When it comes to managing professional liability risk, documentation is one area all design firms need to take very seriously.
It is important to recognize that professional liability risk, which is by far a design firm’s greatest risk, is a “long-tail” exposure. It can take months if not years for a professional liability claim to fully develop. A lot of time can pass from the time a design professional starts a project to the time the project is substantially completed, to when an allegation of an error or omission is made against the firm—to the time the firm is dragged through mediation, arbitration and/or litigation.
Simply put, a design firm needs to have adequate documentation protocols in place in order to support its actions well into the future. If an Architect or Engineer firm finds itself in a dispute with no meaningful documentation, it will most likely end up incurring significant expense and possibly damaging the firm’s client relationships – and its reputation. The importance of documentation in defending a liability claim cannot be overstated.
The Three Forms of Documentation
It’s important that a design firm has clear and consistent documentation practices in place on all its projects. There are three forms of documentation that a design firm should pay particular attention to when developing the firm’s standard procedures:
- Certified receipt transmissions
- Memos to file
It’s a fact that most claims against architects and engineers are due to unmet expectations versus actual design error.
Consultants should use the contract negotiation process as a vehicle in establishing expectations with their clients. It’s reasonable to assume that if you find your prospective client to be an unreasonable bully during the contract negotiation phase, the quality of their character most likely won’t improve much once you sign the dotted line and they become your client.
If and when a suit is brought against your firm the first thing your attorney and insurance claims representative will ask you for is a copy of your contract and any supporting documentation. An ambiguous agreement that is not professionally drafted increases the risk of liability in the long run.
Certified Mail/Return Receipt
There are many times throughout a project when it would be a good idea to formally memorialize your communications. One example would be in the event of value engineering in order to clearly state your position and have clear record of client decisions.
Another example would be in the event you don’t have a contract in place and want to put your new client on notice that, until you do have a fully executed agreement in place, you will be working under your firm’s terms and conditions which should be provided to the client.
Sending these types of correspondence via certified mail and/or return receipt email is highly recommended.
Memo/Documents to the File
Along with your contract, any amendments and certified transmissions you will also want to retain all relevant memos to file. Anything that would help “tell the story” of what transpired on a given project can go a long way when someone picks up the file in the future. This includes field notes and meaningful emails.
While these notes and emails can be of tremendous benefit as supporting documentation, it has to be recognized that documentation is a double-edged sword. Just as the consultant needs to take precaution with the contracts they sign, the design firm’s staff needs to be judicious in their use of day-to-day communications including field notes, marketing materials and emails.
Beware of Emails
Emails are both retrievable and discoverable in most cases.
The problem with emails is that people tend to be far too informal with them and will often put something in an email that they would never put in a letter. A good assumption to go by is that emails are permanent combinations and will be reviewed in the event of any dispute.
Voicemails are also a problem now as they are often being converted to emails and retained without your knowledge.
The best risk management advice you can offer your staff is to treat your business as a business. All staff should be instructed to keep emails short and to the point and to avoid extraneous, inflammatory and/or informal messages. Avoid phrases such as “Boy Bob, we sure screwed up on this one!”
Another thing to watch out for when it comes to emails is getting caught up in the “reply all” vortex. If you find yourself being copied on emails that you don’t feel pertain to you, it’s a good idea to ask, via “reply all,” to be removed from any future correspondence. One example of this would be correspondence pertaining to job site safety or construction means and methods.
Leave Your Wide Angle Lens at Home
It’s not unusual for a firm to have thousands of pictures on file of their projects. A good rule of thumb David Ericksen, of the San Francisco law firm Severson & Werson, recently shared with me is the “rule of 3 or 300.”
Rule of 3 or 300
Taking and retaining only photographs of projects up close or very far away is a good practice. Plaintiff attorneys have been known to use a design firm’s own photographs against them depicting site conditions or specific project details in a photo the A&E unwittingly snapped.
When possible, it may be a good practice to be judicious in the pictures you take and to only take and retain photographs of very specific detail – at around 3 feet away—or distant shots with little detail—at or around 300 feet away.
Managing Scope Creep
It’s important for the design firm to amend their agreements if and when there is a material change in scope. Firms failing to do so may very well find themselves in a position where they don’t get fully compensated for their work—and/or take on risk outside their contract’s scope of services.
With the recent economic downturn we’ve seen more clients attempting to set-off fees reasonably due the consultant in return for not bringing legal action against them. A firm with good documentation practices is less susceptible to this.
Another pitfall we see is the redesign trap. Design professionals tend to be problem solvers – and all-around nice, accommodating folk. In other words they often find themselves working for free.
The $0 Invoice
One way to manage redesigns and additional work through documentation is the use of the $0 invoice. Every time your client wants you to provide an additional service that for whatever reason you won’t be charging for, you should consider submitting a $0 invoice. The advantage of this practice is that not only can it help tie the additional work back to your original contract, it can prove helpful when the firm wants to start charging for these additional services.
Documentation plays a critical role in managing design professional liability risk. Design firms should have clear and consistent practices in place when it comes to documentation. All staff of the A&E firm should be educated on the firm’s documentation protocols from contract negotiation to how they conduct themselves when it comes to field notes and emails.
With sound documentation practices in place, a design firm will often find itself in a much better position to extricate itself from and even avoid costly disputes or claims.
Lastly, it’s important that all members of the design firm are educated on the firm’s standard procedures when it comes to documentation. This is one area of your practice where literally everyone can make a profound impact—positive or negative—in managing your risk.