Understanding the Risks of Sustainable Design – Liability Protection in California

The San Diego chapter of the American Institute of Architects recently presented a lunchtime continuing education session by Bruce M. Bergman and Eric Miersma. The theme of the presentation was how design professionals can manage their risk and liability when seeking new work. I was fortunate to attend the event and below are some of my notes. [Ed.]

Objectives:

  1. Comparison of AIA vs ConsensusDocs
  2. Principles of controlling risks associated with sustainable design
  3. Associate risk management with LEED and sustainable standards of care
  4. What is involved in a claim and what is the impact on design professionals

Intro

Sustainable design has evolved in terms of both acceptance in the marketplace and complexity. The first step towards managing the risk associated with green building is to be aware as a design professional.

There are new entities setting standards that impact the role and liability of architects. More concern has to be given for product selection, and an increased understanding of resource usage is required. Define the standards to be used for measuring various achievements and expectations.

  • Consequential Damages – think over-promising LEED
  • Negligent Misrepresentation – think best practices vs. standard of care
  • Certificate of Merit – think about what is in your contract and your role on the project team

Liability, Contracts, and Risk Transfer

Architects, almost by definition, work outside the box. Attorneys, on the other hand, work pretty much exclusively inside of the box. The primary box for a sustainable design project is the contract.

  • The contract creates a duty that must be performed
  • If the duty is not met, a breach occurs
  • Causation – if no damage occurs, there is no occurence
  • Damages may be direct or consequential

Contracts

Two methods of project delivery: IPD and everything else. IPD poses some unique challenges for design professionals:

  1. “Relational, not transactional”
  2. Risk sharing, not risk transfer
  3. Insurance issues

AIA IPD contracts:

  • AIA B195–2008 / A295–2008
  • A195–2008 / GMP Amendment

These contracts are very favorable for the architect, but not so much for the contractor. They are very complex and detailed. The AIA contracts require multiple contracts and do not easily incorporate sustainable design elements and liability protections.

ConsensusDocs 300 is an alternative to the AIA contracts for IPD projects. The differences:

  • Financial incentives associated with liability limits
  • Owner can withhold payment and require reimbursement for defense costs
  • Mutual indemnity (a good thing)
  • Insurance benefits
  • More collaborative and streamlined
  • Easily incorporates green building elements

IPD projects are based on:

  1. optimisim and good faith
  2. great for long-term established relationships
  3. ConsensusDocs are probably better

Traditional projects can also use either AIA or ConsensusDocs standard contracts. Liability protection in these contracts includes:

  1. Design Standards – defines the standard of care. Note: Eric states that failure to meet California Green Building Code could become negligence per se. He recommends not agreeing to a specific level of certification in the contract. ConsensusDocs identifies a “green building facilitator” who may or may not be the design professional, but either way, this entity is solely responsible for the failure to attain certain certification.
  2. Limitation of Liability Neither the current AIA nor ConsensusDocs contracts contain standard language limiting liability.
  3. Waiver of Consequential Damages AIA has a solid clause for this. ConsensusDocs has a variety of waivers in standard contracts.
  4. Indemnity AIA requires contractor to indemnify architect, owner and architect’s consultants, and waives all claims to extent covered by property insurance. ConsensusDocs requires architect to indemnify others from design negligence, and the long form contract includes limitation on defense costs to a percentage of liability (which is not covered by insurance).
  5. Insurance For the risk that can’t be transferred, insurance covers the rest. Both AIA and ConsensusDocs include clauses regarding insurance.

If fraud is established, all liability and indemnity protections afforded by the contracts and insurance are removed. Advice: Don’t misrepresent your or your firm’s abilities.

Certificate of Merit

Before you can sue a design professional in California, another design professional must state that the former fell below the standard of care. Because the attorney doesn’t have to reveal who provided the Certification of Merit, most attorneys have no trouble meeting this requirement. In the event that the Certification of Merit is deemed improper, there is little recourse.

The American Counsel of Engineering Companies of California (ACEC) is pushing to increase the requirements for obtaining Certificate of Merit.

Personal Liability

Professional service providers, such as architects and engineers, are legally able to incorporate in the State of California. Anecdotal evidence indicates that most design professionals think that because their firm is incorporated, that no personal liability exists. Whoever stamped the plans is personally liable.

Conclusion

  • In IPD projects, AIA contracts may be familiar, but both the AIA and ConsensusDocs contracts likely require modification in order to afford the best liability protection and risk. See a lawyer.
  • Limit, manage and transfer risk, as appropriate, on sustainable design projects.
  • Understand expectations associated with sustainable design, understand roles and responsibilities, and present reasonable solutions, predictable outcomes and reliable information based on evidence.
  • Understand the elements of a claim: duty, breach, causation and damage.


About the Speakers

Eric J. Miersma, ESQ.

Balestreri Potocki & Holmes Senior attorney Eric J. Miersma concentrates his practice on the firm’s residential and commercial builder cases. For over sixteen years, he has represented Southern California builders, contractors, design professionals and general business owners in all aspects of complex construction litigation, contract negotiation, risk management, transportation and insurance issues. Mr. Miersma is a well respected author and speaker especially on issues of contract negotiations and risk management.

Bruce M. Bergman, AIA, LEED AP

Bruce M. Bergman is a principal architect, corporate officer and a member of the Board of Directors at KPA Associates, Inc., a forensic architecture and design firm. He has practiced architecture since 1985, has been designated as an expert witness in multiple jurisdictions, and leads KPA’s sustainable architecture practice.

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