Professional Liability/Risk Management Brief; Express Warranties and Professional Services
An express warranty is an assurance by one party of the existence of a fact on which another party can rely. Thus, an express warranty is intended to relieve the relying party of any duty to ascertain the facts—this amounts to a promise to indemnify the relying party for any loss if the fact warranted proves untrue. While in certain circumstances such a promise will be presumed by operation of law, it is rare that such “implied” warranties are applicable to the services, or instruments of service, of an engineer. Engineers who are unaware of the business context in which they practice, however, can find themselves providing express warranties or agreeing to “absolute” responsibility. They can also subject themselves to the similar problem of guaranteeing the actions of another.
Express warranties and guarantees are promises, ancillary to the basic agreement between an engineer and a client, that the engineer will provide knowledge-based services in exchange for compensation. Therefore, an express warranty presents a different set of problems for engineers from the normal contractual obligations negotiated for the performance or furnishing of professional services. For one, it is almost impossible for the engineer to have control over the factors that would lead to a rational express warranty. In addition, because an express warranty relieves the client of the burden to act in a responsible manner, the engineer no longer has the ability to rely on the rational participation of the client in the design process. Accordingly, no professional liability insurance policy includes coverage for breach of express warranty claims or breach of contract actions based on express warranty or guarantee provisions because such independent promises are impossible to ascertain when insurance premiums are determined.
Engineers may intentionally provide by contract an uninsurable warranty of their services or the instruments of their service. However, they may also unintentionally establish such an absolute reliance through proposals or other communication incorporated by reference into a contract, through misstated language in studies or reports, or through contract language. Even statements separate from the professional services agreement may be construed to be express warranties.
Express warranties, although inappropriate for the services provided by engineers, are attractive to clients since the breach of a warranty is much easier to establish than negligence in the performance of design services; proof of negligence is not required in breach of a warranty. The elements of a breach of warranty action are simple and involve the following:
- Representation: Was a statement describing the performance of services or a result of the professional services made?
- Falsity: Was the performance or result as stated?
- Reliance: Did the aggrieved party actually rely on the statement that is the basis of the express warranty as being true?
- Causation: Was the false representation—the breach of the express warranty—the actual cause of harm to the party relying on the statement?
- Damage: What damages must be rectified?
Engineers, as all professionals, are required to provide their services in a non-negligent manner. This is the protection offered to clients of professionals by the United States legal system. Engineers can provide the collateral and more extensive protection of an express warranty of the services, or even a guarantee of the actions of others. But engineers and their clients should be aware that such independent promises usually are not in the capability or control of the engineer or within the scope of professional liability insurance coverage.
© 2011, Victor O. Schinnerer & Company, 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 CNA/Schinnerer Professional Liability Insurance Program, commended by NSPE/PEPP since 1957.
Nominate Fellow Engineers for PEPP Awards
PEPP presents several awards each year to recognize noteworthy contributions to the consulting engineering field. Members may nominate individuals and organizations for the following PEPP honors. The awards are presented annually at NSPE's Annual Meeting.
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.
PEPP 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.
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Happenings on the Hill
NSPE Comments on QBS, NEPA at DOT Meeting
NSPE member L. Daniel Tanksley, P.E., F.NSPE, presented remarks on behalf of NSPE at a U.S. Department of Transportation regulatory review meeting. NSPE President-elect Christopher M. Stone, P.E., F.NSPE; NSPE Executive Director Larry Jacobson; and Senior Manager of Government Relations Sarah Ogden also attended the meeting. NSPE's remarks focused on two issues: the Federal Highway Administration's and Federal Transit Administration's limiting of qualifications-based selection procurement procedures to construction-related projects and the convoluted environmental clearance process.
DOT's regulatory review is a response to Executive Order 13563, which requires all agencies to periodically review their existing regulations to determine whether they should be modified, streamlined, expanded, or repealed to make regulatory programs more effective and less burdensome in achieving objectives.
March 11, 2011
NSPE Sends Condolences to Japan, Offers Assistance in Relief Effort
NSPE sends its profound sympathies to those affected by the devastating earthquake and tsunami in Japan. NSPE has offered its services to the Center for International Disaster Information and the Federal Emergency Management Agency in the wake of the disaster. NSPE would like to remind engineers not to self-deploy to the region. While professional engineers will be needed, their expertise and skills must be part of coordinated relief efforts to be of the greatest help. Professional engineers interested in assisting with relief efforts should register with the Center for International Disaster Information, or send their name and specialty area to NSPE Executive Director Larry Jacobson.
NSPE Requests Clarification of Forensic Science Reform Act
NSPE sent a letter to Senator Patrick Leahy (D-VT) expressing concern about his introduction of the Criminal Justice and Forensic Science Reform Act (S. 132). The intent of the bill is to strengthen and reform forensic science in the criminal justice system and ensure that forensic evidence and testimony is accurate, credible, and scientifically grounded. The bill's certification requirement for personnel performing forensic work for federally funded facilities, however, is problematic because it does not exclude professionals who are licensed by the state.
Forensic professional engineers rarely work in criminal laboratories, but because the legislation requires the certification of anyone who "conducts forensic testing, analysis, identification, or comparisons, the results of which may be interpreted, presented, or otherwise used during the course of a criminal investigation or prosecution" or testifies about evidence prepared by such an individual, forensic professional engineers could unintentionally be included in the certification requirements. To avoid inadvertently including state-licensed professionals who are not directly employed by criminal laboratories in the bill's certification requirements, NSPE requested that the legislation be revised to include a clarifying statement that the bill is not intended to affect those who are not directly employed by a criminal laboratory.
NSPE Declines to Comment on SEC Issue
NSPE declined to comment on the SEC proposed rulemaking regarding the municipal advisor registration requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Introductory language preceding the proposed rulemaking raised concerns that engineers would be required to register as municipal advisors despite the exemption provided for “engineers providing engineering advice.” Following extensive discussion and a close reading of the proposed rule, NSPE determined that its members and the profession would be best served if NSPE allowed the issue to pass without comment.
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10 Ways Architects and Engineers Can Deal With a Slowing Economy
Herbert M. Cannon, President of AEC Management Solutions Inc.
1.Do not over react
One of the worst things management can do in a slowing economy is to over react. Make sure your decisions to reduce staff and cut other expenses are measured and appropriate to the situation.
2. Invest in Your Future
When your business is operating at 110% of capacity, you simply don't have the time to invest in training, technology upgrades, and developing standard processes. It is ideal to make investments that will pay dividends in the future when business is slower.
3. Deal with the Deadwood
Over the last five years, many A/E firms were in a hiring frenzy. In our eagerness to expand our workforce and meet our project deadlines, many firms have dramatically lowered their hiring standards. A slowing economy is an opportunity to raise our performance expectations and transition our underachievers to other employment opportunities.
4. Use More Video Conferencing
Video conferencing technology has come a long way. For a relatively cheap investment, you can dramatically reduce the need for visiting your clients or branch offices in person. Even if most of your travel is reimbursed by your clients, they will appreciate your efforts to keep costs under control. Of course, reducing travel has the added benefit of being environmentally responsible.
5. Review Your Compensation Strategies
A slowing economy is an opportunity to rethink your compensation and bonus program and make some long overdue adjustments. Think long and hard about moving to incentive-based compensation. Adopt a plan that rewards financial results not seniority and effort and you will create a company that can not only survive—but thrive in any economy.
6. Have Employees Use Their Vacation Time
It doesn't make any sense to have employees carry time forward to next year. If they haven't used all of their vacation time, consider making it mandatory before year-end. It is better they use it now rather than waiting until business picks up again.
7. Cut Unnecessary Spending
Substantial sales volume can cover-up a multitude of sins. Cost controls can get sloppy and overhead can spin out of control. Use this opportunity to review where you are overspending and cut costs now.
8. Upgrade Your Staff
For years, every A/E firm in North America has been complaining about the lack of qualified employees. Well—now is your chance. With the slowing economy, quality people are now available. This is your opportunity to upgrade the quality of your staff and solidify your position for long-term success
9. Update Your Strategic Plan
Successful firms retain a facilitator exclusive to the A/E industry and take the time (two or three days every year) to develop a simple plan of where they want to go and how to get there. The result of the session is a simple action plan that articulates the company’s goals, assigns responsibility, assigns deadlines for action, and creates a mechanism for follow-up. In this economy, there has never been a better time to have a strategic planning session.
10. Reduce Your Professional Fees
A prime area to save money would be your professional fees. Most A/E firms are overcharged and underserved by their CPA firm. Take this opportunity to ask your CPA for a 20% reduction in their fees. If they don't go for it, solicit quotes from other firms.
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 mailto:email@example.com. Or visit his Web site at www.aecmanagementsolutions.com.
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Synergy 2011: HR and Finance Roundtable
Synergy 2011: HR and Finance Roundtable
May 4–6, 2011
Take advantage of the early bird price for Synergy 2011!
Early bird registration January 11–March 31: $495.
April 1–April 30: $595. Register
HR and Finance professionals from architecture, engineering, and construction firms come together to make Synergy a unique roundtable. Past Synergy participants have given the value created by combining the HR and CFO roundtables high marks. Come share your experience and viewpoint with this unique group.
The planning committee has created an agenda that provides time for continuing education, networking, benchmarking current activities, and sharing best practices. Synergy will again do the Networking/Information Exchange survey. Registrants who participate in the survey will receive a free copy of the results.
AGENDA HIGHLIGHTS (Download Full Synergy Agenda)
What CEOs Expect from HR and Finance Professionals
Christopher Stone P.E., F.NSPE, President of Clark Nexsen
Ten Steps to Employee Engagement
Bob Kelleher, CEO of Employee Engagement Group
Michael O'Brien, Partner with Rusk O'Brien Gido & Partners
Making up for Lost Time: Compensation Trends and Analysis of the Changing Economy
Kevin Brown, SPHR AVP, Human Resources for PBSJ Corp.
Engineering a Great Place to Work: Piece by Piece
Peggy Freeby, Human Resources Manager for Freese and Nichols Inc.
Generation Next: Identifying and Cultivating Business Development Leaders
Richard Friedman, President of Friedman & Partners; Barbara Irwin, President of HR Advisors Group
A block of rooms have been reserved at the Lorien Hotel for a room rate of $209 single/double.
To make reservations:
Reserve online or call 1-877-956-7436 and refer to the "NSPE Room Block" to take advantage of this special room-rate offer. The Lorien Hotel is conveniently located at 1600 King St., Alexandria, Virginia.
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Got BIM?: It's Not Just About 3D Models
April 5, 2011, 12:30 p.m. – 1:30 p.m. (E.D.T.), 1 PDH
$149.99- $99.00 Member Price
Learn what is important about implementing BIM today as it is not just about 3D models. Get ideas on areas where you might focus your BIM projects, and explore concepts that you can bring back to your organizations to get you started. The key to your success now and in the future is taking the first steps to implement BIM if you have not yet done so.
The Fundamentals of Finance and Accounting for Engineers
April 21, 2011, 12:30 p.m. – 1:30 p.m. (E.D.T.), 1 PDH
$149.00/ $99.00 Member Price
Holding a PE usually includes engineering firm responsibilities like cash flow and budgeting. In this webinar presented by Ian Rusk, we discuss the fundamentals of accounting, financial statements, fiscal performance, and future planning in terms familiar to engineers. This webinar is especially useful for PEs aspiring to management at their firm.
The following areas will be covered:
Fundamental aspects of accounting; cash vs. accrual accounting
Basics of reading and interpreting financial statements; income statements, and balance sheets
Important measures of financial performance
Understanding and tracking forward looking financial metrics
Keeping a “balanced scorecard”
The importance of cash flow management
The difference between a “S” vs. “C” Corporation and related basic tax differences.
Ethics Forum: Ethical Issues in Communications and Marketing
April 27, 2011, 12:30 p.m. – 1:30 p.m. (E.D.T.), 1 PDH
$149.00/ $99.00 Member Price
This spring’s NSPE Ethics webinars feature discussions with NSPE Deputy Executive Director and General Counsel Arthur Schwartz and members of NSPE’s Board of Ethical Review. Discussions center on decisions from the Board’s 2010 session. This session focuses on communications and marketing, featuring:
Appropriate public communications,
Engineering firm selection,
Web-base marketing; and
Outside party service reviews.
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