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In This Issue:

  • Documentation in the Age of  Web-Based Project Management Systems
  • No Superfund Liability for Engineer

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DOCUMENTATION IN THE AGE OF WEB-BASED PROJECT MANAGEMENT SYSTEMS

From a risk management point of view, insurance companies should evaluate whether web-based project management systems have the potential to reduce the frequency and severity of claims on construction projects.  If the use of these systems proves to be a good risk management tool, insurance companies may want to take this into consideration when underwriting coverage for construction projects.  Professional liability carriers, for example, currently adjust the premium if the insured participates in risk management training and practices.   Use of web-based project management systems may be worthy of similar consideration.

With the advent of web-based project management systems, project documentation is taking on a whole new dimension.  RFI’s, change order requests, various decision documents, drawings and other materials are being put on these systemes where all autorized project members can see them and respond to them.  This facilitates the quick and easy access of information to those who need it.  It also has the advantage of saving paper, postage, fax calls, express mail charges and other expenses.  The turn around time for response to RFI’s has improved dramatically as a result of these systems, according to some users.  This may be because of good organization of information making it easy to track, understand and respond to, or it make be because it keeps the spotlight on who is accountable for any particular response at any point in time.  In any event, it appears to be having a beneficial effect.

Some design professionals have expressed concern about the use of these sites, saying “Everybody will know what we are doing and whether we are responsible for delays.”  It certainly appears to be true that the information available on these sites will create a greater degree of accountability.  But does this necessarily equate to greater liability?  Perhaps not.  The web-based systems appear to facilitate improved communication and documentation that should reduce the likelihood of untimely resolution of issues causing delays and belated change orders.  As a result, it is possible that we will begin to see fewer claims.

Having said this, there are still several outstanding issues that need to be resolved before deciding to implement one of the web-based systems and before deciding which vendor’s system to use.  Issues that should be considered include the following legal and practical concerns:

* Electronic communication may create a contractual obligation (especially under the “E-Sign” law.

* If there is a dispute concerning the website content, what court has jurisdiction and venue?

* Will drawings get into the wrong hands and be misused?  How will they be protected from unauthorized revision and reuse?

* Who owns the data maintained on the site?  Who owns the website after job completion?

* If the web server goes down or goes out of business, and data is lost, who is responsible? What liability is there — by whom and to whom?

* Under one scenario it appears that project design is becoming a corroborative effort of multiple users right on the website. Who then is responsible for design errors?
And is there insurance coverage for this?

* How well protected is the data that goes onto the site?  Users apparently only get access to sections of the system for which they are specifically authorized.  Subcontractor’s for example, may be prevented from seeing the prime contractor’s financial data, if any. How reliable and safe is the firewall dividing access to the data is reliable and safe?

From speaking with vendors of web-based project management systems, it appears they are quite aware of the issues outlined above and are taking steps to address the issues. The importance of these issues gives emphasis to the importance of exercising due diligence in the selection process for a web-based project management system.

As this technology continues to change and improve, and as new vendors come into the market and others leave, it will important to proceed cautiously.  A project participant that does not own the rights to the web-based system, for example, may want to continue maintaining its own duplicate set of documentation as back-up for what goes onto the web-based system.  There is still much to be said for paper documentation.

A question that is frequently asked is: “How long should a design professional maintain copies of its documents, including drawings and specifications?”  Some A/E’s and contractors appear to maintain their records for an indefinite period of time if storage space permits, while others retain records only until the expiration of the individual state’s statute of repose.  This varies from state to state but is often between 6 to 10 years – sometimes more and sometimes less.  Of the records to be maintained, final plans, drawings and specifications are generally retained for the longest period (even beyond the statute of repose).  Correspondence, meeting minutes and other such records are sometimes discarded at the expiration of the statute.

Using electronic data and storage, it is possible to store all kinds of documents, including correspondence, Requests for Information (RFI’s), minutes, notes, and logs with relatively little effort for long periods of time.   Burning the data onto Compact Discs appears to better maintain the integrity of the data than does the use of floppy disks.  Because of the tendency for electronic data to lose integrity over time, however, it may be advisable to duplicate the disks periodically over the years of storage.  In addition, it is generally advisable to maintain hard copies of the final instruments of service in order to have a standard against which to benchmark any electronic files that may have been given to the A/E’s client or others.   In fact, retaining the hard copies may the best (or even only) way to protect against a client’s suit that alleges the electronic data is defective several years in the future.

An A/E firm recently suggested that instead of having to deal with hundreds of e-mail messages and questions, and instead of having to deal with electronic drawings and data, they wished they could just tell the owners and contractors to stick to the old way of doing business.  They feel more comfortable doing things the way they’ve always been done.  Stopping time, however, is not the answer.  And it’s not going to happen.  There’s no going back.  We are in the electronic age and should accept the benefits and promises it has to offer.  There will be problems and pitfalls along the way, but it should be worth the journey.

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NO SUPERFUND LIABILITY FOR ENGINEER

The City of North Miami hired an engineering firm (“BB&L”) to assist it in implementing an environmental cleanup plan for a landfill that was on the U.S. EPA National Priorities List because of uncontrolled hazardous releases that included ammonia leaching into the groundwater.  The firm conducted hydrogeologic studies of the aquifer and used those studies to design a leachate collection system.  It also did pump tests, computer modeling , surface and groundwater sampling, and design services related to relocating an earthen dike.

When the City terminated the engineering contract and refused to pay the balance of fee that was currently due, the engineer sued the City to recover its unpaid fee.  In defending against the suit, the City argued that the engineer was a “Potentially Responsible Party” (PRP) and was, therefore barred from recovering the costs it claimed.  What the City was arguing was that the engineer contributed to increased cleanup costs and had liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA” or “Superfund”) as either an “operator” of a hazardous waste facility or an “arranger” for the disposal of hazardous wastes at a facility.

In reviewing the matter, the court concluded that the engineer had negligently performed some of its professional services.  In particular, it found that one of the pump tests had been done negligently and that the engineer’s subsequent reliance on the test results constituted malpractice.  This, however, did not, as far as the court was concerned, make the engineer a PRP.   As explained by the court, a PRP is an owner or operator of a CERCLA facility.  The City based its allegation that the engineer was an “operator” or “arranger” on any of the following three theories:  (1)  The engineer was an “operator” or “arranger” because it had “operational control” of the site; (2)  The engineer failed to develop an adequate remedial design permitted the ammonia to continue migrating through the ground water; and (3) The engineer’s  excavation of soil in order to obtain test samples of the waste that was already in the ground contaminated the “clean cover” and therefore, constituted “arranging” disposal of hazardous waste.

The court rejected all these theories.  It concluded that “engaging in clean-up activity at a facility does not qualify as the type of  ‘operation’ CERCLA contemplates.”  Before a party can be found to be an “arranger,” the court says that “party must take an affirmative step to introduce hazardous substances to an area – mere inaction or inept action which fails to remedy but does not worsen existing contamination is not sufficient.”  The City did not allege that the engineer brought any contaminant onto the site and released it.  “Here, the City alleges BB&L’s negligence enabled ammonia to continue to migrate through the landfill.  This is insufficient to establish arranger liability because no affirmative step was taken.”

The court also rejected the City’s argument that BB&L’s action in refilling excavated pits with the same soil that was removed for testing purposes constituted “disposal.”  This gets into the issue of whether merely inadvertently moving contaminated material around a site is enough to render a firm liable under the strict liability aspects of CERCLA.  The court said it does not.

A second flaw, said the court, with the City’s argument, is that “a response action contractor cannot be liable for response costs unless it is negligent and such negligence causes the release of a hazardous substance.”  In this case, although there had been negligence in the remedial design services, the court found that there was no evidence that the soil investigation had been performed negligently.  The court concluded that the engineer’s excavation activities did not cause it to become a CERCLA arranger, and that it was, therefore, not a PRP within the meaning of the law.  Bashland, Bouck & Lee v. City of North Miami, 96 F.Supp.2d 1375 (S.D.Fla. 2000).

Risk Management Note: Those who have been following court decisions concerning the liability of design professionals and contractors under CERCLA should be delighted with this latest decision.  It is an important victory.  Contractors have argued all along that when they are working to clean up sites they should be treated as part of the solution and not part of the problem.  By subjecting designers and contractors to strict liability under Superfund in cases such as that reported here, other courts have caused a chilling effect on the ability and willingness of designers and contractors to perform work related to the cleanup of contaminated sites.  There have been a number of cases holding contractors liable as PRP’s under the theory that in moving contaminated soil around a site they either “arranged” for its disposal or that they “transported” it and therefore, have what is known as “transporter” liability.  Design Professionals  have been found liable as PRP’s under a number of theories.  In one case, an engineer was held liable as an “arranger” merely for offering its client (the project owner) a number options of licensed landfills for the off-site disposal of waste being removed from the cleanup site. This was despite the fact that the engineer exercised due diligence and performed its professional services within the standard of care.

It is to be hoped that the logic of this decision will be followed by other courts around the country.

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A/E/C SELECT.COM – New Insurance and Risk Management Resource

At this new website, http://www.AECselect.com, architects, engineers, contractors, and project owners may obtain additional risk management information, including contract review examples, on-line risk management course,  and an extensive library of Legal Briefings.  Depending upon the state where our firm is located, you may also be able to obtain insurance quotes for design professional liability.  Currently, A/E/C Select is licensed in Virginia, Wisconsin, and Connecticut only. Other licenses are pending.

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About this Newsletter

This newsletter is edited by J. Kent Holland, Jr., Esq., and published by e-mail once per month. Past issues are archived at http://www.constructionrisk.com.  You will also find an extensive portal to other websites and a library of risk management materials, including articles indexed by subject matter.  Each case summary in this current issue was written by Kent Holland.  You will also find a useful risk management library at, http://www.AECselect.com.

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DISCLAIMER

This newsletter is distributed with the understanding that ConstructionRisk.com, LLC and the editor and writers are not hereby engaged in the rendering of legal services. Further, the comments in this newsletter are for general distribution and cannot apply to any single set of specific circumstances. If you have a legal issue to which you believe this newsletter relates, we urge you to consult your own legal counsel. ConstructionRisk.com, LLC expressly disclaims any responsibility for damages arising from the use, application, or reliance upon the information contained herein.

Copyright 2000, ConstructionRisk.com, LLC

Editor:  J. Kent Holland, Jr., J.D.