6 Risk Management Tips for Architectural and Engineering Firms

Published on Mon, 07/07/2014 - 18:38

Whether your architectural, engineering, or design firm is just starting out or has been around for generations, lawsuits are a constant threat to your bottom line. Consider the following two scenarios:

• A designer misinterprets your architectural drawings and orders costly materials that end up being completely wrong for the plans. Your mutual client sues both you and the designer for professional negligence and demands reimbursement for the unusable materials. You don’t think you’re at fault, but since you’re named in the lawsuit, you’ll have to show up in court. Even if you’re not found liable, you’ll still spend a bundle defending yourself. If you are found liable, the costs could be staggering.

• A client constructs a building to your specifications, and then has costly water and mold issues later on. He sues you, alleging that your error while providing your professional services caused his financial loss. Again, even if you’re not found liable, it’ll cost you plenty to defend yourself.

It only takes one professional liability claim to run up costs that go beyond your insurance coverage. That can put your business and personal assets at risk.

Six ways to protect your firm:

1. Get everyone on the same page. Train your entire team to recognize how it’s not just errors, but common business procedures such as choosing clients, writing up contracts, and collaborating on projects that can expose the company to risks.

2. Choose clients wisely. Watch for red flags early on. Avoid the hotheads who are quick to point fingers, inexperienced clients who require too much handholding, and tightwads who don’t want to adequately compensate you for your expertise.

3. Execute solid contracts. A clearly-stated contract helps avoid misunderstandings, discourages dishonest claims, and protects you in court.

4. Set realistic expectations. Don't make promises you can't keep or agree to unrealistic schedules. Always be forthcoming about delays and keep lines of communication open. If everyone knows what’s expected, there’s less likelihood of misunderstandings.

5. Recognize lawsuit red flags. If communication with a client begins to break down, you start hearing accusations, project work stops, or you’re suddenly left out of important meetings, it’s time to roll up your sleeves and resolve any issues before they turn into a lawsuit.

6. Carry professional liability insurance. Along with proactive risk management measures, it’s crucial to protect your firm with professional liability insurance. This coverage protects your design, engineering, or architectural business if a client should claim that your professional services were the cause of his or her financial loss. It covers your legal defense, lost revenue, court settlements, and other expenses as specified by your policy. Most of all, it gives you and your team some peace of mind.

Need risk management advice for your design, architectural or engineering firm? Talk to the professionals with Heffernan’s Professional Practice Insurance Brokers (PPIB) team. We’ve been serving architects and engineers for more than 25 years, offering custom tailored insurance programs exclusive to our A&E clients.