4/15/2014. The Changing Landscape of Construction Projects traditional contracting collaborative approaches

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1 Hall & Company is a Registered Provider with the American Institute of Architects Continuing Education Systems. Credit earned based on the completion of this program will be reported to AIA/CES for AIA Members. Please send your AIA member number to kbernal@hallandcompany.com after the presentation for reporting. This program is registered with the AIA/CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement for the AIA of any material of construction or any method or manner of handling,using, distributing, or dealing in any material or product. Questions related to the specific materials, methods, and services will addressed at the conclusion of this presentation. Copyright Materials This presentation is protected by US and International Copyright laws. Reproduction, distribution, display and use of the presentation without written permission of the speakers is prohibited. Background Traditional Design-Bid-Build Contract Design Build Integrated Project Delivery (IPD) and Tri Party Arrangements Tips for Minimizing Claims Closing Remarks 1

2 The Changing Landscape of Construction Projects traditional contracting collaborative approaches The Changing Legal Landscape for Design Professional Liability Movement Away from Economic Loss Doctrine Expansion of Standard of Care and Duties Market Statistics: 2005 DB=29% DBB=67% 2010 DB=40% DBB=53% 2012 DB=38% DBB=57% RCD/RS Means Market Intelligence Report for DBIA (May 2013) Currently 60/35/5(CM, Other) Attention Still on Tri-Party Agreements Legislative Response Federal VA Army Corps States State Statute Report QBS Selection 2

3 Methods Explained Traditional: Owner Design Team Contractor Design Build: OWNER CONTRACTOR DESIGNER Tri Party Agreement: Design Team Owner Contractor Project 3

4 Most Common Established Case Law Established Insurance Established Contracts Close Relationship with Client Design completed before Construction Contract No Responsibility for Means or Methods Preparation of Plans and Specifications Preparation of Bid Documents Observation only during Construction Clear delineation of Responsibilities Recommendations; No direction Standard of Care No Warranties Clear Defined Scope Limitation of Liability Indemnification i Time Bar Instruments of Service Copyright to Design 4

5 Economic Loss Doctrine Limitation of Liability Fiduciary i Duty Indemnification Implied/Express Warranties General Rule: Cannot recover economic losses under tort theory when contractual arrangement exists to accommodate negotiation of such losses Applicability and Enforceability is State by State 22 States currently apply some form of the economic loss doctrine to bar tort claims against Design Professionals Remaining States are (i) unclear, (ii) use independent duty analysis, or (iii) reject doctrine entirely Conclusion: Still viable, but eroding Positive Trend Enforcing Clauses At least 26 States Recognize and Enforce Limitations of Liability Key Characteristics Reasonable Clear and Conspicuous Strictly Construed No limitation for gross negligence or intentional misconduct 5

6 Does a Design Professional owe a Fiduciary Duty to its Client? Duty of Good Faith & Loyalty Fact Specific Contract Terms Important City of Victorville v. Carter & Burgess $25 million settlement Anti Indemnification Statutes Implied Duties to Defend: CA cases Broad form Indemnities i arising out of or in any way related to the performance of Design Professional Contractual Provisions Examples: highest standard of good quality free from defects to the satisfaction of Owner fit for the particular purpose 6

7 AIA B-101 B-102 Owner-Architect No Pre-defined Scope EJCDC E-500 Engineer-Owner E-520 Short Form ConsensusDocs 240 Design Professional-Owner 245 Short Form 2 ND Most Common Insurance Underwriting for Design Errors Procurement Practices Issues Bonding Issues Licensing Issues Collaboration between Contractor and Design Team Design completed during Construction Different Relationship with Client Less Formal Exchange of Documentation ti regarding changes/cost overruns Design & Construction Responsibilities overlap Active Participation of Designer during Construction 7

8 Rare to Get Limitation of Liability in Contract between Client and DB If Designer is Lead or Part of Single Entity (JV): Owner s Responsibilities DB responsibilities Design responsibilities i Indemnity If Designer is Sub: Standard of Care Defined Scope: Schematic-Design-Construction Indemnification Copyright Standard of Care Degree of skill ordinarily exercised by similarly situated professionals (in a Design Build setting) Contractual provisions may dictate consideration of actual effectiveness Most successful design firms doing DB work have a separate division or group that focuses solely on DB work; Often difficult for Design Professionals to change from traditional to DB Application of Spearin Doctrine : Implied warranty by Owner Depends on Facts Design Spec v. Performance Spec Level of Detail/Control provided by Owner 8

9 Implied Warranties: By Design Builder Suitable design for the intended use v. standard of care Impact on Designer Responsibility for Means & Methods and Responsibility for Design can be muddled Licensing State and Local Requirements Insurance and Bonding Performance Standards Design matters Procurement QBS selection Price based bidding AIA A Design Builder Owner Agreement B Design Builder Designer Agreement EJCDC D-520 Design Builder Client Agreement D-505 Design Builder Designer Agreement ConsensusDocs 415 Design Builder Client Agreement 420 Design Builder Designer Agreement 9

10 Least used Agreement- Still evolving Highest Level of Collaboration Owner/Contractor/Designer all under same contract Hybrid Arrangements Single Purpose Entities Similar Issues as with Design Build Insurance/Bonding Procurement laws Licensing Management by Representation Owner may hold deciding vote on certain matters Shared Risks and Rewards Collaborative Interaction-Less ti formal communications between parties Waiver of claims against each other Maintain incentive and contingency pools Waive claims between the parties; or Alternatively limit liability of claims, except for willful misconduct, breach of warranty Cross indemnification for third party claims Safe Harbor Decision-making Dispute Resolution 10

11 Still an Unknown Little history of claims resolution Depletion of Contingency Pools Revert to liability theories Third Party Claims Blending of Roles Hybrid Agreements AIA C-191 Tri Party Agreement C-195 Single Purpose Entity ConsensusDocs 300 Tri-party Agreement Other Various Company Specific Forms (NBBJ, Hanson Bridgett) Clear Scope and Sufficient Budget Strong Relationship with Client and Project Team, including Contractor Knowledge of Responsibilities Contractual Protections Standard of Care Limitation of Liability Recordkeeping and QA/QC 11

12 Strong Working Relationship with Contractor Professionals on staff that understand DB mentality Delineation of Responsibilities in Contract Contractual t Protections ti Standard of Care Limitation of Liability Indemnity Acceptable Lines of Review/Authority to discharge Professional Licensing Obligations Necessary to spend considerable time up front to Negotiate and fully understand the Agreement Use of neutral Mediator Strong relationship and trust in all parties, including Owner Understand Consequences of (i) Depletion of Pools, and (ii) Third Party Claims Familiarity with Integrated Project Delivery Changing Construction and Legal Landscape resulting in multiple Delivery Methods Now more than ever: Important to understand exposure and establish risk management practices to minimize this exposure with each Delivery Method New Breed of Design Professionals able to adapt to different Delivery Methods Nevertheless, traditional delivery (DBB) remains as most often used form of delivery 12

13 To purchase a certificate of completion, visit If you re currently a Hall & Company client, please your request to kbernal@hallandcompany.com To self report attendance: AIA CE Course # HCCES123 13