Risk vs. REWARD It’s what all engineering firms and architectural houses seek: the Golden Goose. For most, the Golden Goose might be that project that is not only high profile, but also has the potential to be incredibly rewarding – both professionally and financially. It may afford you the opportunity to partner with a client with whom you’ve always dreamed of working, or work on a landmark you’ve often yearned to transform. However, before you let excitement take hold and dive in with both feet – there are a couple of important things to consider that might ultimately alter the outcome: RISK MANAGEMENT PROFILES According to Lee Edmond, Vice President of Crow Friedman Group, a Risk Strategies Company – “Risk Drivers,” XL Group’s Design Professional research, finds four primary areas that drive claims against design and consulting professionals: 1) Negotiations and Contract 2) Client Selection 3) Team Capabilities 4) Effective Communication “90 percent of the time, risk on behalf of the engineer or design professional can be managed within one of those four categories,” explained Edmond. “It’s important to identify exactly where your risk lies before ever beginning any project – no matter how desirable it may seem. Once the project begins, continue to concentrate efforts on those same areas in order to manage potential risk.” INDEMNIFICATION CLAUSES Edmond also warns of the possible risk that an indemnification clause in a contract might hold. Depending on how it’s written, you may find yourself roped into a contractual obligation which you wouldn’t normally have a legal duty to meet as a professional – such as defending your client against allegations of damages. An indemnity may also heighten your legal duty of performance above the standard of care governing your practice. Such an obligation would be contractual in nature, and likely not insurable under professional liability policies. “You should always review contracts with your attorney and professional liability insurer or broker who understand the risks created in professional engagements,” concluded Edmond. “Professional Liability policies may not cover liability arising from contractual indemnity, so if you elect to sign a contract with an indemnity clause – you place your company at a higher risk. A firm should be clear as to their risk tolerance based on their insurance protection and advice of qualified counsel. In the event that your client insists on an indemnity clause, you may want to recommend a mutual indemnity – which simply states that your client or subconsultant is responsible for any damages they cause and your company is responsible for any damages it causes within the scope of the project. If they’re willing to work with you with either a mutual indemnity or a simple waiver, that could be your deal maker. Knowledge and understanding is key in go versus no-go decisions with projects and clients. Given the costs of dealing with professional claims, the most profitable project you may see is the one you elect not to pursue. That’s why it’s vital to rely on objective third party advisers like your trusted attorney and an experienced professional liability insurer.”
Published by American Council of Engineering Companies of Georgia. View All Articles.
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