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Wired: Electronic Transfer of Design Information
By Steven G.M. Stein, Esq.
Jeffrey H. Winick, Esq.


The architectural profession has adopted, with growing enthusiasm, the use of computers in generating, revising, plotting, and transmitting its work. As with all new technologies, however, the use of computers in architectural practice raises previously unrecognized risks and liabilities. Risk management issues are often identified only after a firm encounters its first meaningful monetary loss or significant claim.

The electronic transfer of design data creates five main concerns: errors arising from information transmitted to the architect; errors introduced during transmission or during use by the client; defining deliverables and protecting compensation; control of ownership and limits on reuse; and risk shifting.

ERRORS IN TRANSMITTING INFORMATION TO THE DESIGN PROFESSIONAL

In most respects, liability risks arising from information transmitted to the design professional are not at all dissimilar from those pre-existing before the advent of CAD. Whether generated in print or electronically, information provided to the design professional by others may lead to a defective design product for two reasons: the information obtained from the owner, the owner's consultants, or the owner's contractor was insufficient or incorrect; and the information obtained from product vendors or the design professional's own consultants was insufficient or incorrect. These risks have not changed. However, with computers, architects must now ask if the information provided to them electronically is identical to that which the other party intended to transmit. New liability exposures arise first and foremost from the inability of conventional file management techniques to document the transfer of this information. Although standard operating procedures prior to computers may have required the maintenance of a correspondence log or the retention of transmittal sheets, the electronic transfer of data, particularly by way of modem or network, is likely not to be documented through these procedures. Moreover, information transferred through a computer can easily lose its label (if on a disk), or source identification (if electronically transferred). Even more serious, the information can be deleted from the recipient's files so that data as well as any record of their receipt may be lost. In addition, unlike written copies that clearly reflect changes, computer data can be modified and bear no evidence of the modification.

When liability issues arise, one must trace the source of the design data used. If architects are unable to prove they relied on particular information provided by others, the architects will bear the loss. Therefore, procedures to document the receipt of information electronically, as well as a means of retaining a copy of the information "as transmitted," are critical.

ERRORS IN TRANSMISSION TO OR USE BY THE CLIENT

In the transmission of electronic documents to the client, a host of possible errors can occur. First and most obvious, the transmission of the data is fraught with potential problems. This is true whether the transfer is by disk or over a wire. For example, in order for the transfer of disk-stored material to proceed without error, all of the following must occur: the computer from which the material is downloaded, in particular the disk drive, must be fully operational and defect free; the disk onto which the material is copied must be defect free; the disk must not be subject to any physical or magnetic forces during transit that would alter the information on it; the information on the disk must be compatible with the recipient's computer software and hardware; and the recipient's computer, in particular the disk drive, must be fully operational and defect free. At any of these stages, critical errors that are difficult to detect can be included in the data. In addition to all of the above concerns, electronic transfer of data via modem can encounter problems with phone lines.

Once the information is utilized by the recipient, there is a more likely possibility of error. The electronically transferred design data can be altered and damaged by the recipient's software or, more commonly, during the mere examination of the material. Exacerbating each of these risks is the possibility that the recipient is using the software improperly.

To reduce these problems the architect and the client or consultant should institute procedures that address the various risks involved. Because the sharing of information occurs in the early phases of their relationship, this can be easily accomplished. In addition, the architect should take steps to ensure that the electronic equipment is fully operational and error free and that those individuals manipulating the data are well trained.

The design professional must also be concerned about further transmission of the material from the client to others. For example, the client may transmit the design data to other offices, contractors, and consultants. The risks entailed in the transfer of this data through computer-related means are the same as those discussed above; however, the architect has no control over the medium or the method of transmission.

As with input errors, identification of the source of information and changes becomes increasingly important as the network of individuals sharing the design data widens. The very speed with which ideas can be graphically transmitted introduces the possibility that the author or the source of a subsequent design decision will become confused or entirely lost. For this reason, the architect must keep track of all material that has been transmitted and must maintain a copy of exactly what was transmitted.

DEFINING "DELIVERABLES" AND PROTECTING COMPENSATION

In medieval England, the transfer of land required the meeting, in person, of seller and purchaser with the transmission of title through the hand delivery of earth and twigs from the property conveyed. Thus, the land was transferred in both the legal and the physical sense. Architects also define discrete moments when information is transferred, and a right to payment is established, such as delivery of schematic drawings, design development drawings, and working drawings. Approval sets the parameters for the distinction between "basic" and "additional" services. Post approval changes entitle the design professional to increased compensation.

Now, with computers, it's possible for clients to be "online" throughout the design process and to have available to them all interim design data. Thus, delivery of the design product is made on a continuous basis. The clear lines between "schematic," "design development," and "working" drawings are easily muddied, especially when clients are technically competent and desire to work along with the architect. With the rhythm of approval and payment disrupted, and with control over design products lost, the architect's risk of nonpayment increases.

It is therefore imperative that these issues be specifically addressed in the contract. In particular, the contract must incorporate language both defining "deliverables" and tying payment to the "deliverables."

And what of the use of in-process design data? Assuming the client is willing to pay for the work performed to date, is the client entitled to make use of less-than- final design data in order to speed up a project without agreeing to relieve the architect from liability for errors and omissions existing in the not-yet-finalized documents? This is an issue that needs to be addressed in the contract.

OWNERSHIP AND REUSE

In the architectural and engineering communities, as in other walks of life, it is often said that "imitation is the highest form of flattery." However, when the imitation affects one's ability to market and profit from one's work, the feelings of flattery evaporate quickly.

In the U.S., design professionals are protected. The creators of "original work of authorship" such as engineering plans or a building design as embodied in a completed structure, are entitled to statutory protection against unlawful copying of their work. When the design product is created, modified, or transmitted with the use of computerized processes, additional issues relating to copyright protection must be addressed.

The Federal copyright laws provide protection to design professionals for their ownership rights in their design materials. As a matter of good practice and to ensure copyright protection, architects routinely place a copyright symbol on their plans or drawings. This leads to the obvious question of how to copyright electronically stored data or design information.

The Copyright Office in Washington has issued regulations concerning the position and method of affixing a copyright notice for different categories of protected work. For works reproduced in "machine readable copies," the design professional can provide notice of copyright in the following ways: "With or near the title or at the end of the work, on visually perceptible printouts; at the user's terminal at sign on; on continuous display at the terminal; or reproduced durably on a gummed or other label securely affixed to the copies or to a container used as a permanent receptacle for the discs." As good practice and as a means of providing additional protection to design products, one of these alternatives should be used for electronically stored materials.

In general, under the Copyright Act, the architect's ownership right of copyrighted work in an electronic database is treated no differently than a set of plans produced on paper. In both cases, regardless of whether or not the design professional has provided the owner with a set of the plans or drawings for use on the project, the architect retains ownership rights unless otherwise agreed in writing. Therefore, the owner infringes on the design professional's copyright if the work product is used other than in connection with the project that is the subject of the agreement between the architect and the client.

Nevertheless, it may be wise for architects to consider, before entering into a contract with an owner, whether they intend to provide the owner with the computer- generated design documents and if so, to provide protection for ownership rights of the materials in the contract. Although the treatment of these materials will not differ from the treatment of a hard copy, the opportunity for the owner to alter, adapt, or transfer the materials may be significantly greater. Thus, the need to establish the respective rights and obligations of the architect and the client is enhanced. These concerns are often addressed by contract provisions that disallow the owner's reuse of the materials for any purpose, and a provision by which the owner agrees to indemnify the architect for any losses or claims associated with the unauthorized reuse of the design materials.

RISK SHIFTING

Some errors or omissions inherent in a design process and in an electronic transfer of design data cannot be completely avoided. The issue becomes who bears such risks. Appropriately, the architect bears the risks of internal operations - employees' errors in conceptualization, documentation, and transmission. But risks in the electronic transfer of information should be borne by others.

Clients should bear all risks associated with their provision of information, modification of design data, reuse, reformatting, retransmission, and premature use of information. In addition, clients should also take responsibility for those they employ - consultants and its contractors - to the extent that the information they provide is defective or erroneous, whether in original conception, creation, formatting, or transmission.

However, even the clients' acceptance of their fair share of responsibility leaves fuzzy areas. For instance, the incompatibility of software or hardware that results in failed transmission between the client and the architect is a shared responsibility unless risk of such incompatibility is clearly accepted by one of the parties.

A contract can appropriately allocate the risks of the electronic creation and transmission of design data. In addition, the client can contractually waive certain claims based on the scope of the architect's services and the client's requirements and inputs.

The client's consultants and contractors, too, can be bound through the client's contract. Although the architect has no way of directly negotiating appropriate risk- sharing with the client's independent contractors, clients can agree to require their contractors to share risks appropriately through indemnity provisions, waivers, and fair descriptions of scope of services. Other third parties are not bound by the client's agreement, although the scope of services will be helpful in defining the architect's duties to the public.

Indemnities are the usual tool for shifting liability of third party claims. Accordingly, the architect should request and obtain from the client an indemnity appropriate to the circumstances. In a world of equal bargaining power, it would be simple to define the scope of that indemnity. Logically, the party most in a position to control a loss and to minimize its impact should bear the responsibility for both parties if it fails to do so. Whether the party is appropriately compensated for the potential risk is an equal consideration. Unfortunately, equal bargaining power rarely, if ever, exists, and indemnities are usually written and made part of a contract in much the same fashion as a powder charge is introduced to a muzzle-loaded cannon.

Contracts with consultants are as important as the design professionals' contracts with clients. Risks should be shifted to the party best able to control them in light of compensation arrangements. In addition, the scope and service definitions should be carefully tailored to match the needs of the architect from the technical standpoint and the requirements that the design professional must meet under contract with the client.

Insurance has its place in risk shifting as well. The extent to which professional liability policies apply to erroneously created and transmitted design data, however, is unclear. On the one hand, it is self-evident that the failure of the architect properly to perform design services is covered. On the other hand, if the design services are appropriately performed, but only the transmission of data is flawed due to equipment failure, it is much less clear how the professional liability policy would apply. An endorsement (a specific policy modification) of the professional policy may be in order, although the cost of such an endorsement requires underwriting experience which may not yet exist.

Valuable-papers insurance too must be reviewed. Not only is the definition of the "papers" that are subject to the insurance important, the limits of liability should be reviewed in light of the tremendous amount of information stored on disk and of the fact that some of the information may be retrievable from others after transmission.

Attribution

Steven G.M. Stein, Esq. and Jeffrey H. Winick, Esq. Stein, Ray & Conway ("SRC") is one of the largest firms in the United States exclusively devoted to construction law. SRC represents many of the country's largest owners, design professionals and contractors in contract formation, risk management and insurance, business counseling, and dispute resolution. SRC has handled some of the country's highest profile design and construction cases.

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.

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