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Originally published in Risk Management & Contract Guide for Design Professionals, (c) 2006 & 2014; a/e ProNet and J. Kent Holland Jr.

Issue

The standard of care required of a design professional is the care and skill ordinarily used by members of his profession practicing under similar circumstances at the same time and in the same locality. Unless the contract between the design professional and client states otherwise, the design professional is not held to a standard of perfection by the courts. Only if you breach this normal standard of care are you deemed to be negligent.

Discussion

On almost any construction project, there will be some errors and omissions in plans and specifications. Some of these errors and omissions may cause the owner or the contractor to incur additional costs in completing the job. That does not necessarily mean the owner can recover these extra costs from the design professional.

Not every mistake, error, or omission is a negligent one. It is possible, consequently, that the owner may incur additional costs due to your error (e.g., change order costs paid to the contractor), and not be entitled to recover those costs from you. Unless the mistake resulted from your negligence, you will not be legally responsible to your client for the increased costs it paid to the contractor.

Expert witness testimony is typically required before a design professional can be found negligent. The expert must testify as to the applicable standard of care, and to how you breached that standard and caused the client to suffer damages. The client may not prevail against you unless the jury (or judge in the event there is no jury) decides, based on the expert testimony, that you were negligent.

Where a contract contains an article holding the design professional to the highest professional standards for the profession of architects and attaining compliance with applicable local, state and federal law…, this may constitute a warranty or guarantee.

It also may create contractual liability for damages that do not arise out of the negligent performance of the insured design professional. Such damages are expressly excluded pursuant to the exclusion section of the insurance policy.

Standard of Care Examples

An example from one contract reads as follows:

Architect agrees to perform its services in the best and most sound way and in an expeditious and economical manner consistent with the best interests of the Owner. Upon completion of the Project in accordance with the drawings and specifications, Architect represents that the Project will be a fully functional and integrated facility within the parameters of the Owner’s budget for Owner’s intended use.

This language demands services be performed in the best way rather than the generally accepted way. Yet, it simultaneously demands that these services be performed expeditiously and in an economical manner.

Realistically, it may be impossible to be fast, economical, and the best. Moreover, the owner has included language requiring a fully functional, integrated facility meeting the Owner’s intended use. This language could be interpreted to require a uniform commercial code (UCC) type warranty of fitness for intended purpose. In multiple ways, the clause has created uninsurable risk for the design professional.
An additional problem with the “highest” standard of care is that it is confusing and ambiguous. No one can know what the highest standard of care is. The insured design professional has agreed to perform beyond the generally accepted standard of care. This means that he will be unable to defend himself with expert testimony to prove he was not negligent.

Such expert testimony, even if successful in proving the design professional was not negligent, would not necessarily prevail against the breach of contract cause of action brought by the client based on the design professional’s failure to perform to the highest standard. Thus the design professional could be found liable and not have the benefit of insurance to cover its liability.

Beware that project owners, in an apparent effort to obtain their project for the initial budget, are increasingly seeking to make the design firm responsible for contractors’ change order costs. To do this, the owner may seek to eliminate your defense that you met the standard of care. Here is an example from a contract:

If errors and omissions in the project are detected in the plans and specifications, the costs of any re-design required to incorporate the item or feature omitted or correct the error shall be borne by the Architect/Engineer. It is generally recognized that the standard of care requires the A/E to be accountable for excessive errors and/or omissions. Therefore, Owner and A/E shall keep a record of costs incurred resulting from A/E’s errors and omissions. For each Project, if the accumulation cost of A/E’s errors and omissions should exceed the percent of the Cost of the Work agreed and stipulated in the Letter of Engagement, Owner may require the A/E to participate financially to help defray all or some of the excess costs.

In the next example, a project owner begins the standard of care clause with language that looks fairly benign. The clause, however, concludes with language that contradicts the normal standard and makes the design firm responsible for each and every redesign or corrective work, even if the designer was not negligent. The clause reads as follows:

The Architect agrees to exercise the generally accepted standard of care to complete the Project. While the Architect shall be liable for its negligence and the negligence of its Subconsultants, the Architect shall perform all redesign or corrective work, at the Architect’s own expense, to correct any and all errors, omissions, inconsistencies, or ambiguities (negligent or otherwise) in its design or other Services.

Some project owners may change the standard of care without even mentioning the words standard of care. This may enable them to hide deep inside a contract some language that completely changes the standard.

If you aren’t paying attention to this fact, you might mistakenly ask your lawyer or insurance agent to review the risk allocation sections of your contract for insurability and completely miss the key clause they need to review.

Consider the following clause that was hidden in the article of the contract titled Miscellaneous:

The Official reserves the right, should proof of Defective Services be discovered after final payments, to claim and recover from the Architect and the Architect’s professional liability insurer, or either of them, sufficient sums to cover any and all damages, losses or expenses, whether direct, indirect or consequential, arising out of, relating to or in any way connected with the Defective Services.

Another clause of the same contract defined Defective Services as follows: Services that, in the sole discretion of the Official (a) are, or when completed will be, in error, unsatisfactory, deficient or lacking.

The combination of the above two clauses gives the Owner unfettered discretion to say in its sole opinion that something about the designer’s services is unsatisfactory. There is no requirement that the services be negligent in order for them to be deemed unsatisfactory. Any arbitrary reason will do.

While the Owner may be able to recover these types of costs from the design firm pursuant to this contractual liability provision, the design firm’s insurance carrier is not obligated to pay these costs. A design firm that signs this contract may be found to be in breach of contract for promising insurance coverage that its carrier declines to provide.

Conclusion

Explain to your clients that when they change the standard of care, they create uninsurable risks for you and problems for themselves in trying to recover under your policy. Clients generally understand that they are dependent upon the design professional’s insurance policy since design professionals don’t have substantial assets. Since the language of this clause creates an uninsurable risk, the client has gained nothing by it. The clause may instead cause an unnecessary dispute over coverage.

A more reasonable clause establishing the standard of care is the following:

The consultant will perform its services using that degree of care and skill ordinarily exercised under similar conditions by professional consultants practicing in the same field at the same time in the same or similar locality.

Another sentence can be added to the end of the above-quoted paragraph to further limit the extent of potential liability:

No other warranty, express or implied, is made or intended related to the services provided. The Consultant shall only be liable for its own negligent acts or omissions and assumes no liability for the acts or omissions of the Client or other parties.

The EJCDC E-500 (2008), Section 6.01 A, establishes the standard of care for the engineer and expressly disclaims any express or implied warranties. It provides as follows:

The standard of care for all professional engineering and related services performed or furnished by Engineer under this Agreement will be the care and skill ordinarily used by members of the subject profession practicing under similar circumstances at the same time and in the same locality. Engineer makes no warranties, express or implied, under this Agreement or otherwise, in connection with Engineer’s services.

The AIA B101-2007 addresses the issue of exercising reasonable care in Section 2.2 as follows:

The Architect shall perform its services consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances. The Architect shall perform its services as expeditiously as is consistent with such professional skill and care and the orderly progress of the Project.

Clauses excerpted from AIA Document B101-2007, © American Institute of Architects 2007, are reproduced with permission of the AIA. Contract clauses excerpted from the Engineers Joint Contract Documents Committee (EJCDC®) Document E-500 (2008), ©2008 National Society of Professional Engineers, American Council of Engineering Companies, American Society of Civil Engineers, and Associated General Contractors of America, are reproduced with permission of EJCDC’s copyright administrator.