5 professional liability pitfalls every contractor should look out for when taking on a Design and Build project

Framework of house under construction

Design and Build (D&B) contracting blurs the long-standing, traditional lines between designers and builders. With the continuing integration of these services comes increased professional liability (PL) risks for the design-builder — that’s not only responsible for the construction, but also the design of the project as well. With that in mind, here are five PL pitfalls every contractor should look out for when taking on a DB construction project.

1. Is your first-part rectification coverage adequate?
A fairly new add-on to PL insurance, rectification coverage is often misunderstood by contractors. It enables contractors to cover some of the expenses they incur to correct  problems caused by design errors spotted during construction, and doesn’t require a third party to file a liability claim to trigger coverage. They key with this type of insurance coverage is to act as soon as the expense starts to be incurred.  This means notifying the issue to your carrier and seeking their agreement to the rectification that you propose.

Acting fast, to report and seek agreement of your costs with your insurance carrier is critical. Concentrate on both the breadth and the operation of this coverage, pre-loss. Consider claims protocols, agreed in advance with your PL insurer, so everyone knows how these claims should progress. These claims are highly complex and can’t be learned on the job!

2. Back to back obligations
Don’t be left holding the bag between obligations placed on you by your client and robust push back from design consultants. Imbalanced, performance-related professional obligations, where you agree to a higher level of attainment with your client than your designer will agree to provide you must be avoided. Same goes for limitations of liability – is your liability for poor design to your client limited? If not, then nor should your designers be to you.

Similarly, there are very few situations where you should accept levels of PL from your designers that are less than the levels asked of you by your client. This doesn’t mean you should reduce your efforts to manage your professional liabilities to clients – successful D&B requires you to attempt to only incur liability that your consultants will be willing and able to share with you as appropriate. Nevertheless, you should attempt to mirror what you face upstream and downstream.

3. Construction nirvana!
History shows that failure to manage a client’s expectations can be at the root of many PL-related claims. It may sound obvious, but in electing to procure the project on a D&B basis, your client is seeking clarity. One contract, with just one party containing one set of obligations. So there may be a client expectation that the D&B project delivery method will guarantee a good outcome, particularly for clients that are relatively new to D&B. There are many reasons why D&B is a good thing, but you need to make sure your client isn’t under the impression that D&B ensures some form of construction nirvana.

4. Beware of the dull, innocuous-looking Novation Agreement
You bid your D&B project on a limited design, provided by designers appointed by your client. And when you won the job, you logically looked to appoint those same designers to complete the design. To complete the circle you executed a novation agreement and they became your design team. But who is responsible for that early design provided pre-bid stage? We frequently see Novation Agreements that make contractors responsible for poor design, even if the designer was working for the client at the time they were negligent! Do you have a PL policy that covers you in that situation? Quiz your PL insurer and check Novation Agreements carefully.

5. Implied fitness for purpose
In a perfect world every D&B contract successfully demarcates construction and professional obligations. You agree to construction that’s fit for purpose, but the design performance has a lower bar, of reasonable skill and care, placed upon it. However the world is not perfect!

Does your PL policy cover you in the event that fitness for purpose obligations are deemed to have seeped in to your designer responsibilities? “Implied” fitness for purpose coverage isn’t easy to come by, but if you don’t ask for it, you won’t get it. Check with your PL insurer on the availability of this additional coverage.

Final thoughts
The D&B delivery method exposes contractors to greater risks than those associated with traditional construction. As such, design-builders need to be aware of the professional risks and secure the right insurance cover to protect against them. Knowing the risks and the PL-related pitfalls to avoid on D&B projects can help save contractors  time and money and free them up to focus on what really matters —delivering a successful build.


 

Andrew Bowyer

Andrew Bowyer is a professional liability broker at Willis Towers Watson.

Categories: Construction, Insurance and Risk Management | Tags: , , ,

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