Professional liability insurance for architects and engineers.

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By on Dec 22, 2017 in All Topics, Newsletters, Operations |

By Dennis Boo, CPA, PARTNER – Member of Withum’s Architecture and Engineering Group The Tax Cuts and Jobs Act of 2017 (“Tax Act of 2017”) is finalized. The contents are garnering a lot of discussion, and clearly there are many changes coming in 2018. The scope of this article is to headline a couple of the changes that will directly affect architect and engineering firms. EFFECT ON PASS THROUGH ENTITIES Current Tax Law Currently, owners of pass through entities, which include sole proprietors, S corporations, and partnerships, are required to report their allocable share of the business income on their individual income tax returns. New Law Since C corporations are getting a tax break in the Tax Act of 2017, both the House and Senate bills sought to level the playing field so pass through entities would not be disadvantaged. The resulting legislation will allow sole proprietors, shareholders of an S corporation, and partners of a partnership to claim a deduction against their allocable share of income from the pass through entity. Some specifics are as follows: The deduction is equal to 20% of the owner’s allocable share of income from the pass through entity. The 20% deduction will be limited to an amount equal to 50% of the company’s W-2 wages allocable to the owner (this limitation does not apply to owners whose taxable income is less than $157,500 for single filers and $315,000 for married filing jointly). An alternative limitation may be used, and is calculated as 25% of the company’s W-2 wages allocable to the owner plus 2.5% of the unadjusted basis of property used in the business (generally this is the original cost). The deduction is taken on the owner’s individual income tax return Additional limitation on personal-service providers. Certain personal-service providers (namely accountants, attorneys, physicians) are subject to a phase out of the deduction when their taxable income reaches $157,500 (single) or $315,000 (married filing jointly). The phase out is complete at $207,500 and $415,000, respectively. So these professionals’ ability to claim the deduction will be largely limited. The good news for architects and engineers is they were specifically excluded from the definition of “personal-service providers” in the new law and therefore are not...

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By on Dec 4, 2017 in All Topics, Contracts, Newsletters |

By Eric O. Pempus, FAIA, Esq., NCARB, LEED GA Consider this situation: You have been awarded a commission to design a building for a new client. You propose using the AIA’s Standard Form of Agreement B101 as your owner-architect contract, but the client insists you sign a version of the B101 “with just a few minor changes.” You notice that one of those changes requires you to “comply with all laws, rules, and regulations,” rather than, as the B101 states, to “review laws, codes, and regulations applicable to the Architect’s services.” That changed language should be setting off alarm bells for you. One of the most overlooked yet dangerous pitfalls for an architect is a provision in a legal document requiring a design professional to “comply with all laws, rules, and regulations” or similar language. However, such a provision can create a trap for an unsuspecting architect. The problems with “complying with all codes” A large number of laws apply to the design and construction of buildings. These laws govern: Life safety (national model building codes as well as local variations) Fire protection Accessibility (ADA as well as local requirements) Zoning Occupant safety (e.g., OSHA) Sustainable design Wetlands preservation Public health Historic preservations and Employment (federal, state, and local) It may in fact be impossible to comply with all laws that apply to a particular project because those laws may have contradictory provisions. To illustrate this point, the Advisory Legal Opinion – AGO 93-40 from the Florida Office of the Attorney General, on the subject of “conflict between building code & firesafety code,” states that when the provisions of the applicable minimum building code and the applicable minimum firesafety code conflict … the local building code enforcement official and the local fire code enforcement official [shall] resolve the conflict by agreement in favor of the requirement of the code which provides the greatest degree of lifesafety or alternatives which would provide an equivalent degree of lifesafety and an equivalent method of construction. Similarly, the General Services Administration’s (GSA) Codes and Standards states that [s]hould a conflict exist between GSA requirements and the GSA adopted nationally recognized codes, the GSA requirement shall prevail. All code conflicts shall be brought to...

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By on Oct 3, 2017 in All Topics, Contracts, Newsletters |

By Tom Owens A good risk management strategy for design professionals requires proper contracting of all firms engaged in the project. When you are the prime design consultant to the owner (client) you assume responsibility for the performance of the consultants contracted to you. Agreements with your consultants can be just as important as the agreement with your client, as claims often evolve from the performance of your consultants. And, similar to the agreements with your client, it is important that you recognize that your consultant relationships are as important as the contracts between your firms. When you get in a tough spot with the client, a positive relationship with your consultants can mean the difference between a team that is working to resolve an issue collectively and the disaster of “every firm for itself.” Prompt and thorough response to a project circumstance based on a relationship of cooperation and collaboration amongst the design team can turn a potentially significant problem into one that is more manageable, mitigating risk to the client relationship as well the cost of resolution of the issue. The most important clause in a consulting agreement passes through the obligations of your prime agreement to your consultant for the scope of services allocated to that consultant. This clause defines the consultant’s scope and binds the consultant to the provisions of the prime agreement consistent with the terms and conditions to which you are subject. There are several ways to accomplish this and I must clarify that this advice has not been tailored for the particular state in which you work. You should consult with an attorney licensed in your state and experienced in design-construction matters to adjust this clause as appropriate. With that legal disclaimer in place, the following clause should work almost everywhere: • Designer has an agreement with Client dated ______, entitled ____ (“Prime Agreement”), which is attached and incorporated as part of the agreement between Designer and Consultant (“Contract”). If this Contract includes Consultant’s proposal, it is included for adding detail to Consultant’s scope of services but does not modify the scope required by the Prime Agreement for Consultant’s services. All other terms in the Consultant’s proposal are not a part of...

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By on Aug 1, 2017 in All Topics, Contracts, Newsletters |

© 2017, by J. Kent Holland Introduction The American Institute of Architects (AIA), on April 27, issued the 2017 update to the AIA B101™ “Standard Form of Agreement Between Owner and Architect.”  There are a number of tweaks, refinements, improvements – and even a few significant changes.  Eighteen months from the date AIA published the 2017 document, the license to use the current 2007 edition will terminate.  This is not a major revision.  But from a design professional’s point of view, there are a number of improvements that will make it worthwhile to begin using this new form sooner rather than later. An easy way to quickly see the changes is to download from the AIA website the “2007/2017 Comparative,” which is a redline showing what has been added and what has been deleted. In this article, we highlight and explain some of the key changes, including: Architect represents that it is either licensed in the jurisdiction where the project is located, or in the alternative, “shall cause its services to be performed by appropriately licensed design professionals.”   But see the discussion below as to whether an unlicensed firm can meet state licensing requirements by having licensed individuals perform the professional services (§2.1). The insurance section of the agreement has been beefed up to include a more detailed description of insurance in the B101, and there is a new detailed insurance and bond exhibit that can be attached to the owner/contractor agreements such as A201 (Document A102 – 2017 Exhibit A). And insurance is required to be maintained by the Architect for a minimum of one year following Substantial Completion (§2.5); New sustainable project exhibit (AIA E 204™-2017). Sustainable project services can be added as a Supplemental Service under Section 4.1. This exhibit eliminates the need to have a sustainable project version of each contract document. The requirement that the architect discuss with the owner the feasibility of incorporating environmentally responsible design approaches has been deleted basic Agreement from (§3.2.3), but a requirement that the architect consider sustainable design alternatives is added (§3.2.5.1); Reviewing contractor requests for substitutions will be paid for as an additional service (§3.5.2.3 and 3.5.3.3); Additional Services identified at the time of agreement now are...

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By on Jun 1, 2017 in All Topics, Newsletters, Operations |

Diane Mika, Vice President, Director of Risk Management Education, Berkley Design Professional Consider this scenario: An architect in your firm wants to design a home addition plan for a family member. Or this one: an engineer wants to take on a parking-lot project for a local non-profit organization she volunteers for. They may want the additional experience, income and/or recognition such moonlighting projects may bring. You may think, As long as they do it on their own time, it’s no big deal, right? Not necessarily. It’s not just the designer’s time that’s at issue. There’s a very real potential that your firm could be held liable in the event of a claim related to the moonlighting work. Professional Liability Insurance Your next question may be, But wouldn’t my firm’s professional liability insurance policy cover it anyway? Again, not necessarily. Typically, such policies specify that employees are covered—but only for those services performed on behalf of the firm. Even if your PL insurance policy responds to such a claim, keep in mind that your firm would be responsible for any deductible. In either event, you need to ask yourself this: Do I want to be on the line for paying the cost of a claim on a project for which my firm received no income? What Puts Your Firm at Risk If a claim arises out of a moonlighting project, anything that implicates your firm’s involvement can result in imputed liability against your firm. Any of the following situations might imply that your firm was knowledgeable about and/or sanctioned such work: Employee’s performance of moonlighting services during the firm’s normal work day or on the firm’s premises Moonlighting employee’s use of your firm’s: – Equipment (computers, printers, scanners, plotters) – Software (design technology, other) – Email account domain – Telephone system or company-issued mobile device – Letterhead, logo or other standard documentation What’s more, those who engage in moonlighting tend to be less seasoned employees. This lack of experience, when coupled with the lack of your firm’s normal QA/QC process, creates an environment that is ripe for a claim. Protecting Your Firm Many A/E firms affirmatively prohibit moonlighting activities by addressing it in the firm’s employee handbook and requiring employees...

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