Today, U.S. News & World Report and Best Lawyers publicly announce the Eleventh Edition of the “Best Law Firms” rankings.
Congratulations to your firm on being included in this elite and extremely impressive group!
Today, U.S. News & World Report and Best Lawyers publicly announce the Eleventh Edition of the “Best Law Firms” rankings.
Congratulations to your firm on being included in this elite and extremely impressive group!
The unprecedented spread of Coronavirus Disease 2019 (“COVID‑19”) has led to the wholesale upheaval of every industry in our society, and the conversion of “business‑as‑usual” into a pattern of cautionary behavior informally dubbed the “new normal.” Not surprisingly, construction projects throughout the country have not been spared. Travel restrictions, quarantines, and social distancing requirements are increasingly disrupting supply chains, workforces, cash flows, financing, and the availability of government personnel for permitting and inspections, resulting in increased construction delays, costs, and claims. These formerly unanticipated risks require a fresh look at the construction project dynamic, and a novel approach to risk management. This article offers guidance to design professionals who find themselves dealing with a project affected by COVID‑19 or seeking to take on a project in the era of COVID‑19, and highlights general actions that should be considered to mitigate potential liability. Given the unique dynamics of each project, the following suggestions should be read with the context of each independent project in mind and in consultation with appropriate counsel.
As early as March of 2020, state and local governments began issuing shelter-at-home orders and restrictions on business operations, including construction projects, in order to curb the spread of COVID‑19. Some jurisdictions have issued total cease and desists on construction activities, some have allowed “essential” projects to carry on, while others still have allowed all construction to continue if personnel comply with the Centers for Disease Control and Prevention guidelines (“CDC Guidelines”). The CDC Guidelines are a list of recommendations for curbing COVID‑19 contamination, which are not binding unless they are adopted by state or local orders.
Because state and local governments are continually reviewing their circumstances and rapidly changing their position on restrictions, consider appointing a person or group within your firm to keep track of relevant government actions in the states and counties where your projects are located. This will allow for efficient monitoring of changes and dissemination of information to your employees. Design professionals should consult with appropriate legal counsel to carefully navigate the web of state and local government shutdown orders, identify restrictions on construction activities, advise their clients of the impact and proceed accordingly.
Analyze Your Firm’s Current and Future Contracts
Expect that construction project flow will be significantly interrupted and plan for uncertainty. Today’s volatile environment increases the likelihood of events such as project suspension, delay, termination (for convenience or cause), project shut down due to government restrictions, acceleration, restart and repurposing. In preparing for these contingencies, you must objectively evaluate your projects and the capabilities of your firm and subconsultants.
The responsibility for the occurrence or nonoccurrence of contingencies are typically spelled out in your contract. Understanding the terms of your contract will be critical in the avoidance and defense of potential claims.
Force Majeure. Design Professionals that are performing under existing contracts and their performance has been made impossible, impractical, or negatively impacted due to the pandemic, should consult their contract to determine whether it has a force majeure clause and whether pandemics are defined as force majeure events. The defining traits of a force majeure event is that it is listed in the contract as such, it is outside the control of either party, and it was not anticipated at the time of contracting. For example, AIA Document A201‑2017 General Conditions of the Contract for Construction, Section 18.104.22.168, allows a contractor to terminate a contract if the work is stopped for a period of thirty (30) days due to an “act of government.” Force majeure clauses can also allow for modifications or extensions, but in almost every jurisdiction, they are strictly interpreted to the letter. Therefore, when reading your force majeure clause, look for provisions that provide for a termination, modification, or extension in the event that performance is obstructed by acts of government, acts of God, virus, disease, pestilence, and/or pandemic, among the other standard force majeure events. Depending on how your firm has been affected, you may want to discuss your options with appropriate counsel and determine whether a notice should be sent to the client requesting relief under this clause.
Assignment of Risk. Since the onset of the COVID-19 pandemic, firms should consider negotiating and adopting a more detailed assignment of risk clause in their new contracts, as courts will routinely refuse to enforce a force majeure clause, even for a force majeure event, if the event could have been anticipated at the time of contracting. This falls in line with U.S. public policy that favors the enforcement of valid contracts and disfavors the avoidance of contracts. For example, fluctuations in the market price of commodities are usually outside of the control of either party. However, courts have held that market fluctuations are not force majeure events in the absence of extreme changes in price because markets are always fluctuating. Any prudent contracting parties can anticipate market fluctuations and account for their risk in the contract. In the era of COVID-19, where companies have become more or less accustomed to sporadic government shutdowns and restrictive regulations, courts may have no problem finding that any kind of government action spurred on by the pandemic is foreseeable or anticipated. Therefore, task your contract drafters or attorneys with the objective of drafting clauses that specifically assign the risks of pandemic related contingencies away from the firm.
Consequential Damages. Construction projects work on tightly staggered schedules. Failure to perform on time may cause delays, costs, and ripple damages that far exceed any party’s expectations. To avoid a potential windfall of damages, you should ensure that your contracts include a waiver of consequential damages clause. A good example of such a clause can be found in AIA Document B101‑2017 Standard Form Agreement Between Owner and Architect, Section 8.1.3.
Time is of the Essence. The “time is of the essence” clause is a boilerplate clause slipped into the vast majority of construction contracts. To the extent possible, this clause should be removed from your contracts as the pandemic still looms and one of the main effects of the pandemic on construction projects is delay. This clause greatly increases a design professional’s risk of liability given that any delay is a material breach of the contractual obligations entitling the client to terminate the contract immediately and bring a claim for damages. In the design/build context, contractors (or consultant clients) can easily assert that the design professional was late on project deliverables in order to pass on liquidated damages to recover overhead costs or any other delay damages. Instead, consider a clause similar to AIA Document B101-2017 Standard Form Agreement Between Owner and Architect, Section 2.2, which provides that the consultant shall perform its services as expeditiously as is consistent with such professional skill and care and the orderly progress of the project. It is important to avoid any commitments to strict deadlines during this highly volatile climate.
Contractual Harmony. If you are employing the use of subconsultants of various disciplines on your project, your subcontracts should never include more protections than your firm may enjoy under your prime contract. It could be disastrous if your subconsultants could exercise a right of relief from a service for which you remain beholden to your client for lack of a similar provision in your prime contract. For example, your subconsultant may find performance made impracticable and exercise a force majeure clause located in its contract with your firm. If your prime contract does not include a similar clause, your client will likely insist on your continued performance with little sympathy for any lack of foresight in drafting your subcontracts. The use of AIA Document C401‑2017 Standard Form of Agreement Between Architect and Consultant includes “flow down” provisions that are designed to operate in harmony with your prime contract.
Adequate Assurance. The solvency of firms will be widely tested if the strenuous economic restrictions persist. If you are employing subconsultants for your project, you should consider including an “Adequate Assurance” clause in their contracts. Adequate Assurance clauses are widely used in sales contracts, and provide that when reasonable grounds for insecurity arise with respect to the performance of either party, the other may demand in writing adequate assurance of due performance. In the event such written assurance is not received within a prescribed time period, the requesting party may terminate the contract for cause. This will protect your firm when acting diligently to retain new subconsultants who have the capacity to meet the project’s needs.
Modifications. Most modifications are not valid unless they are in writing and signed by both parties. AIA Document B101‑2017 Standard Form Agreement Between Owner and Architect, Section 13.1, provides that the contract may only be amended by a written instrument signed by both parties. If you manage to reach an agreement with your client or subconsultants on appropriate modifications to meet new project demands, always ensure that the terms of the modification are in writing and signed by both parties to the contract. Even oral requests by your client for out of scope work should be reduced to a signed writing. It should be noted that we do not recommend that the design professional agree to take on additional scope of work due to the increased exposure. Maintain each original contract and all its subsequent modifications or change orders in one accessible location. At the end of the day, these documents will collectively form the governing agreement between the parties.
Many professionals today have the capability to continue their work from home. The newly ushered remote workforce comes with its conveniences to many, but it also comes with its own inherent risks.
Quality Assurance. Working from home comes with its typical personal distractions and the lack of the office dynamic, which may lead to a decrease in work quality. Professionals working from home do not have access to their usual resources, may not be able to attend site inspections, are subject to less direct supervision, and may therefore be more susceptible to letting errors slip by them. Firms should consider employing a comprehensive remote-work policy that allows for constant group communication on project modalities using team chat applications and periodic review of work product as needed. The new normal for meeting between office staff is Zoom or a comparable video conferencing format. The design professional and his team should document the Zoom meeting in the same manner as they did prior to COVID‑19, as this will allow all members to improve coordination and quality of the project. While a different setting applies, documentation remains key to limiting exposure.
Design Professional Board Complaints. Most states require that design professionals who sign and seal permit drawings supervise their junior staff and take responsibility for all work conducted in and out of the office. In Florida, for example, Fla. Admin C. 61G‑23.015 states that an architect takes all responsibility for work conducted outside of the office and must maintain evidence of “written calculations, correspondence, time records, check prints, telephone logs, site visit logs or research done for the project and shall provide such evidence to state or local authorities upon their request.” Failure to personally supervise the work and maintain the documents delineated in the code will subject the architect to disciplinary proceedings for “plan stamping.” Working from home makes direct supervision more difficult. Therefore, design professionals should document their direct supervision of the work and take additional steps to review the final construction drawings prior to signing and sealing to prevent potential state board complaints. These requirements are very state specific and any doubts concerning local requirements should be resolved with local counsel or senior members of your profession.
Occupational Safety. Firms that have opened their offices should make health and safety their number one priority. The risks of contamination can open your company up to workers’ compensation or negligence claims by your own employees. Your firm should evaluate its own office conditions and adopt procedures for limiting capacity, employ sanitation measures to keep all surfaces clean, and keep safe distances between colleagues. The CDC Guidelines and OSHA Guidance on Preparing Workplaces for COVID‑19 available on each agencies’ official websites are resources worth consulting if your firm has not already implemented its own procedures.
Cyber Security. Home networks are less secure than office networks. Firms should reevaluate their current network protections to ensure that any confidential or proprietary information is protected at all times. AIA Document B101⁵2017 Standard Form Agreement Between Owner and Architect, Section 10.8, imposes an obligation on the parties to maintain specifically designated information strictly confidential, which obligation shall survive the termination of the agreement.
Guard against the Risks Inherent in the COVID‑19 Construction Project
It is safe to say that the pandemic has disrupted traditional methods of carrying out a construction project. Construction teams now have to prioritize the health and safety of workers on the job, while attempting to meet scheduled milestones on the critical path without going over budget. Failure to take necessary precautions can result in stiff penalties. For example, New York City has begun imposing a $10,000.00 fine per occurrence of workers not practicing social distancing. As discussed above, these new regulations are rapidly changing and often unclear. Therefore, it is prudent to always err on the side of caution and extensively document your activities.
The customary standard of care for design professionals is to provide services consistent with the ordinary care of consultants from the same discipline practicing in the same or similar locality under the same or similar circumstances. This standard of care is also reflected in AIA Document B101‑2017 Standard Form Agreement Between Owner and Architect, Section 2.2, and should be adopted in all design contracts. Therefore, it is prudent to be up to date as to the current methods other professionals in your area are employing in response to the pandemic.
Open Communication. If your jurisdiction has imposed a total shut down on construction projects or a stay on issuing new permits, these developments should be clearly articulated to your client in writing. Your communications should include a discussion of how performance is expected to be impacted and a statement to the effect that the stated actions are unanticipated and outside of the firm’s control. Request that your clients acknowledge the project impacts in a written response to try to reach a workable solution, or the client risks waiving its right to relief.
If construction is allowed to continue, the best course of action is to openly communicate with other project parties (ex. client, contractor, subcontractors, etc.) about the situation, identify the challenges presented, and find a mutually acceptable solution. The possible solutions consist of limiting the number of people on site during observations, adopting methods for virtual observations, and adopting procedures to comply with state and local regulations. Utilizing virtual observation methods will undoubtedly depend on the level of trust with the client and the contractor. Any protocols should be clear as to what is expected, and all parties should agree to use “best efforts” to comply with the protocols at all times. Avoid any strict compliance language as a rule of thumb; rigidity lends itself to liability.
Any agreements should be memorialized in writing, as should any failure to reach an agreement. “best efforts” to comply with the protocols at all times. Avoid any strict compliance language as a rule of thumb; rigidity lends itself to liability.
Construction Administration. As a matter of practice, ensure that your staff are adequately trained to carry out site inspections in compliance with the state and local safety requirements, if any. Your staff should also be educated on all COVID-19 symptoms. Employ strict reporting guidelines for any experience of symptoms or illness so that the affected employee may be kept away from the project and substitute arrangements made. Insist on the same from your subcontractors. Any spread of infection at the site will likely require a total shutdown of the site for decontamination. The larger the project, the greater the potential delay and cost.
To avoid allegations of negligence or impropriety, firms should consider creating a standard form affirmation that attests to the fact that the consultant performed the site inspection on a given day in compliance with agreed upon procedures. The consultant can ask the client representative and/or the project manager to sign the document at the conclusion of the inspection. This will serve as an admission to rebut any allegations of impropriety.
Creating a well‑documented trail of compliance will go a long way to avoid liability in the future.
Compressed Project Delivery. Beware of compressed project delivery. Many firms have been forced to dismiss a number of their staff due to the harsh economic situation and the overall reduction of work. However, that same lethargy throughout the industry has made many owners anxious to get back on schedule and make good on promises to financiers. As soon as restrictions are lifted, owners may order the work be expedited and expect all parties to begin marching in line.
These discussions are normally negotiated between the owner and the contractor. Check your contract for any notice requirements and provide written notice of a demand to be informed of any changes in the project schedule prior to approval. AIA Document B101-2017 Standard Form Agreement Between Owner and Architect, Section 3.1.3, provides the time limits established by the schedule shall not be exceeded, except for reasonable cause, by the architect or the owner. If the project is accelerated, owners and contractors will expect quick turnarounds on product submittals, requests for information, value engineering suggestions, and failure to employ adequate quality assurance will lead to an increase in errors and omissions. Mistakes can be particularly costly on projects with tight critical paths and long lead times, such as energy and infrastructure projects. Therefore, design firms may need to hire additional staff or another design firm to assist and negotiate the necessary price adjustments to the contract. Expect owners and contracts to rely on errors and omissions to pass through acceleration costs to the design professional.
While it is ultimately the owner’s decision to accelerate, ensure that any limitations on your firm induced by the pandemic are clearly communicated to your client in writing. In any event, ensure and insist that no acceleration plans or shortcuts are adopted at the expense of safety and sanitation protocols.
Adequate Assurance. When project demands experience a sudden change, it behooves the design professional to send a cordial letter to each of its subconsultants, if any, advising of the changes, the potential impact on performance, and requesting written adequate assurance that the subconsultant will be able to perform. If reasonable grounds for insecurity of a party’s performance arises, and that party cannot give adequate assurance of its performance, the firm may have to seek a replacement or auxiliary firm to fully perform under its contract with the client. See Adequate Assurance section above.
The termination of any subconsultant for cause should be made in a written correspondence with the reasons stated succinctly therein. If your contract requires that the client approve any change in subconsultants, ensure that all permissions are documented.
Act Quickly When a Claim is on the Horizon
Be wary of any suspected or potential claims that may be lingering on the horizon. Owners and contractors may attempt to recover losses caused by the crisis by filing claims against the design professional. As discussed above, make sure that your client and any other pertinent parties are put on notice of the impact of the pandemic on any anticipated services and site inspections, and facilitate a discussion of the conditions impacting the project. If applicable, state the specific reason for any particular delay or restriction, and that such a matter is outside of the firm’s control and when complete or partial performance may be expected.
All communications should be in written form, and any oral communications should be followed up with a written memorandum of the conversation delivered to all participants. Make sure that your firm prepares its own memoranda. If a memorandum is circulated by another party, make sure to read it thoroughly and correct any inaccuracies or biases in a written response.
Risk Management is holistic discipline. It requires design firms to be proactive in continuously reevaluating those aspects of its business with a propensity to create conflict or confusion as the times change. With the stress of COVID-19 bearing down on all of us, effective risk management is the strategy of survival. While it will take months and maybe years before the ramifications of this pandemic are fully known, we hope that this article provides you with a concise overview of some strong and practical starting points and helpful suggestions. Remember that regulations vary widely across state and county lines and make sure to consult appropriate counsel when formulating your risk management strategy in the era of COVID‑19.
About the Authors
Mr. Jorge Cruz, P.E., Esq. is a shareholder at the law firm of Daniels, Rodriguez, Berkeley, Daniels & Cruz, P.A. in Miami, Florida. He focuses his practice on construction litigation, design professional liability defense, commercial litigation, and surety and lien law. Outside of the court, Mr. Cruz assists design professionals and contractors in the negotiation and drafting of construction contracts and acts as an advisor throughout the project life cycle. Prior to becoming an attorney, Mr. Cruz practiced as a Florida professional engineer for over ten years and holds licenses as a professional engineer and general contractor. Mr. Cruz can be reached at email@example.com.
Mr. William Diab, Esq. is an associate at the law firm of Daniels, Rodriguez, Berkeley, Daniels & Cruz, P.A., in Miami, Florida. He focuses his practice on construction litigation, design professional liability defense, and commercial litigation, as well as drafting and negotiating construction contracts on behalf developers, contractors, and design professional. Mr. Diab is qualified to represent clients before the courts in Florida and New York. Mr. Diab can be reached at firstname.lastname@example.org.
The law firm of Daniels, Rodriguez, Berkeley, Daniels & Cruz, P.A. is a premier mid-sized Florida law firm that focuses on representing governmental, institutional, and individual clients in all aspects of construction litigation and real-estate transactions. It is specialized in the defense of design professionals of all disciplines in complex litigation and high exposure claims.