Client Expectations of Perfection

1. Client Expectations of Perfection Presentation at ACEC Washington, D.C. May 3,2006 Jack Beemer, P.E., Corporate Risk Officer David Evans and Associates, Inc.

2. Two Presentations/Papers • Client Expectations of Perfection • The Cost of Perfection in Public Works Projects

3. Today’s Discussion • Look at CEOP from the consultant’s perspective • What it is we are talking about • How it came about • Discuss some of the details and ramifications to get a better understanding • Explore what we can do about it and discuss some recommendations

4. Owners Seek Perfect Projects • Risk free projects – no cost risk • How? • Transfer risks • Seek cost recovery • Ramifications – it’s anything but free • There is no such thing

5. ACEC Risk Management Committee,Client Expectations of Perfection Subcommittee: Jack Beemer, P.E., Chair – Risk Manager, David Evans and Associates Bob Fogle – Corporate Risk Officer, HNTB Wyatt McCallie, Esq. – General Counsel, CH2M Hill John Magliano, P.E. – Chief Operating Officer, Syska & Hennessy Group Tom Porterfield – Senior Risk Management Consultant, Victor O. Schinnerer Greg Sauter, P.E. – Director of Risk Management, DMJM Harris | AECOM Becky Schaffer, Esq. – Corporate Counsel, PBS&J Nick Wieczorek, Esq. – Litigation Attorney, Morris Polich Purdy LLP

6. The Situation • DesignProfessionals traditionally held to negligence standard • Common Law - Responsible to your client to meet the standard of care for your profession • Perform in a manner consistent with that degree of care and skill ordinarily exercised by the same profession currently practicing under similar circumstances (for example, location)

7. The Situation • Projects are one-of-a-kind . . . • we don’t manufacture products • Historically, perfection was never contemplated • Implied warranties of fitness do not apply to professional services • Those who sell services for guidance of others in their economic, financial and personal affairs are not liable in absence of negligence or intentional misconduct

8. The Problem • Increasingly, Clients are: • Expecting perfect deliverables • By requiring elevated standards of care • Demanding unfair contract terms • By requiring indemnities for any loss associated with our services, even if they cause the loss • Using any imperfection, unfulfilled expectation or deficiency as an excuse to not pay our fees • By requiring any imperfection be corrected at no cost to them and before they pay their bill

9. Which Clients Does This Involve? • Involves all types of clients – public and private • Clients who don’t understand our profession and our delivery of services • Clients who are undercapitalized • Clients acting in bad faith • Clients who don’t want to take any risk

10. “Negligence” vs.“Errors and Omissions” • Clients have grown to think that we should pay for any “error and omission” • Don’t we have E&O insurance? • It’s only insurance money, right? • Clients do not understand the imprecise nature of design/construction projects • The tradition has been to handle certain issues during construction through RFIs and COs • What’s the cost vs. benefit of trying to attain “perfection”? • We need to change concepts to negligence

11. Non-Negligent Errors or Omissions Non-negligent errors by DP can occur by: • DP using bad data that DP had a duty to use and right to rely on • Scope reduction by owner save money • Vendor’s data misleading or wrong • Unforeseen site condition not detected through normal investigations • Changing expectations by new owner rep • Code/standard changes requiring design changes • Misinterpretations of codes, design documents, etc by others

12. Public Clients • Federal, state, local, transportation agencies, school districts, utility/service districts, etc. • Program management consultants • Examples of policies/rules • Factors that influence client attitude changes • Personnel changes • Federal mandates • Sister agency comparisons • New attorneys in town (or passing through)

13. Private Clients • Developers (residential, retail, commercial), institutions, healthcare providers, industry, high tech, etc. • Fix everything to their satisfaction at no extra cost . . . it doesn’t matter whether contract terms support their position • Onerous contract terms • Additional insured issues

14. What Are The Consequences? • We are now viewed as a source to pay for any cost “overrun”, including changed conditions and frivolous change orders • We argue about what needs to be fixed and about getting paid • We spend countless hours of unbillable time trying to recover costs to fix any "deficiency" • We end up defending ourselves even when all contract terms have been met • Our client relations turn adversarial • We are no longer considered part of the team

15. Where Do Clients’ ExpectationsOf Perfection Come From? • Our own marketing communications • Political "low-balling" to sell public projects • No contingency budget for designers • Perception that any and all “deficiencies” are our responsibility • Construction contractors blaming engineers for change orders • We are easier to fight than contractors More . . .

16. Where Do Clients’ ExpectationsOf Perfection Come From? • Demands put on clients’ PMs by budget constraints • Demands put on clients’ PMs by their management • Rewards to clients’ PMs for coming in under budget • Clients’ PMs who don't want to hire outsiders • Lack of relationships with clients • Clients’ lack of trust or actual suspicion or distrust

17. What Can We Do? • In project/client-specific situations • Assist and educate clients • Improve our own skills • Advocacy efforts

18. What Can We Do?In Project/Client-Specific Situations • Become the “faithful advisor” • Document communications (marketing, negotiation, and project) • Discuss process and “non-perfection” issues with clients • Educate clients on reasonable expectations • Evaluate contingencies with clients • Agree only to perform to existing standard of care • Foster “partnering” approach • Have clients attend constructability reviews • Have design professionals participate in any ADR • Know your BATNA • Use ACEC state organizations

19. What Can We Do?Assist and Educate Clients • Estimating public project costs • Nature of our professional services • Standard of care/negligence issues • Professional liability insurance issues • Quality-price-schedule tradeoffs • Roles/responsibility of “prime designer”

20. What Can We Do?Improve Our Own Skills • Significant, broad-based negotiation training • Educate design professionals and firm staff: • Standard of care/negligence issues • Insurance issues • Indemnification issues • Quality-price-schedule tradeoffs • “Engineer Of Record”: What it is vs. what it isn’t • Client satisfaction issues • Handling construction phase issues

21. What Can We Do?Advocacy Actions • Share contract review comments through state MOs • Advocate for design professionals to serve on DRBs • Advocate for EOR to provide construction phase services • Advocate for legislative/regulatory reform to combat “perfection standards” in public contracts

22. What Can We Do?Advocacy Actions • Advocate for professional licensing prohibition on making statements of absolute knowledge without the knowledge • Advocate for tort reform: • Limitations on indemnification clauses • Improved statutes of repose • Certificate of merit legislation

23. Tool Kit • Speaker's bureau • Negotiations training • Support from ACEC • Discussion points scripts • New contract language

24. Tool Kit - Speakers Bureau • Encourage others to be part of a speakers bureau to present on Client Expectations of Perfection to various industry groups and on The Cost of Perfection to various owner groups • PowerPoint slide shows with notes for the speakers to use are available • Two papers are available for download or as handouts: Client Expectations of Perfection and The Cost of Perfection …

25. Tool Kit – Negotiations Training • Effective and comprehensive negotiations training classes, based on the Harvard interests-based negotiating models should be made available to any staff who sell services and/or negotiate contracts

26. Tool Kit – Support • Telephone consultation is available through the subcommittee to MOs or others seeking support – provided by: • RMC Subcommittee on Client Expectations of Perfection: Jack Beemer <jdb@deainc.com> • Transportation Cost Recovery Task Force: Bob Fogle <bfogle@hntb.com>

27. Tool Kit - Scripts • Conversation scripts for individuals to use as an example of how to candidly discuss with their clients that design or construction documents typically contain some errors and omissions and that the remedy is to identify and correct each problem as it arises, normally during construction with the participation of the design professional

28. Tool Kit – New Sample Contract Language Sample contract language is available for: • Requiring a design professional, as an advisor to the owner, to participate during any dispute resolution process • Requiring the owner to participate, along with the construction contractor (if identified), in constructability reviews

29. What Else? • What else can “we” do? • What can you do? • What can your firm do?