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Tradition holds that one’s future can be foretold by
examining the arrangement of loose tea leaves at the bottom of a
cup. By “reading” these leaves, a trained seer can tell
you if you will live in prosperity or face financial ruin.
While design professionals might benefit from seeing into the
future, true rewards will come to those who not only anticipate
what might happen but also take steps to change the course of those
events. In short, today’s projects require the design
professional to be more than a tea-leaf reader.
The truth is that some projects are destined to result in a
claim against the design professional even before he or she puts
pencil to paper (or, more appropriately, before the CAD station is
turned on). But if you know where to look, often you can see early
signs of a claim just waiting to happen.
The early bird doesn’t pay as much for the
worm
No matter the cause or the source of the claim, it is incumbent
upon you to recognize the warning signs of a potential claim and
take appropriate action. The longer an issue on a project goes
unnoticed or simply ignored, the more it costs to ultimately
address. (“Costs” here does not simply refer to money.
All issues “cost” in terms of lost time, productivity,
and opportunities. You also need to factor in the potential loss of
good will with the client and potential impact to one’s
reputation.)
Simply put, it is in your best interest to recognize when there is
a potential problem. To do so, you must learn to spot the warning
signs. You must learn to read the tea leaves.
Let’s take a look at some of the warning signs of a potential
claim situation. We’ll call them potential project problems,
pitfalls, and predicaments.
Before the project begins
Some of the most glaring indicators that trouble is on the
horizon are present right at the beginning, before work
begins.
1. Unreasonable now, unreasonable later
Has the client been unreasonable during contract negotiations? Has
he or she been inflexible and unwilling to negotiate? Does the
client insist that you agree to an onerous and one-sided agreement
with an indemnity clause that makes you liable for everything
except the client’s “sole negligence”?
A client unwilling to truly negotiate with you to reach a mutual
agreement is sending you a strong signal. You are not entering into
an arm’s-length transaction but one where the client is
demanding the upper hand. Ask yourself what the client’s
reaction will be if the contractor asserts your plans are
incomplete. Who do you think will be asked to pay for cost
overruns?
2. Litigation as a first resort
What is the litigation history of your client? Does he or she
have a penchant for going after the design professionals on a
project? Some owners and developers are well known for using the
designers (and their insurance policies) as supplemental funding
for their projects.
You should be doing some basic research before agreeing to work
with a client. You can determine how often someone is involved in
litigation by checking court records. Many courts offer searchable
records online. You also can subscribe to a database service such
as Lexis/Nexis to find this information. For a low-tech approach,
try calling others who have worked for the client and ask about
their experience.
3. Stepping in for another
Are you taking over for another design professional? Why? What
reason did the client give for the other professional leaving or
getting fired? Probe. Don’t just accept statements such as
“We had a difference of opinion” or “We decided to
go in a different direction.” Most important, call the design
professional you are replacing. In most cases, they will talk to
you and give you valuable information. Often, the other designer
will give you a completely different reason for their departure.
Obviously, if the previous professional says she left because she
never got paid or because the client sued her, you need to
reevaluate your relationship with the client.
4. Underfunded and overleveraged
Does the client have enough money to complete design and
construction of the project? Lack of adequate funding leads to one
of two things: you don’t get paid or the client files a claim
against you. The first is obvious. The second may take some
explaining. Without adequate funding, the client may ask you to
engage in “value engineering.” Value engineering is often
code for the client asking for a project of similar scope, quality,
and schedule but at significantly less cost. Invariably, the client
will not get what it wants and will seek free services or money to
get the project the client couldn’t afford to begin
with.
Ask your client pointed questions about funding. Also, tell the
client you perform credit checks on all clients and then do it.
Credit reports are readily available and relatively cheap.
Additionally, Dunn & Bradstreet reports are a wealth of
information. If the client resists your research efforts, ask
yourself why.
5. Amateur hour
Does the owner have experience with the type of project
proposed? If not, you’ve got a problem. No matter how much the
owner “talks the talk,” there is no substitute for having
“walked the walk.” If there are any problems during
design, construction, or subsequent operation of the project, you
will be painted as the “professional” that got the job by
holding yourself out as an expert in the field.
During construction
6. Buried in RFIs
The same day the contractor signed its contract, it submitted
50 requests for information (RFIs). What are you going to do?
First, you need to determine whether there is a problem with your
plans and specifications. Was there a lack of coordination of the
different design disciplines?
If a QA check shows the plans are solid and the RFIs are
unwarranted, you need to call this to the attention to the owner
and the contractor in writing. Unfortunately, you also must respond
to each RFI in a timely manner. An unanswered RFI can form the
basis of a significant delay claim by the contractor. Even if the
answer is obvious, you need to provide the answer to avoid the
contractor allegation that sounds something like this: “We
submitted over 200 RFIs on this project, which is proof the plans
were inadequate. Furthermore, some weren’t responded to for
over six months!”
7. There goes the budget
Are your billings significantly over your contract amount? Is
the project significantly exceeding the owner’s budget? If so,
it is likely you won’t get paid for all your work. At worst,
the owner will be looking to the design team to cover the cost
overruns on the project.
8. The cold shoulder
Is the owner or client not returning your calls? Do you
perceive a curt attitude on the part of others involved in the
project? Were you not invited to attend a meeting you would
typically attend? Any one of these issues is not necessarily a sign
of an impending claim. Rather, they can fall into the category of
“vibes,” which can be hard to read. Listen to your gut,
and be alert for bad vibes from owners and other project team
members. If you perceive that someone has an issue, ask them about
it. Get it out into the open, and soon. The longer an issue
simmers, the harder it will be for you to address it.
9. Where did that come from?
If you receive combative correspondence from your client,
you’ve moved well beyond the “vibe” stage and are
approaching unmistakable signs of a claim. Do not overreact to such
correspondence, but try to figure out what drove the client to take
that action. You almost certainly will want to talk to the client
about it, but you must also respond in writing. While you may think
you have addressed the issue by talking it through with the client,
document the discussion and the resolution reached.
10. The money spigot is turned off
Many clients take a long time to pay invoices. The hard part
is determining whether the lack of payment is simply the
client’s standard business practice or a sign of
dissatisfaction with your work. To avoid having to guess which it
is, you need clear payment terms in your contract, and you need to
hold the client to those terms. If you are able to get the client
to pay you on a regular basis as agreed to in the contract, any
disruption to that routine should be a warning sign to you. Either
the client is running low on funds (could be trouble) or is
dissatisfied with your work (definitely trouble).
11. Why aren’t you working?
Construction work on the project has stopped. Time is money,
and time is being wasted. Even if the reason for the stoppage
seemingly has nothing to do with the design, this is a signal to
watch your back. You may be surprised to find out that the owner or
contractor is blaming your design for the stoppage. Or perhaps they
believe you should have caught someone else’s error during
your construction phase services. Whatever the reason, you need to
pay attention to construction disruptions and make sure you are not
the cause—or are not perceived as the cause.
After project completion
12. You sue me, I’ll sue you
The project is completed, but you are still owed a lot of money,
and your client refuses to pay. What do you do? You sue! After all,
you have an airtight case, you did the work, and you are entitled
to the money. Maybe if you just file and serve the lawsuit, the
client will come to his senses, right? Wrong.
It is estimated that 80 percent of lawsuits by design
professionals to collect fees are answered with a countersuit
against the designer for professional negligence and/or breach of
contract. One lawsuit has become two, your professional reputation
is taking a hit with every allegation made by the client’s
lawyers, your insurance company is involved, you owe a deductible,
and you’ll have to give deposition testimony.
The best way to avoid this scenario is to have a good contract with
the appropriate payment terms and to stay on top of the fees owed
to you. As the amount of money you are owed increases, the
client’s ability to manipulate the situation increases because
your options and bargaining power have decreased. Don’t allow
yourself to be placed in that position.
Recognizing the problem is the most important step
While many of the situations mentioned above may seem to
be obvious precursors to a claim, others may not be so apparent. By
keeping the danger signs in mind, you should be able to spot even
the not-so-obvious situations.
The key is to pay attention. People generally tend to focus on the
good and ignore the bad. Some call it “whistling past the
graveyard”—being cheerful or optimistic when the
situation doesn’t warrant cheer or optimism. Your task is to
overcome the inclination to ignore or discount potential issues. To
effectively manage project risks, the first and most important step
is to recognize potential problems before they turn into claims. If
you read the tea leaves correctly, you can take the steps necessary
to overcome the problem.
Thomas M. Bongi, Esq., is an attorney and the director
of industry relations for the Design Professional group of XL
Insurance, one of the largest insurers of design professionals in
North America. He has more than 15 years of experience representing
architects and engineers in more than 1,300 claims throughout the
United States. He can be reached at thomas.bongi@xlgroup.com
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