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  A Major Cause of Professional Liability, Lawsuits and Arbitration Claims
Why Do Clients Sue Their Architects?
Consequences of Unwise Extension of Credit

Arthur O'Leary, FAIA, MRIAI
 


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Optimistic Beginnings

The honeymoon period starts when the client singles out the architect from the vast pool of available talent. The architect’s popularity is usually at its apex at the onset of the relationship. The client is convinced that the selected architect is responsible and trustworthy as well as accomplished, clever, and creative. The client feels comfortable and safe in the capable hands of the chosen architect. Simultaneously, the architect is flattered to realize that the client has recognized the architect’s true value as a master designer, superb architect, and all-round worthwhile human being. During the period of negotiating and entering into their professional service agreement, they are usually very respectful and considerate of each other. The architect feels that the client is a very perceptive, sound, and responsible person while the client regards the architect as a cultured, educated, and erudite individual well worthy of being entrusted with the client’s building program, the time schedule, and of course, the budget. They each regard the other as a true and valued friend. Friends don’t sue each other.

Gradual Erosion of the Friendship

This warm and cosy friendship may start to slip when the architect first displays a lack of consideration in some small, seemingly unimportant ways. Phone calls, faxes, emails, or letters are not acknowledged promptly or go entirely unanswered. The architect is late for appointments or misses them altogether. The architect is not completely prepared for meetings or sends an inadequate junior substitute. This type of behavior is impolite, unappreciated, and very disconcerting to the serious client who had been led to believe that no other client was more important.

When genuine two-way communication breaks down, it is easy for the client to become disillusioned and adversarial. In this atmosphere of festering client dissatisfaction, any kind of error made by the architect is not likely to be accepted or easily forgiven by the client.

Client Retaliation. Many times the client’s professional liability claim against their architect is simply a striking back at the architect for not being treated with the proper degree of consideration and respect. When the architect neglects to follow the client’s program, fails to recognize legitimate time constraints, or allows the budget to be breached, the client might retaliate by refusing to pay the architect’s bill and, ultimately, by filing a legal claim, or both.

Errors in the Work Product

Unrealistic Client Expectations. In the process of selling our services, sometimes we do too good a job. We oversell ourselves, the result being that the client is encouraged to believe that we are much better than we really are. The client is not ready for our natural human limitations. So when we make an error of any kind, the client feels shortchanged.

Office Standards. Anyone can make an error. Architects are not perfect. But professional standards must be maintained. Offices should not take on work assignments that are beyond the realistic capabilities and expertise of the firm’s principals, available personnel, and consultants.

The office should be properly equipped including all necessary research materials. The principals and technical staff should continue relevant professional education on an ongoing basis. The office should be organized to gather and maintain all necessary records and information for each project undertaken, including the client’s program requirements, building and zoning code criteria, engineering factors, time keeping, and accounting.

Quality Control. Probably the most effective safeguard in avoidance of error is continual reviewing and checking of the work product. Senior personnel should always scrutinize the work of less experienced staff members. Failure to check and coordinate the work product would be considered professional negligence when the majority of architects normally check their work.

Agreeing on an Appropriate Fee. When the agreed fee is not enough to cover the necessary services, there could be economic pressure to reduce the quality of the service, with the possibility of substandard professional work. Insufficient fee income is not an ethically or legally acceptable excuse for performing defective professional service or for stopping work. If a sufficient fee cannot be obtained for performing the required scope of services, the project should not be undertaken.

Architects Must Maintain Sound Business Principles

Professional liability claims against architects are quite often triggered by the financial insolvency of the client. Typically, the way it often happens is that the client gradually falls into arrears in paying the architect’s invoices and eventually stops paying altogether. The architect’s response is to send repeated bills followed by letters, emails, and phone calls. Days, weeks, or months pass without payment. The architect continues working and is running out of money. In desperation, the architect consults with legal counsel who recommends filing a lawsuit or arbitration claim. The delinquent client responds by conferring with its legal counsel who files a counterclaim alleging defects in the architect’s services and claiming damages far in excess of the architect’s unpaid fees. The client’s lawyer tries to settle the claims and counterclaims by offsetting one against the other, thereby extinguishing the architect’s fees.

This stratagem often succeeds because, as the architect’s attorney will explain, there is no guarantee of the architect’s winning either or both parts of the lawsuit. Also, the costs of the protracted lawsuit will have to be faced. Even with errors and omissions insurance, there will still be considerable costs for the architect to pay. Even if the architect should win such a lawsuit it might be difficult to collect any money, as the client’s poor financial condition may have been the cause of the problem in the first place.

How Could This Outcome Have Been Avoided?

Require a Retainer. The basic cause of the problem was the architect’s unwise extension of credit to an uncreditworthy client. When dealing with an old client of known credit delinquency or a new client of unknown credit rating, an appropriate retainer should be required, to be credited to the final payment.

Frequent Payments. Professional service agreements should always provide for frequent payments, no less often than monthly, and should give the architect the right to stop work whenever any payment is five or ten days overdue. This will obviate lack of the realization that the client has stopped paying. It prevents the bill from continuing to mount when realistically there is no hope for payment. The agreement should also provide for remobilization costs if the architect has to stop work and then resumes work later.

Billing. All accounts in the architect’s office should be billed every month, even when there has been no activity. Each monthly statement should show the previous month’s balance, payments made, new charges and credits, interest added, and the new balance. The process of monthly billing will remind you as well as the clients of the current status of each account. When a payment has not been made within the time limit agreed in the contract, you should immediately communicate with the client to ascertain the reason the payment has not been made and when it will be made.

Stopping Work. If the contract allows you to stop work when awaiting payment of past due amounts, then stop work! You have only yourself to blame if you allow an uncollectable bill to continue to accumulate after having received such a clear and unambiguous warning.

Standard Form of Agreement Between Owner and Architect with Standard Form of Architect’s Services, AIA Document B141-1997

This standard form of the AIA includes favorable provisions for an appropriate retainer (Subparagraph 1.5.7), architect’s right to stop work when the client is delinquent in making payments (Clause 1.3.8.1), and reimbursement of architect’s remobilization costs (Clause 1.3.8.2). Other AIA contracts have similar provisions.



“A Guide to Successful Construction: Effective Contract Administration” by Arthur F. O’Leary, FAIA, MRIAI or “Construction Nightmare Jobs From Hell & How To Avoid Them” by Arthur F. O’Leary and James Acret are available from bookworkz.com or call DCD at 800-533-5680.


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