See Dick Build, Watch Jane Sue: Go/No-Go Project Evaluation for Architects

“See Dick Build Watch Jane Sue” is the title of a webinar we present around every Valentines Day. We had well over 100 design firms tune in for this program as we focused on two specific areas of risk management: project evaluation and value engineering. This blog will provide a recap on the discussion we had on project evaluation. I will be addressing value engineering in a future blog.

Project Evaluation – Making a “Go No-Go” Decision

Design firms vary in their approach to this basic yet complex process of evaluating a given project and making a “go” or “no-go” determination. Some firms have no formal process in place while other firms have well established and detailed procedures in place.

My advice is that every firm should be at least somewhere in the middle of this spectrum. Without a formal process of evaluating whether or not it makes good business sense to take on a given client and project, a design firm’s risks of having a claim increases significantly.

Without a formal process of evaluating whether or not it makes good business sense to take on a given client and project, a design firm’s risks of having a claim increases significantly.

Does your firm have a specific process in place for evaluating whether or not to go after and accept a new project? If so, how is this process managed and do all members of your staff understand and follow these procedures? Have you ever taken on a client or project that you wished you never had? Do you continually refine your Go/No-Go procedures to incorporate any “lessons learned” from past projects – including those you wish you never took on? These are all good questions when it comes to your firm’s project evaluation process.

I would suggest that it’s as much an art as it is a science when it comes to determining whether or not a design firm should take on a given project or jump in bed with a new client. Often it comes down to “trusting your gut.” One thing for certain is that in the event you do take on a project and get dragged into a claim and/or a client dispute, your firm stands to lose a great deal of time and money.

A Sample Project Evaluator

We had a client that had a rash of claims that resulted in their professional liability insurance carrier issuing them a notice that they were going to be non-renewed.

The firm was in a bad place and faced not only hefty increases in their insurance cost, but the real risk of not being able to find a viable insurance carrier that would support them.

Long story short, we were able to convince this firm’s insurance carrier to stay on the risk by presenting a detailed plan of how the firm would assess all new projects going forward. It was a simple but effective process that resulted in the short-term benefit of retaining badly needed insurance coverage and the long-term benefit of drastically improving the firm’s claims experience.

The plan we helped our client develop was a point system applied to six specific risk factors along with the firm’s commitment to only accept those projects that met a certain score. Under this plan, any given project must score at least 60 points to be accepted without a vote of the partners. Projects that scored less than 60 are only accepted upon majority vote of the partners.

The specific risk factors were as follows:

  1. Contract Type
  2. Fee and Profit
  3. Client
  4. Staff
  5. Firm Experience
  6. Subtract for Legal Risk/Liability

For each risk factor, we worked with the firm in developing a meaningful rating scale.

Below is some detail on how they assessed and scored contracts and clients. This plan was tailored for this specific firm in consideration of the firm’s area of practice including client and project types.

Contract Scoring

When considering contract type under this plan, for example, the firm included the following point allowance:

  • A contract that includes a limitation of liability (LOL) is given the maximum value of 20 points
  • A contract that reflects the generally accepted standard of care, but only has the waiver of consequential damages (such as an AIA contract) is given a medium value of 10 points
  • A client contract is given the minimum value of 5 points, as client contracts are typically not favorable

Client Scoring

When considering the client under this plan, for example, the firm included the following point allowance:

  • “A” clients are those that bring profitable projects and pay timely, and are given priority (20 points)
  • “B” clients also bring good projects, but may have less desirable contracts, payment history, or other risk factors (10 points)
  • “C” clients frequently take more than 120 days in paying their invoices, or usually bring high risk/low profitability projects (5 points)
  • “D” clients have been problematic in the past (-10 points and considered automatic “NO-GO”)
  • First-time clients cannot score more than 5 points due to uncertainty

Developing and Refining Your Project Evaluator

The above project evaluator is just one example of a process one particular firm has found very valuable. Every firm needs to ultimately develop their own process for evaluating whether or not to go after and accept a given project, however I would suggest that every process should include an assessment of risk factors that would fall into the four cornerstones of risk management:

  • Risk identification and evaluation
  • Contract formation
  • Quality assurance/quality control
  • Construction administration including project closeout

Within each of these cornerstones, the design firm should consider and evaluate as many risk factors and variables that they can. This is where things can get rather complex as the variables and factors can be seemingly limitless and again need to be tailored to what makes the most sense for your specific firm.

The following is a list of considerations that I would recommend adding to your checklist:

  • Project intent
  • Scope and size of project
  • Project location
  • Schedule
  • Budget & funding
  • Compensation & payment terms
  • Project type and level of risk – low to hazardous
  • Contingency fund
  • Responsibilities of the architect and owner
  • Delivery method
  • Client relationship
  • Litigation history of client & contractor
  • Contract – deal makers and deal breakers
  • LOL and waiver of consequential damages
  • Adequate staff, capabilities and resources
  • Relationship with subs
  • Contractor selection – Bid vs QBS
  • Construction administration (See blog and Willis A&E webinar on “CYA with CA”)

For more information on project evaluation including a full copy of Willis A&E’s recent webinar, “See Dick Build Watch Jane Sue,” simply send me an email or visit our website at www.WillisAE.com.

About Dan Buelow

Dan Buelow is the Managing Director of Willis’ Architects & Engineers practice, based in Chicago, where he an…
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