One of the most important things an architecture, engineering or design firm can do to keep themselves free of unwanted claims is to have a strong risk management program in place. With the complex services provided, coupled with the often-challenging projects, an architecture or engineering firm’s success depends on being able to not only provide the services they are hired to perform, but also being able to manage their risk. Simply put, even just one professional liability claim can put a small firm at risk of financial disaster. However, there are several risk management practices and procedures a firm can follow to decrease their risk. Open communication, strong commitment to quality, clear documentation, and a solid professional liability policy can help a firm decrease their chances of a potential claim.
Risk can arise out of miscommunication and unrealistic expectations. It is important to discuss expectations ahead of time with clients and provide a realistic time frame for completion as well as potential costs for services and materials in the process. This is accomplished by having a strong contract in place that describes the scope of services. It is important to be as clear as possible about what a project entails before it begins. Being able to describe what your firm will do and what your firm won’t do prior to the start of a project will ultimately provide a strong outline of what is to be expected. Many claims result from the gap between what the client expects and what the firm was hired to do.
Another important factor to consider toward general risk management and the avoidance of potential claims is a strong commitment to quality. It is important to note however that even with a strong commitment to quality, poor communication or promising more than you can deliver can often lead to unrealistic expectations. These unrealistic expectations, whether they are related to costs or timing can lead to an unwanted claim.
Documentation is a very important step in managing risk. Clear documentation of daily project activities will be a benefit to the firm in the long run in the event a claim does arise. If there are delays for any reason, be sure to note the reason for the delay and when it was discussed with the client. Being able to provide proof of good recordkeeping will go a long way.
Purchasing a solid Architects & Engineers professional liability policy is a great way to help cushion the possibility of financial struggles as a result of a claim. Additionally, many insurance companies offer risk management services to all of their insureds and they are usually complimentary. One such service is free contract review. The insurance carrier will either use in-house risk management consultants or attorneys, or have a third-party risk management firm to handle these services. In either case, the risk management consultant will review and suggest changes to the contract or how to improve on the wording to further detail what the architect or engineering firm will or will not be responsible for. The risk management consultant will also be reviewing contract language to be sure the firm is not agreeing to something not typically covered by insurance and are not agreeing to a higher standard of care than typically expected. Some other types of complimentary services provided may include pre-claims assistance, basic risk management consultation services and webinars pertaining to different issues a firm might face in the current litigious environment.
In conclusion, while some risk is out of the control of the firm (Mother Nature for example), most of the risks that a firm might encounter can be managed and reduced with open communication between the firm and the client, a strong contract in place and a desire to perform quality work.
Gwynne Wright is the Architects & Engineers Practice Leader for wholesale insurance broker, Founders Professional. Gwynne helps architecture, engineering and design firms, of all sizes, secure professional liability insurance in conjunction with their retail insurance agency. Gwynne can be reached at Gwynne.Wright@founderspro.com or 727.873.7920.
Thanks for pointing out that risk can arise out of miscommunication and unrealistic expectations. As you said, it is important to discuss expectations, time frame, and potential costs ahead of time. I will share this with my husband when he comes home because we are planning to have our dream house built near the beach in September. We are hoping to find a reliable architecture firm on Monday that can design a unique two-story house with a jacuzzi within our budget.
I can understand how a business could really benefit from getting the right kind of engineering when building. Getting some help from a professional could allow them to be safer. It was interesting to learn about how they can manage a lot of their risk with the right kind of documentation of project activities.
It only takes one professional liability claim to run up costs that go beyond your insurance coverage. That can put your business and personal assets at risk.
Definitely. It only takes one professional liability claim to generate costs that exceed your insurance coverage. This can jeopardize your company’s and personal assets.