Why Do Contractors Need Professional Liability?
In traditional project delivery (design-bid-build), an architect or engineer provides design services while the actual construction or implementation of the design is carried out by the contractor. In this scenario, the potential liabilities facing the design professional and contractor would be well defined.
However, over the past few decades this traditional method has changed as the complexity of projects increase. Project owners are now requiring their contractors to take on additional construction management activities and construction project managers are often looked to for a single point of design and construction responsibility.
As the roles and responsibilities between architects, engineers and contractors begin to merge, contractors are taking on nontraditional risks that their core coverage may not address. One of the most significant challenges faced by all parties and their risk managers is identifying and managing the risks when the design and engineering responsibilities are shared and fragmented among many project participants.
Potential Contractor Professional Liability Risk - Examples
- Design delegation – The contractor subcontracts the design of the ventilation system to a mechanical engineer. The engineer, who did not carry errors and omissions (E&O) insurance, miscalculated the cooling needs of the building and specified an inadequate ventilation system. The building owner demanded $180,000 to replace the poorly performing system.
- Design error – The contractor made a cost estimate of $2 million for a warehouse project. A loading platform was later found to be inadequate to meet the stated needs of the warehouse. With the revisions, the project cost $2.5 million. The contract was held liable for the $500,000 difference.
Third-Party Bodily Injury or Property Damage
- Design delegation – The subcontractor improperly designed and installed an HVAC system. Mold formed in the chillers, and the air in the building made people ill. Multiple claimants filed suit against the contractor in addition to the owner who suffered business interruption losses.
- Construction Management – A contractor failed to detect the faulty workmanship of a masonry contractor who placed hollow concrete blocks without proper re-bar reinforcement as specified in the plans. Once discovered, the structure had to be torn down and rebuilt at a cost of approximately $1 million plus resulting in delays in project completion.
Checklist of exposures:
- Does your firm enter into explicit design-build or construction management contracts?
- Does your firm perform services for a fee that involves no “hands-on” construction work?
- Could failure to exercise the appropriate degree of skill and care cause harm to others?
- Does your firm employee licensed professionals-primarily architects or engineers- or does your firm contract directly with these professionals for service?
If the answer is yes, contact our HUB Professional Team today for more information on Contractors Professional Liability
Jordan Fellner, CIP, CRM, HUB International PROFESSIONAL
HUB International PROFESSIONAL specialists are based in Vancouver. Our longstanding relationships with the best providers in the business allow us to provide you with solutions that make the most sense for you, whatever the size of your design practice.
Original article source: Professional Liability: Are Contracts Adequately Protected?