Excessive litigation, lengthy arbitration and constant confrontation are still plaguing the design and construction industry along with the decline in both profitability and the quality of the constructed facility.
It seems ironic that the one industry that is the most dependent upon interdependent relationships: cooperation, collaboration and teamwork in order to produce a successful result for the built environment still remains the most inefficient and adversarial.
With all the emphasis on developing fair and equitable contracts, why is this happening? In searching for the possible reasons, one might first look at the fact that construction methods have become more and more complex requiring specialists and different technology. Combine this, along with the economic factors of inflation, budget constraints and competition, and we see an industry ripe for disputes and litigation. In a difficult economy, when clients are under pressure to keep costs down, there is a tendency to file claims for anything that could go wrong. Further, in a competitive marketplace, low-bidding contractors awarded a project may keep their projects profitable by increasing the number of delay and change-order claims.
When business is slow, it is difficult to resist the impulse to accept a project or assume risks one would not ordinarily accept. But this is not the time to be less risk aware. In fact, the risks to design and consulting professionals are of a long term nature. Therefore, problems with the decisions that are made and the risks that are taken today may not surface until years later, long after the project is completed and the gains are forgotten. And when they do surface, the losses almost always significantly outweigh the gains, eating up profits, depleting assets and undermining, if not ruining professional relationships.
Historically, design and consulting professionals relied upon a relationship of trust with the client/owner. When problems arose, the parties could fall back on this relationship of trust. As the design and construction industry became more complex, multiple disciplines and entities became necessary to accomplish project goals. At the same time, the industry is still infinitely segmented and the relationships between the necessary parties - owner, architect, engineers, contractor and subcontractors - inherently adversarial. Today, these relationships are held together with contract terms and points of law.
Improving contracting practices has perhaps helped to establish better legal relationships. But have these measures really helped to establish better working relationships? Relying on solid contracting practices alone and expecting if there is a good contract, there will be a good project outcome is wishful thinking.
Every project is a unique undertaking with its attendant risks and immense potential liabilities for every participant. "Project" is synonymous with "Problem." Since construction is dynamic and full of uncertainties, all projects have problems along the way. This is why design and consulting professionals need to evaluate a project from a risk management standpoint before the engagement is accepted.
Since the majority of claims are made by client/owners, it is suggested that one significant way of decreasing the odds for claims and litigation and enhancing profitability and the probability for a successful project outcome is to develop a direct relationship of mutual respect, rapport and open communication with the client/owner. It is this kind of relationship that is fostered in a process now being used more frequently on both small and large projects called "partnering." Partnering is a process where a team of committed key participants: (owner, contractor, construction manager and design team) are focused on the mutual benefits to be achieved from their involvement in a project and it provides a framework for working relationships, operations and dispute resolution through project completion. Partnering is not a legal partnership, but simply provides a process and a structure to enable project participants to develop clear communications and develop solutions to problems as they arise on a project.
Since trust is one of the most important aspects of a successful working relationship with a client, this is enhanced through effective communications between each person in the firm who is involved in a given project and the client. The following are some suggestions for assessing your relationship with a potential client/owner, developing that relationship and dealing with problems as they surface during the project.
Before responding with a proposal, assessment of a client might include answers to the following questions:
If your clients are typically other professionals, make sure they have done their research and can provide you this information. Once you have clearly made an adequate assessment of your client, a risk assessment should be conducted before you accept the assignment.
Problem-Solving During the Project:
Positive long-term relationships and trust are built over time. They take constant effort, because they can always be improved upon. The entire firm must understand this, be trained, understand their role in the success of a project, and make the effort. Communication begins internally and management needs to encourage openness and discussion of problems as they are emerging. Ultimately, this pays off.
So during the course of a project:
The idea is to create a relationship with clients that promotes achievement of mutual goals. Emphasis on quality, open and honest communication, and responding to problems quickly as they surface are elements of a sound risk management strategy to avert claims and promote successful business relationships.
S. Lee Nelson is the Director of RISK Administration & Management Company which provides claim administration and management, loss prevention and risk management services for Associated International Insurance Company, Calvert Insurance Company, Insurance Company of the West, the ACIL Programme, LACMTA Professional Liability Insurance Program, other London Programs and all programs underwritten through RA&MCO Insurance Services.
S. Lee Nelson can be reached at e-mail address: email@example.com or by phone at 1-800-684-RISK.
The information in this and all other RISK Administration and Management Company articles is intended for information and risk management purposes only and does not constitute legal advice. For legal advice and assistance, please contact competent counsel in the jurisdiction of your professional practice.