Risk Management Articles

Building Towards The Paperless Project: Risks, Rewards and Safeguards
By David A. Ericksen,* Esq.
Severson & Werson,** Esq.

The construction industry and architectural and engineering ("A/E") firms in particular have been enthusiastically embracing the use of computers in generating, revising, plotting, and transmitting their work product and project-related communications. Clients and competition demand it. As a result, the average firm now uses some form of Computer Assisted Design and Drafting ("CADD") on well over ninety percent of its projects. The technology to aid design professionals is also evolving with ever-increasing speed. Of the technology currently in use in the typical A/E firm, ninety percent is new within the last five years.

All indications are that CADD represents only the tip of the information technology revolution in construction. The extraordinary rate of change which has characterized the last five years will be dwarfed by the changes to come. Project websites or extranets are only in their relative infancy, but may well become standard operating procedure in the very near future. The September 25, 2000 edition of Engineering News Record detailed no fewer than seventeen project website providers. Similarly, computer-assisted design software is continually becoming increasingly self-executing and thus involved in and supplanting traditional design roles.

The evolution of CADD and other electronic design tools is represented to be a tremendous boon and opportunity for most A/E firms. CADD and related tools theoretically allow design professionals to work faster and more efficiently while providing the client with a better quality and more accurate product. Moreover, the use of electronic mediums also offers design firms an opportunity to expand their scope of services. With only minor modifications, electronically-generated design documents can be modified to meet clients' other needs, such as facilities management and planning.

However, as with any such rapid and radical revolution, the growing use of computers in the A/E practice and the introduction of so many new technologies raise previously unrecognized risks and liabilities. Few of these concerns have to do with the creation of the design itself. CADD design is essentially the same traditional design process which simply replaces the pencil with a mouse. Rather, the new concerns focus primarily on the compatibility of various systems and software, the transmission of electronic information, potential degradation of electronically communicated information, potential misuse of electronically communicated information, and redefined design roles and responsibilities. None of these risks is so threatening as to justify not utilizing CADD and other evolving electronic technology. However, each warrants recognition and a well-reasoned response of practice management and contractual provisions.

The following discussion will begin by addressing an overall approach to electronic design concerns. This paper then addresses some of the concerns related to the emerging and expanding use of project websites and self-effectual design software.

Electronic Design Conciderations and Strategies

During the course of a project, electronic information and documents may be transferred to and received by a variety of project participants. Broadly stated, these participants may be grouped into three categories: (1) other design team members; (2) clients; (3) and third parties such as contractors. Although the practice and risk management issues relative to each group touch on many similar themes, the actual exchange of electronic information with each group presents unique concerns and challenges. Accordingly, each group of potential recipients should/must be approached separately. A separate File Transfer Protocol ("FTP") should be thoughtfully adopted and followed for each group.

1. Design Team Members

The starting point has to be the design team. If each and every design team member is not prepared to handle the electronic information and document demands of the project, there will be problems in the delivery of the design product, and issues relative to the client and third parties only become matters of damage control. The growing use of and experience with project extranets and project websites makes this absolutely clear. Accordingly, the FTP for the design team should be established in advance of the project and will ideally be included within the contractual obligations of the design team members.

2. Client Concerns

Many (or even most) clients now expect and demand that the design will be done electronically and that they will receive access to the electronic design documents. In such a situation, the most important issue to resolve at the outset is to identify the client's expectations and intended uses. Most often, clients want access to and copies of electronic documents to monitor and/or participate in the design process, to create a project archive, to use the documents on subsequent projects, to provide copies to third parties, to create a set of record "as built" drawings, or to serve as a basis for facility management. Depending on the project, these various uses may or may not be realistic and may or may not impose additional burdens on or present additional opportunities to the design team.

3. Thirdy Party Concerns

Third parties are strangers to the relationship between the A/E and the client. Such third parties present a particular concern if they receive copies of the A/E's electronic work product. Such parties may include contractors, separately retained consultants, lenders, tenants, and subsequent owners. Such parties do not have a contractual relationship with the A/E and are therefore not contractually limited in their uses of the documents. If it is necessary to provide a third party with access to such electronic documents, careful consideration should be given to protective measures before access is granted. Relevant issues to consider are as follows:

System Compatibility. All responsibility for system and software compatibility should be placed on the third-party recipient. The A/E's sole responsibility should be to identify its own program and method of transmission.

Transmission Errors. Similarly, all risks of transmission errors should be, for such things as shop drawings, placed on the third-party recipient. In the case of contractor's using the electronic documents, this will help lead them to conduct some form of reasonable analysis of the documents.

Authorized Uses and Modifications. The authorized uses of the documents should be expressly identified. Similar restriction on the use, reuse, and modification to those imposed on the client should also be imposed on any third-party recipient. Consider precluding any further transmissions.

Compensation. Transmittal and interaction with third parties may also lead to additional costs and expenses. If so, such costs and expenses should be allocated to and paid by someone. The A/E should clarify this before transmitting the documents.

Risk Allocation. Such transmittals should also have the protection of contractual risk allocation provisions. In particular, the recipient should agree to indemnify the A/E for any unauthorized use, misuse, or modification.

Ideally, each of the foregoing will be reduced to a written agreement prior to the transmission of the document. However, if such an agreement cannot be reached, the transmittal should be accompanied by a transmittal document setting forth these or similar provisions and providing that any and all uses are subject to these restrictions.

Project Websites and Extranets

The most recent surveys indicate that only one of four firms is currently involved in projects utilizing a project website or extranet. Those who are using project websites are generally only using those websites on a minority of their current projects. However, most "experts" predict that within the next five years, project websites will become the norm for both design and construction administration. As a result, firms must be prepared to address the technology and risk management issues presented by the use of such technologies.

All of the risk management concerns presented by electronic design generally are equally applicable to design and project management through a project website. However, the context of a project website also presents a number of additional considerations and challenges which are discussed below.

1. To Host Or Not To Host

The first question is who will be responsible for selecting, programming, and administering the project website. Such "web masters" may unwittingly become responsible for many risks far beyond their control and risks which may not be covered by applicable insurance coverage.

Regardless of whether acting as the website host, every team member should be concerned with the selection of the website provider. While this presents a number of issues, two are more important than the rest:

  1. Obviously, the first question has to do with the quality and capacity of the software. Does it provide the necessary tools and structure? Does it meet the needs of the project? Is the software sound and reliable? Is the provider secure? Is the provider well managed and available to respond to questions and issues? Does the licensing agreement so limit the providers' liability as to render them judgment proof? Such questions are really no different for a website provider than they are with any software provider.
  2. The second and more potentially devastating concern is the viability and portability of the website provider. As demonstrated by recent literature and promotional materials, the website provider industry is currently experiencing tremendous competition by a number of providers all seeking to get the upper hand on the market edge. Common sense says that eventually one to three providers will emerge victorious. When they do, what will happen to all those using the other sites. Will the information be transferable? Will the site continue to operate to the completion of all pending projects? Can the site be operated independently of the provider?

Aside from the technical considerations, the agreements with such providers should avoid extreme limitations of liability and should provide that the system or software necessary for operation of the site will be continuously maintained through the duration of the project.

Once the provider is selected, the next natural question is who will be responsible for hosting the site. Natural candidates for such responsibilities are the architects, engineers, and construction managers. On first impression, such a role seems attractive. It keeps the host in the loop on all relevant communications and may provide the opportunities to capture additional services and projects. However, such a role should not be entered into lightly. Such a role may present a number of new and potentially significant liabilities:

  1. Does the host become responsible for the selection and programming of the site? Appropriate disclaimers should be included in the agreement covering these services to carefully define what is and what is not included in this scope of services.
  2. Does the host become responsible for the coordination of all communications on the site?
  3. Does the host become responsible for the content of all communications on the site? If so, the host could potentially become responsible for job site safety which is discussed during the construction administration phase. Similarly, the host could become responsible for any copyright violations, defamation, harassment, or other wrongful acts taking place on the site. Accordingly, the service agreement should again expressly define the responsibilities of the host and disclaim responsibility for such issues. Since such disclaimers will not necessarily be binding on injured third parties, there should also be strong indemnity agreements to govern these points. The host should also consider posting admonitions against such communications on the site.

The natural corollary to the concerns discussed above for the host is that any site participant should take steps, both contractually and otherwise to make certain they are not held responsible for any of these issues.

A final question relates to whether the typical professional errors and omission insurance policy covers activities as a website host. Most policies would not traditionally cover claims arising out of software programming, copyright violations, or similar issues.

2. Security

Although part of the overall selection of an appropriate website provider, one concern worthy of special consideration is security. To be reliable and thereby useful, a website and its contents must be secure. Such security is also critical to each team members need to maintain custody and control over its work product. Properly considered, such security must take place on two levels.

The first and most obvious level is the outside world. As a general rule, the public should be given access to the site only under the most careful of controls. Where the public is given access to the site, effective barriers should exclude them from the working areas of the site. The preferred approach where public access is desired would be to establish a separate site for the dissemination of public information.

The second level is within the design and construction team. Although the needs and strategies will vary from firm to firm, generally each firm should provide its design input on a "read and copy" basis only so that it cannot be altered by another party. For those receiving such documentation, they should take steps to preserve a record of what information they have received and from who.

3. What Is The Design And Who Is The Designer?

An inevitable result of the move to project websites and its supporting software is the blurring of the lines between design disciplines, contractors, and vendors. As information from all three sources becomes merged into integrated documents, the lines of responsibility also become inevitably blurred. As a result, new and more detailed definitions of design responsibilities and design deliverables to reflect the realities of electronic design are necessary. For the design professional, this should include the following:

  1. Clear definition of the design deliverable and responsibility, including the controlling form of such deliverables (preferably paper).
  2. Clear definition of the design input of others along with a clear description of any coordination or review responsibilities on the part of the design professional (i.e., are incorporated submittals part of the design and what is the design professional's responsibility for them?). Client agreements should expressly provide that the design professional may rely on this information unless it becomes aware that it is incorrect or faulty, in which case the design professional's sole obligation is to refer it back to the source for correction. Client agreements should also require the client to look to the responsible party in the first instance.
  3. A clear disclaimer that the design professional is not responsible for anything not expressly encompassed within the descriptions above.
  4. A clear definition of the design professional's construction phase responsibilities.
  5. A schedule and procedure for preserving the project in "snapshots" such that the status of the project is recorded and archived at appropriate intervals.
  6. Provisions for the ownership of the website documents and the modification and reuse of such documents.

4. Documentation

Project websites present even more extreme documentation challenges than do electronic design technologies generally. For example, all relevant documentation may not be contained within the website itself. Rather, the website may simply serve as a portal to other websites where relevant information is stored. The challenge becomes how to appropriately document the progress of such a web-based project. At a minimum, the relevant contract should provide that all project participants maintain copies of their records for a specified period of time. In addition, the status of the project in general and the website in particular should be documented at contractually agreed-to intervals. At a minimum, such "snapshots" should be maintained electronically with particularly relevant portions reduced to hard copies.

World of Tomorrow: Object Oriented Design

The technology of tomorrow (and even today) will increasingly take technology from a design tool to become a part of the design process itself. Smart software will actually perform much of the design automatically. For example, object oriented design software will take designer selected "objects" and actually arrange them to create a structure or system. Each "object" is modeled in a piece of code which then relates to the other "objects" for purposes of arranging the system. For example, a boiler manufacturer may supply the code for its boiler. When that code is placed into the design, it can automatically communicate with the other elements to do such things as size the related piping.

Within such a dynamic system, the identification of the design and the responsibility therefore becomes even more complexing. If a vendor supplies a contractor with code for its product, the contractor submits the code to the architect, and the architect incorporates that code into the design, who is the designer? Absent clear contractual provisions, the accurate and frightening answer may be no one and everyone.

Such software will also demand tremendous discipline on the part of design professionals. The use of such self-coordinating software may well lead to the design equivalent of "spell check blindness". Those relying on computers to perform traditional coordination tasks may not perform enough to the actual coordination themselves to catch those issues not captured by the software or errors created by the software.

Such dynamic design programs may also create substantial licensing issues for design professionals. Most State licensing provisions require design professionals to oversee any design under their stamp to the same extent as if they had performed the design themselves. When electronic design information is simply incorporated into the design, has the design professional fulfilled this obligation?

These and many other issues will arise as the traditional design world continues to incorporate and rely on the growing array of electronic tools available to design professionals. Each such advance requires not only a grasp of the possibilities of the technology, but also the attendant risk and appropriate strategies to control those risks.

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