (Microsoft Word document)
2008 PEPP CFO Roundtable
June 12-14, Alexandria, VA
Ownership transition, CEO/CFO relationships and expectations, HR benefit issues, due diligence on M&As, document retention and control, and more.
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Top 10 Tips for Opening a Branch Office
Herbert M. Cannon, President of AEC Management Solutions Inc.
10. Decide if it is really necessary to open a branch office.
Many firms are successfully operating nationally or internationally with only one office.
9. How much are you willing to invest in your new office?
Don’t believe the rosy projections that show the office will be profitable in short order. Chances are the new office will be a money loser for at least the first year, if not longer. Before you jump in, decide how much money and how much time you are willing to invest before the office turns a profit. Also remember that accrual basis profit does not equal positive cash flow.
8. Is the office a warm start or a cold start?
My preference for opening a branch office is clearly a warm start. By warm start, I mean a signed contract, not the promise of work. I’ve seen many branch offices fail because the promised workflow never materialized. Following existing clients to a new location is the safest bet.
7. Keep your fixed costs to a minimum.
When you keep your fixed costs for rent equipment leases etc. low it is a lot easier to generate positive cash flow.
6. Have incentives in place for the branch office manager.
The branch office manager should have substantial financial incentives in place, for example a precentage of profits and a bonus for positive cash flow.
5. Invest in the technology needed to share work between locations.
4. Branch office overhead employees need to be at least 50% chargeable to projects.
By having your overhead employees chargeable to projects, it greatly increases the chance of success.
3. Be willing to pay more for rent in return for the flexibility in breaking your lease early.
I’m always willing to trade a higher upfront expense in exchange for the ability to end my payment obligations.
2. Prepare your exit strategy in advance.
When opening a branch office, it is always a good idea to hope for the best and plan for the worst.
1. Don’t throw good money after bad
Once the money is spent it is gone. Don’t continue unprofitable branch operations in an attempt to recoup your investment. Cut your losses and move on to more profitable endeavors.
Herbert M. Cannon, president of AEC Management Solutions Inc. and publisher of AEC Managing Partner Newsletter, is a management consultant, seminar provider, and speaker exclusive to the A/E industry. He is available to speak at company meetings and conferences. For more information, contact Herb via e-mail, or visit his Web site.
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State-By-State Summary of Liability Laws Affecting the Practice of Engineering
State liability statutes and laws have a profound impact upon the practice of engineering. Among those liability laws having the most significant impact upon engineering practice include:
- Statutes of Repose
- Sole Source Workers’ Compensation Statutes
- Certificate of Merit Statutes
- Joint & Several Liability Laws and Statutes
To keep its members informed about liability issues, PEPP’s Professional Liability Committee published the State-By-State Summary of Liability Laws Affecting the Practice of Engineering (2008 Edition).
Included in the summary are (1) a brief description of each of these provisions; (2) a one-page “snapshot” of state engineering tort reform coverage; (3) a state-by-state summary of state engineering liability law provisions; and (4) NSPE Model Law language for statutes of repose, sole source workers’ compensation statutes, and certificate of merit statutes.
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