Design and construction professionals are in a high-risk business, but there are things that your firm can do today that will help minimize that risk.
1. Adopt and Use a Standard Contract Form
There are some clients that will present you with their form for services or construction work and you will have to negotiate over the terms. However, there are plenty of clients – particularly those buying design services – that do not have a standard form. This is a great opportunity for you to present your standard contract form to them with your proposal. This, of course, assumes that you actually have a standard form. If you do not, you need to create one or hire an attorney to help you create a form. Your form does not have to be a made-from-scratch product, but may include a standardized document, like one of the AIA forms, with your standard modifications. You need to have a go-to form that you understand and that you are comfortable using. Today, you can develop a plan to create this form.
2. Create a List of Show-Stoppers
The companies that we have worked with which have adopted a list of show-stoppers, deal-killers, or deal-breakers, have the easiest time negotiating contracts and deciding what types of jobs to take. For example, your company may decide that you are not going to work on residential projects because the risk far exceeds the reward. Adopt that policy and your employees will not waste time chasing residential jobs.
Similarly, there are probably contract provisions that you simply cannot agree to or cannot live without. If everyone in your firm knows that list, they know what to look for in the next contract they receive. They also have an excuse in negotiations that your company has adopted a policy not to…
Our list of contract terms would be:
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- Waiver of incidental and consequential damages
- Limitation of liability to some dollar amount
- Exclusion of implied warranties, particularly the implied warranty of fitness of plans and specifications
- A reasonable standard of care
- A waiver of subrogation from any property insurer
You may have others, given the nature of your work. Adopt a list today.
3. Create a Site Visit Form
If you plan to conduct any visits to a job site, create a site visit form that your employees use every time. Notes in a small journal (which we see all of the time) are just not enough because the information captured varies from person to person and day to day. Claims relating to true design errors are down. Claims relating to site visits are on the rise. If your employees properly document every site visit, you will reduce your risk for site visit claims immediately. All it takes is a one-page form. For more about successful site visits, please click here: https://columnandbeam.com/2016/08/08/minimize-your-risk-by-conducting-quality-site-visits/.
4. Buy Enough Insurance
There are people who argue that if you have insurance, it makes you a target for future litigation. Maybe. However, those people had better hope that there is never a serious injury or other major issue on a project that they are working on. Pull out your policies or call your broker and make sure that you have sufficient insurance and high enough limits. If you are working on smaller projects, a $1,000,000 limit might suffice. On the other hand, if you are working on complex projects, one-of-a-kind projects, or high-risk projects, a $1,000,000 limit is just not enough.
Make sure you also have the right types of coverage. With all of the recent hacking incidents, ask your broker whether you need cyber liability coverage. If you are considering using drones in your business, make sure your policy covers this risk. Ask about rectification coverage. A short call with your insurance broker to update her about any changes in your business should be on your calendar.
5. Observe Corporate Formalities
Smaller firms of all types sometimes forget to observe corporate formalities. What? This means that they do not act like a company, forget to have shareholder meetings, have no meeting minutes, and do not keep good corporate records. This is important because if your company does not observe these formalities, you may subject the owners/principals to personal liability.
What should you do today? Pull out your corporate bylaws, operating agreement, or shareholder agreement and look at what they require. Make a bulleted list of those requirements. For example, most corporate documents require an annual meeting of the shareholders/members. Have that meeting. Prepare meeting minutes about what was discussed and agreed upon. Elect officers and directors. Document who they are.
If you do not have corporate documents, you need to hire an attorney to draft them for you. It is relatively inexpensive and will protect the assets of your company and the personal assets of its owners.
If you have any questions or need help implementing any of these risk-saving strategies, call us at 864-327-5000. We would be glad to help you.