AHPP 168 - 175.pdf

C H A P T E R 5 PA R T 2 : F I R M M A N A G E M E N T Organizational Development 5.1 Architects and the Law Donald W. Doeg, Esq., PE, LEED AP Architects, like other professionals, render their services in a difficult and complex environment. In order to be successful, knowledge of the basic c...

C H A P T E R 5 PA R T 2 : F I R M M A N A G E M E N T Organizational Development 5.1 Architects and the Law Donald W. Doeg, Esq., PE, LEED AP Architects, like other professionals, render their services in a difficult and complex environment. In order to be successful, knowledge of the basic components of the legal requirements that govern their profession is essential. LEGAL OV E RV I E W Architects, like many other professionals, are confronted with legal issues on a regular basis and thus must have a basic understanding of the law in order to successfully practice architecture in today’s complex world. A wide spectrum of sources creates legal requirements that dictate standards under which an architect must practice. These sources include, but are not limited to: statutes passed by federal, state, or local legislative bodies under their constitutional authority; administrative rules and regulations; building codes and standards; local ordinances; obligations established by contract between two or more parties; and law established by precedent of prior interpretations by the courts and administrative agencies regarding these requirements. In order to meet the applicable standard of care (which will be discussed in more detail later in this section) it is the architect’s obligation and duty to practice in Don Doeg is a principal at Updike, Kelly & Spellacy, P.C., in Hartford, Connecticut, and the chairman of the firm’s Construction Law and Design Professional Law practice groups. His practice is devoted to assisting clients in all aspects and stages of construction projects, including resolution of any dispute that may arise. 168 C OMMO N C LAI MS AG AI NST A RC HI TE C TS ▶ Dispute Management and Resolution (16.4) discusses the effective and strategic use of methods for resolving project disputes. ▶ See Regulation of Professional Practice (3.1) for related information on licensing regulations. ▶ Building Codes and Standards (13.1) and Planning, Urban Design, and the Regulatory Environment (13.2) further discuss the myriad regulations concerning building design, planning, and zoning. If formal disputes arise relating to construction projects, attorneys will articulate their clients’ claims in the lawsuits based upon various legal theories. The two legal theories most often alleged in claims against architects are “negligence” and “breach of contract.” Negligence Over view of Negligence The existence of negligence is often more difficult to determine than whether a breach of contract has occurred. Under the law, there are four components that must be proven in order to prevail when asserting a negligence claim. They are as follows: • Duty. The architect must owe a legal duty to the person making the claim. In other words, the architect has a legal obligation to do something or refrain from doing something. • Breach. The architect fails to perform the duty or does something that should not have been done. • Cause. The architect’s breach of duty is the proximate cause of harm to the person making the claim. That is, was the claimant injured or harmed as a consequence of the act and/or omission of the architect without any intervening cause? • Damage. Actual harm or damage must have resulted from the breach. Standard of Care In claims against professionals, including architects, it is often difficult or impossible for a layperson to unilaterally determine the duty component of negligence as defined above. As such, the law has established that that duty is to meet a standard of reasonable care for the performance of the work. The standard of care for an architect is generally defined as what a reasonably prudent architect would do in the same general locale, in 5.1 Architects and the Law 169 PA R T 2 : F I R M M A N A G E M E N T compliance with all applicable laws, codes, and regulations. While most of the existing construction related law will apply to architectural practice in some manner, there are laws and other legal obligations that may not be applicable to particular parties, such as the architect. For instance, certain OSHA obligations are directed to the means and methods by which a contractor performs its work on a project. Unless the architect specifically assumes some specific obligation through its contract, those obligations may not extend to the architect. In a very broad sense, issues of law impacting architects can be broken into two general categories: party disputes and administrative proceedings. Party disputes, the focus of this article, occur when problems arise on a project, such as delays, failures, or potential failures relating to the work performed, fee controversies, and a long list of other issues. Problems don’t always result in disputes and disputes don’t always result in legal action. However, it is important to understand that the outcome of many of those disputes will rest heavily on whether the parties have met their legal obligations. Administrative issues and proceedings also play a very significant role in an architect’s life. Administrative issues arise from regulations developed to implement civil statutes and other legal requirements, such as the area of professional licensing. Typically, this area of the law is overseen by public officials charged with ensuring compliance with certain laws, standards, and regulations. Under their statutory authority, state registration boards, code officials, and other administrative agencies are given the power to develop, implement, and enforce regulations needed to do their jobs. Individuals and entities subject to regulation typically have opportunities to seek variances or appeal decisions through administrative channels (e.g., zoning boards of appeal). When administrative avenues have been exhausted, it is possible to seek review of administrative decisions in the courts. PA R T 2 : F I R M M A N A G E M E N T ▶ Owner-Generated Agreements (17.3) discusses a systematic approach to evaluating terms in agreements provided by owners. ▶ Insurance Coverage for Business and Professional Liability (16.2) covers the terminology and the necessary considerations and alternatives when selecting insurance for one’s firm. 170 the same time frame, given the same or similar facts and circumstances. The architect’s legal responsibilities to a client are examined in light of what reasonably prudent architects would have known and done at the time services were performed. In order to prove whether the standard of care has been met in a particular instance, the courts in most states require expert witness testimony. That is, since a layperson judge or jury would not have the requisite knowledge to determine what a reasonably prudent architect would have done under similar circumstances, each of the parties must retain an expert witness to provide an opinion as to the applicable standard of care for the case (what should or should not have been done by the architect). The judge or jury is ultimately charged with applying the standard of care that they believe is most credible to the facts of the case and determining whether the architect acted appropriately. Despite the thoughts of some owners and/or their attorneys, the law does not require perfection from an architect based upon a typical standard of care scenario. If given enough time, an experienced third-party reviewer would likely find some glitches or inconsistencies on any set of architectural drawings currently in existence. However, the mere existence of a few minor glitches or inconsistencies within project documents does not mean that the author has failed to meet the prevailing standard of care. Despite the existence of alleged “flaws,” another expert may well opine that the standard of care has nonetheless been met. The outcome of these types of disputes is dependent upon the particular facts in each case. It should also be noted that since architecture is an integration of art and building science, in virtually all situations there is more than one way to design a project or even a portion of a project. The fact that another architect would have used different details or materials does not necessarily dictate a violation of the prevailing standard of care. The successful practice of architecture is based upon reasoned judgment and skill and the law recognizes that even if there is differentiation among various designs, it does not necessarily mean any of them were performed negligently. The standards of care applicable to a particular project can be modified by contract or conduct. The most frequent example of this practice is an attempt by owners to elevate the standard of care. Rather than applying the typical standard of care described above, some owners’ contracts seek to require a standard of “best practices,” “highest prevailing standards,” or some other similar language that elevates the mandated standard of care for those projects. Architects should be wary of such heightened standards for at least two reasons: (1) the new standard may not be adequately defined in the industry, which may lead to a great deal of subjectivity and debate if a conflict ever arises; and (2) such standards may not be insurable under many typical professional errors and omissions policies. Each of the components of the aforementioned definition of the professional standard of care can be subjective in nature. Depending on the specific issue at hand, courts have given some latitude to the “in the same general locale” component. For instance, it would not be prudent for an architect in the southern states to incorporate a large factor for snow load on the roofs of their designs, and, similarly, architects in the north central states may not have the same concerns about hurricane loads as their colleagues in the southeastern states. Yet in other instances, courts have held that knowledge about basic design concepts and/or certain building products (both good and bad) should be known by architects throughout the country. This nationwide knowledge can be applied in several manners by the courts. For instance, the level of knowledge of certain questionable materials may be consistent throughout the country (e.g., use of asbestos or the risks of fire-retardant plywood) regardless of the size or nature of the specific architectural practice. In other situations, architects with certain building type specialties (e.g., large sports stadiums, large museums, and major hospitals) may have a national practice and may be compared to other architects with the same specializations, even if their respective offices are many states away. Organizational Development PA R T 2 : F I R M M A N A G E M E N T The “in the same time frame” component has also been heavily litigated. In general, the applicable standard of care is the one in place at the time of the project, not the one in place at the time of the dispute, which can be years later. As such, experts who subsequently assert that the prevailing standard should have resulted in the use of materials or techniques that were unknown or in their formative stages at the time of the project are not persuasive with the courts. Last, but not least, the “same or similar circumstances” component must also be strongly considered. For instance, the owner’s budget will significantly impact a project. The standard of care must be determined for an architect working within the same budget, and under the same constraints, as were encountered for the underlying project. Alternatively, the “same or similar circumstances” also includes the type of project and the experience of the architect. That is, a small local architectural firm designing residences in a certain locale will not be held to the same standard as a national architectural firm that routinely designs large and complex facilities such as sports stadiums or health care facilities. Unfortunately, meeting the relevant standard of care may not be enough to protect an architect from litigation. A lawsuit can be commenced by almost anyone, in most states even by a party with whom the architect had no contractual relationship. However, if an architect is mindful during the course of the project of the standard of care that must be met, it will go a long way toward both diminishing the chances of the commencement of litigation as well as providing good defenses to the architect if litigation does arise. Modifying the Standard of Care by the Architect’s Actions Even though the law requires only reasonable and prudent behavior, an architect can expand or raise the standard of care. This may be done either consciously or inadvertently. The standard of care can be altered in literally countless ways by the architect’s actions, such as promising a specific project result (e.g., that the roof or basement will not leak); taking on the contractor’s responsibilities (e.g., dictating means and methods or designing something that the contractor was required to do as part of a performance specification); or promising a specific supplier performance result (e.g., delivery of certain materials by a specific date). It is important to realize that raising the standard of care increases the architect’s liability exposure by making the architect responsible for more than the professional standard requires. Sometimes design professionals—under pressure from clients or contractors or propelled by their own drive for perfection—raise the standard of care that will be applied to their services without intending to do so. ▶ Risk Management Strategies (16.1) addresses how to determine whether a risk is worth taking and how to manage risks. Damages Damages for negligence claims are typically measured by the standard of the plaintiff being entitled to compensation to remedy the negligence of the architect. If the case were litigated or arbitrated, the judge, jury, or arbitrator would have to decide what that compensation would entail based upon the arguments set forth by the litigants. For instance, if litigation resulted in a finding that an architect improperly designed a set of stairs that did not meet the applicable building code and those stairs were subsequently constructed in accordance with those faulty plans, an owner may be entitled to the cost of removing the stairs and installing another set of stairs that met the applicable code. Breach of Contract Claims Over view of Breach of Contract Claims “Breach of contract” claims are relatively self-explanatory. Such claims are based upon an allegation that a specific duty or duties existed pursuant to a contract between two parties and one of those parties either failed to perform that duty or did not perform it properly. For instance, an owner/architect agreement may specifically require that the architect provide record drawings at the conclusion of the project. If the architect fails to do so, a breach of contract claim may ensue. 5.1 Architects and the Law 171 The elements of a breach of contract action are the formation of an agreement, performance by one party, breach of the agreement by the other party and damages. To form a valid and binding contract there must be a mutual understanding of the terms that are definite and certain between the parties. Each must be found to have been based on an identical understanding by the parties and an agreement must be definite and certain as to its terms and requirements. PA R T 2 : F I R M M A N A G E M E N T Contractual Protections ▶ The AIA Documents Program (17.5) details what AIA Contract Documents offer the parties involved in the design and construction of buildings. ▶ Defining Project Services (15.1) addresses the centrality of scope definition in developing effective agreements for professional design services. ▶ Services and Compensation (15.2) discusses the variables for architects to consider in setting compensation, as well as various methods of compensation and strategies for getting paid. Logic dictates that the quality of the architect’s contract will have a large impact on the potential claims and defenses against the architect. It is imperative that the architect spend time on each and every contract to understand and negotiate each of the clauses. Each and every contractual clause may prove to be either a significant defense available to the architect or a huge detriment. Owner/architect contracts can be either written or oral. Written contracts are preferred by almost everyone in the design industry. Perhaps the largest benefit of a written contract is the fact that it preserves a written articulation of the agreement between the parties, including all critical components, which can be referenced if a subsequent dispute arises. Coming to a common understanding of the terms of the original agreement often proves very difficult if an oral agreement is in place and a dispute subsequently arises. In addition, the applicable statutes of limitation may vary depending upon whether the contract was in written or oral form. It is important to recognize that written architectural contracts take many forms, depending upon the particular project and parties. The most common construction contracts in the industry are form contracts that are published by various construction industry groups, the industry standard being the AIA documents. The provisions included in these form contracts have been formulated over many years’ use in the industry. While many parties opt to use the industry forms “as is,” there are other situations in which one or both parties may seek to modify one or more of the provisions, sometimes significantly. In addition to the industry form contracts, there are many other types of contracts prepared by specific owners, design professionals, or others that also are used. The following are some key provisions that, if properly included in an architectural contract, will go a long way toward protecting the architect. The Absolutely Essential Terms: Whether an agreement is written on the back of a napkin or consists of a long-form agreement, it is absolutely critical that the agreement include a written summary of the project scope, the time frame in which it will be performed, and the fee agreement for the project. • The Project Scope: It is critical to describe the scope of work to be accomplished. In some instances, it is equally or even more critical to describe any exclusions (e.g., in some instances the architect does not plan to be involved in the construction administration phase, but the owner may not comprehend that fact). • The Project Time Frame: Many disputes have occurred because the owner and architect did not specifically discuss the time frame for the project and assumed vastly different parameters for the start and completion dates (and other critical milestones) of the work. • Project Fees: It is essential that the architect and owner agree on the type of payment (e.g., lump sum, hourly, not to exceed, etc.) and the time frames for the payment (e.g., monthly, one payment at end of project, percentage of project completion). Other Key Terms: The following are a few of the many contract terms that can have a significant impact on an architect’s exposure should problems arise during the course of the project. These terms are but a few of the many critical contract provisions that may exist for a particular project: • Limitations of Liability Clauses: These clauses will limit claims by the owner against the architect to a certain amount (e.g., a set dollar limit or the balance of the 172 Organizational Development PA R T 2 : F I R M M A N A G E M E N T remaining insurance policy) should a dispute between the parties arise. These clauses have been enforced in many, but not all, states. • Mutual Waiver of Consequential Damages: This is a standard clause in many AIA form contracts, but is often stricken by owner’s counsel. Consequential damages are those that are not direct damages, but only arise as a consequence of some act or omission. In the prior example, if an architect failed to design a set of stairs to code and they subsequently had to be replaced prior to a certificate of occupancy being granted, the cost to do the replacement work would be direct damages. The delay in the opening of the facility would be consequential damages and, if the waiver was part of the contract, the owner would not be able to collect damages of this type from the architect. • Indemnification Provisions: Many owners attempt to add indemnification clauses to the agreements with their architects, which, in essence, are a contractual requirement that the architect reimburse the owner for damages caused by the architect’s acts and/or omissions. It is absolutely critical that the architect confer with his/her insurance broker and/or attorney prior to agreeing to any such clause. Many of these clauses, as proposed, are so broad and onerous that they are not insurable by the architect’s professional malpractice carrier and therefore put the architect at tremendous risk if the language is not modified. Changes in Scope of Ser vice It is equally important that architects properly document any changes to their agreement with the owner during the course of the project. Almost every project is a very dynamic process, with changes occurring rapidly that impact the architect’s scope of work and fee as well as the project schedule. Just as it is critical to properly document the agreement between the parties in the initial contract, it is equally important to document any subsequent changes during the course of the project. If a subsequent dispute arises, written change orders documenting any changes to the original agreement will be essential to allow a court to determine the agreement between the parties. It is essential that the architect documents these changes and brings them to the attention of the owner. If possible, a formal change order should be prepared and signed by all parties. In some instances, it may be difficult to get the owner to sign off on a change order during the course of a project. In those instances, it is critical to nonetheless document the changes in writing and send it to the owner advising them that a change has been made to the contract scope/time frame/fee and outline those changes. That documentation will be very helpful in proving the changes were known and agreed upon should a subsequent dispute arise. Damages Damages for breach of contract claims are typically measured by the standard of the plaintiff being entitled to compensation that would put them back in the position they would have been in if the contract had not been breached. If the case were litigated or arbitrated, the judge, jury, or arbitrator would have to decide what that compensation would entail based upon the arguments set forth by the litigants. In the previous example regarding the failure to produce record drawings a judge, jury, or arbitrator may decide that the owner is entitled to the cost of having another design professional prepare those documents. Vicarious Liability In General Agency relationships are common in everyday practice. That is, one party acts on behalf of another relating to a particular project or task. However, certain obligations and liabilities arise out of these relationships. The world of construction is no different. For instance, an architect’s employee acts as an agent of the architect on a project. A corporate officer acts as an agent of a corporation in signing an agreement for 5.1 Architects and the Law 173 PA R T 2 : F I R M M A N A G E M E N T professional services. Partners are agents and, under the law, also principals for each other. That is, partners are agents when they act for other partners (principals) and principals when their other partners (as agents) act for them. Under an owner-architect agreement, the architect may have an agency relationship with the owner for certain designated activities. The central question in agency relationships is the scope of authority the agent has been granted to act on behalf of the principal. Thus, architects acting as agents of the owner need to know the limits of their authority in dealing with the contractor and other third parties. Firms will want every person who can be perceived as acting as the firm’s agent to understand the limits of his or her agency authority. Staying within the limits of their authority is the best protection agents can give themselves and the principals they serve. For Consultants ▶ Project Team Agreements (17.2) addresses agreements between architects and consultants and those that establish joint ventures between firms. In many typical projects, the architect enters into a contract with the owner for all, or virtually all, of the design services for the project. The architect, in turn, retains consultants (typically engineers in various disciplines) to perform portions of the overall scope of design work. Consultants who perform professional services on behalf of architects under the terms of an architect/consultant agreement are independent consultants. In those situations, the consultant may sometimes act as an agent of the architect. While the law will hold these consultants to the standard of reasonable care applicable to their professional expertise, the architect may be found to have liability for the consultants should an issue arise during the course of a project. In essence, many courts have found that the architect was contracted to provide the entire scope of design services and therefore has liability if a problem arises. While the architect may likely have a claim against its consultant for indemnification in such instances, such a claim may not fully exonerate the architect for future claims by an owner if, in the intervening period, the consultant has become financially unable to take responsibility or the consultant’s insurance coverage proves to be inadequate. In some instances the owner, not the architect, engages certain consultants and the architect’s obligations with respect to those consultants may be limited. Typically, the architect has far more limited exposure relating to the acts and/or omissions of those consultants. In these types of situations, the terms of engagement should be clearly stated in writing. Architects usually are not responsible for project consultants hired directly by the owner unless the architect agrees to this responsibility in the owner-architect agreement or acts in a way that makes the architect responsible, such as signing a Certificate for Payment or a Certificate of Substantial Completion for the consultant’s work. For Employees Similarly, the architectural firm is responsible for its employees during the course of a project. The Courts will generally hold the architectural firm itself responsible for the acts and/or omissions of each employee. A possible exception to this responsibility is if the employee clearly acts beyond its role and tasks required of it by the architectural firm. For instance, if, unknown to the architectural firm, the employee sells illegal drugs while on the job site, the architectural firm will likely not be culpable for those acts. Alternative Project Relationships ▶ Project Delivery Methods (9.1) presents an overview of available models for project delivery. 174 The types of relationships between members of the construction community seem to constantly evolve and expand. In addition to the conventional owner, design team, and construction team relationship, a number of other alternative relationships are being employed in the industry. Two examples of these alternative relationships are contractor-led design-build and joint ventures. Contractor-Led Design-Build: In this variation of the conventional construction project delivery, the owner contracts with one entity, the contractor, to provide all design and construction services for the project. The architect typically subcontracts directly Organizational Development ▶ See Contractor-Led DesignBuild (9.4) and the backgrounder Design-Build Agreements (17.2) for related information. Third-Par ty Actions In addition to their obligations for damages to the party with whom they contract, architects can also be held liable for negligent acts, errors, or omissions that physically injure or damage third parties with whom the architect has no contractual relationship. These third parties include construction workers, passersby, and occupants or users of projects. The obligations to third parties stems from a variety of sources. In many states, statutes, regulations, and prevailing case law requires architects to safeguard life, health, public safety, and property and to promote the public welfare. In fact, many of those states use this obligation for licensed architects as one of the key considerations to justify the licensing and registration statutes themselves. Prior to 1956, the legal concept of privity barred third-party actions. Privity required the litigating parties to prove they had a direct contractual relationship with each other and that the injury occurred in the course of that relationship. Since that time, the courts in many states have, with regard to physical injury and in some cases property damage, extended the group of individuals to whom architects may owe duties to include third parties whom architects can reasonably foresee will depend on them to provide services in a non-negligent manner. However, the law differs from state to state regarding the issue of privity and it is important to get legal advice to determine the law that applies to each particular project. The types of potential third-party actions vary widely. For instance, a worker hurt on a construction site may opt to sue a wide range of entities involved in the project, including the architect, despite the fact that they had no direct contract with any of those entities. Alternatively, a visitor to the facility after completion may option to commence litigation against the architect, owner, or others if they are injured during their visit due to alleged design or construction defects. D EFENS ES TO C LAI MS Over view In the unfortunate, but not infrequent, event that a dispute does arise on a construction project, the architect may have a variety of contractual or statutory defenses to bolster the factual arguments that may be made. While the law varies 5.1 Architects and the Law 175 PA R T 2 : F I R M M A N A G E M E N T with the contractor to provide services for the project. While this type of arrangement may offer many advantages on certain types of projects, it also raises certain potential risks to the architect that do not exist with the more conventional project arrangement. For instance, the conventional construction project arrangement is set up, in part, to provide a layer of checks and balances that protect the owner. In such situations, the architect typically has certain obligations to identify problems relating to the contractor’s work and the contractor has similar obligations regarding the architect’s work. These obligations may not exist, or at a minimum are severely compromised, in a design-build relationship. Many architects have been placed in very difficult situations when their client, the contractor, wishes to perform work in a way the architect may not agree with. The drafting of the agreements in these types of arrangements is critical in order to protect the architect from these types of problems. Joint Ventures: It is common for the courts to consider the parties to a joint venture to be jointly and separately responsible for the actions of the joint venture. That is, if an injury occurs because of the negligence of either party to the joint venture, the joint venture can be sued collectively or the parties to the joint venture can be sued individually. Therefore, professional responsibility and liability should be carefully allocated in contractual agreements between the parties to a joint venture. Because many states qualify how and under what circumstances professional responsibility may be shifted to another party, legal advice should be sought when preparing such agreements.