Professional Liability/Risk Management Brief; Public-Private Partnerships
public-private partnership is an arrangement between
the governmental and commercial sectors to privately deliver a project or
service that is traditionally provided by the public sector. This extreme form
of government contracting is based on the realization that private sector
innovation, technological skill, financial capability, and management expertise
can generate quality public infrastructure and services in an economically
There are many new forms of project delivery in which the client
and teams of specialists join in a common effort. Public-private partnerships
for building or infrastructure projects are often considered an
"impure" form of a broader “alliance contracting” category because of
the limited role of the client. The risks usually are not shared, but
transferred to the private sector.
Unbundling the Risk
The development of public-private partnerships is causing much
concern among design firms, contractors, financial entities, and facility
managers. Part of this concern is the unbundling of project risk in a way that
creates challenges in understanding risks and creating systems to manage and
insure these risks. For instance, unbundling the risk on a capital improvement
project usually results in the private sector assuming those risks that are of
a commercial nature and can be identified, appraised, and managed, leaving the
residual risks to the government.
Because each project arrangement is different, the risk profiles
and resultant risk allocations differ. One fundamental issue that remains
constant is the value in the transfer of risk.
Absorbing Business Risk
Every design and construction endeavor has both project risk and
professional or design risk. When a public-private partnership is formed, the
project risk usually becomes more extensive but more manageable. The
professional risk—including basic design liability—often becomes greater and
spreads among the entities forming the private part of the arrangement.
Expanded roles may introduce new risks, such as meeting fixed schedules and
cost commitments, absorbing development and management costs, and facing
reduced cash flow because the fee structures are often set up as deferred
payments made during operation of the facilities.
Blurring Private Entity
use of alternative project delivery and financing methods for public
infrastructure projects blurs the common division of risks and rewards. The
traditional relationship between project designer and project contractor
changes significantly. The design effort in a public-private partnership is
usually fully integrated into the project delivery team and often managed by
the contractor or developer. Although all the parties need to share a new
perspective, the design elements in particular need to be carefully managed.
Design firms may find it difficult to maintain the integrity and public
accountability that is associated with being licensed professionals.
Continuing Exposure of
Public-private partnerships increase business opportunities in
return for assuming new or expanded responsibilities and risks. In a more
entrepreneurial capacity as a developer and operator, the private entity may
assume risks that the public entity never had. Third-party liability—in many
cases the same risks don’t exist for a public
agency—becomes important as a risk for private entities. While government
agencies have limited tort exposure (usually in the form of a cap), private entities
usually do not. A design firm with continuing management or maintenance
responsibilities may find that its exposure is not limited in amount or time.
Formal contractual agreements must clearly describe the public services to be
provided and the standards to be met while providing the appropriate
flexibility, incentive, and protection of profit-seeking private investors to
provide improved public services and facilities. And they should assign
governmental immunity to the private entity.
engineers are rightfully at the center of public-private partnerships. The
skills of design firms on these teams can provide the creative and management
resources for large and complex programs, access to advanced technologies, and
improvement of asset management and life-cycle cost practices.
© 2010, Victor O. Schinnerer & Co. Inc. Statements concerning legal
matters should be understood to be general observations based solely on our
experience as risk consultants and may not be relied upon as legal advice,
which we are not authorized to provide. All such matters should be reviewed
with a qualified advisor. Victor O. Schinnerer & Company Inc. is managing
underwriter for the Schinnerer and CNA Professional Liability Insurance
Program, commended by NSPE/PEPP since 1957.
Client Research: Myths, Mistakes & Maximizing ROI
client/prospect studies for a variety of AEC industry firms, across multiple
client sectors, I want to address three myths:
- Clients will
feel bothered. Satisfied
clients who value your firm’s services want you to succeed. They recognize that
their feedback, positive or negative, is instrumental in maintaining their own
satisfaction. Conversely, dissatisfied clients appreciate the opportunity to
vent and provide constructive criticism. Firms conducting a client/prospect
study should pave the way with an introductory letter sent by the President or CEO
conveying why the study is being conducted and how the firm plans to act on the
- A statistically
significant sample size is needed to formulate robust conclusions and recommendations. One can
disagree with a client’s perceptions and opinions, but they are his or her
reality and they drive the client’s behavior and actions. As such, it’s
dangerous to dismiss findings simply because only a few people shared that
opinion. We’re not talking about a cure for cancer here. Statistical
significance in not a prerequisite for formulating conclusions. Having said
this, it is important that your sample size within a particular client type be
large enough to gather a variety of data points. (I typically recommend at
least 20 interviews per client type.)
- Clients will
feel offended if a third party conducts the research. Some AEC leaders
think that clients will wonder why their firm has outsourced the important task
of eliciting information and opinions about their client relationships. They
believe that this sends a message that the firm does not value the process.
This could not be further from the truth! Relying on an independent,
professional market researcher who is not afraid to ask tough follow-up
questions sends a clear message that the firm is willing to invest the
resources necessary to create a professional, nonconflicted environment for
exchanging potentially sensitive information.
Three of the most common mistakes to
- Employing a
written survey tool instead of conducting an in-person or phone interview. Even large
firms that could not conceivably interview a fraction of their clientele would
be well-served to use phone/in-person interviews in addition to a written
survey. While much more cost-effective, written surveys have limited
data-gathering value because few individuals invest the time to provide short-answer/essay
- Not using skilled and/or independent interviewers. This results in
a lost opportunity to ask probing, timely follow-up questions that yield
- Not thinking through the entire survey process. In the rush to
launch the survey, many don’t dedicate sufficient time to:
to share survey results with the rest of the organization; and
findings into concrete strategies for improving project delivery, client
development and other hot-button areas.
- Target prospective
clients as well.
Depending on your firm’s objectives for conducting the study, as many as 25–30%
of your interviewees should be prospective clients. While participation rates
may be lower, learning more about key targets (and what they know/how they feel
about your firm) can be invaluable to future business development efforts.
- Don’t hoard the
Immediately share findings with the project team and make time for discussion. Then,
share it with others in your firm by uploading the interview to your intranet. Doing
so not only benefits future outreach and interactions with that client, but
also spurs thought with other clients.
- Circle back with
Depending on the size of your firm and the strategic importance of the client,
the President/CEO, Client Manager/Leader, or Client Sector Leader should follow
up with the client after the survey. Appropriate messaging should include an
action plan: what the project team/firm plans to do in response to the
findings. Where possible and practical, push for in-person meetings to address
problems, leverage opportunities to influence or change perceptions, and
explore unmet needs. The biggest gripe that clients who participate in these
interviews have is when nothing seems to change in spite of their feedback.
- Harvest and
repackage client testimonials. Be sure to ask permission before doing
- Incorporate study
results into your firm’s strategic and marketing/BD plans, including:
impacting your client base;
new service offerings in response to changing client needs;
benchmarking (i.e., your firm versus your competitors); and
firm’s strategic market position and implications on future strategy.
Perhaps most important, don’t
undertake a client/prospect study if you’re not ready to listen, embrace the
findings, and act on them.
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Newly Revised Subconsultant Documents Now Available
Engineers Joint Contract Documents Committee recently released a revised
version of its Engineer-Subconsultant Documents. These subagreements are used
to form contracts between an engineering firm, as prime design professional,
and other professional firms or individuals, such as geotechnical engineers,
surveyors, mechanical and electrical engineers, and architects. The new
documents reflect current legislation, recent judicial activity, and current
business practices. Design engineers, construction contractors, owners, and
attorneys all provided input on the agreements.
The revised documents
- E-560, Agreement Between Engineer and
Land Surveyor for Professional Services;
- E-564, Agreement Between Engineer and
Geotechnical Engineer for Professional Services;
- E-568, Agreement Between Engineer and
Architect for Professional Services; and
- E-570, Agreement Between Engineer and
Consultant for Professional Services.
The 2010 edition of the
EJCDC Engineer-Subconsultant documents replaces the edition published in 2006. A full list of the changes and updates may be
found on www.nspe.org/ejcdc. These important changes demonstrate
EJCDC’s philosophy of parties working together toward fair and balanced
agreements that truly and clearly reflect the obligations of all participants. Key highlights of the changes include the
for addressing the situation in which the project owner fails to pay the
engineer. When the engineer and the consultant (architect, geotechnical
engineer, land surveyor, or other) finalize the subagreement, they now may
choose from four options for allocating or sharing the risk of owner
engineer’s general obligation to pay the consultant for undisputed services,
and of the consultant’s right to terminate the subagreement if it does not
regarding compliance with owner and contractor safety programs when on the
project site; and
Inclusion of express
certifications that the agreement has not been procured through bribery, fraud,
or coercion. Such certifications are important for any public work or projects
receiving grant funding.
NSPE members enjoy a significant discount on the cost
for the documents, which can be immediately purchased and downloaded atwww.nspe.org/ejcdc/index.html.
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Synergy: HR and Finance Roundtable Registration is Now Open
Human resource directors,
financial professionals, and partners from architecture, engineering, and
construction firms join forces at Synergy: HR and Finance Roundtable to
benchmark current activities, discuss emerging trends and issues, participate
in continuing education network with peers, and share best practices. During
Synergy, the two groups participate in joint sessions sharing their unique
views on topics of importance to both. Topics for 2011 Synergy include:
- What CEO's Expect from
HR and Finance Professionals
Steps to Employee Engagement
- Driving Motivation
Trends and Analysis of Changing Economy
- Engineering a Great
Place to Work: Piece by Piece
Next: Identifying and Cultivating Business Development Leaders
Download the agenda
Synergy kicks off with a
dinner and presentation on Wednesday, May 4, and finishes at 12:45
p.m. on Friday, May 6.
Send an email to firstname.lastname@example.org
to suggest topics for the open discussions.
A block of rooms have been
reserved at the Lorien Hotel
for a room rate of $209 single/double. The hotel is conveniently located at 1600 King St., Alexandria,
Registration: January 10–March 15: $495
Regular Registration: March 16–April 30: $595
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Nominate Fellow Engineers for NSPE Awards
NSPE offers several awards that have upcoming deadlines in 2011. Below
are just a few of the award programs NSPE will be conducting this year.
For details, visit the NSPE
Awards Web page.
The PEPP Award is given annually to an individual who has made an outstanding
contribution to the advancement and recognition of the role of private practice
in serving the public interest.
The ACEC-NSPE QBS Awards Program was established by NSPE to recognize public
agencies that make exemplary use of the QBS selection process at the state and
Professional Development Award:
The PEPP Professional Development Award is presented to employers who
exhibit exceptional career development initiatives and employment practices
that advance the engineering profession.
Mentor of the Year Award:
The Mentor of the Year Award is given each year to the one member of NSPE who
best exemplifies the ideal image of a mentor. The award may be given to an
individual who has established a record of consistent outreach toward
individuals in the engineering field, including engineering professionals and
students, over a number of years.
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