Professional liability insurance for architects and engineers.

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Verifying Insurance for Subconsultants

Posted on February 6, 2018

By Mark Jackson and Erin Johnson, JCJ Insurance Agency When retaining subconsultants for a project, it is important for design firms to have a written contract. These contracts typically include scope of service, fees, payment provisions, and insurance requirements. The insurance requirements provision of a contract outlines the types of insurance policies, limits of insurance, and other terms and conditions that are needed. Oftentimes, your prime agreement requires subconsultants to assume the same obligations and responsibilities as in the prime agreement. If your prime agreement with the owner contains more stringent insurance requirements than your standard subconsultant agreement, you may need to pass that liability through to your subconsultants. Once your subconsultant agrees to the terms and conditions, how do you verify compliance? The easiest way to confirm insurance coverage is through a document known as a Certificate of Insurance. A Certificate of Insurance (COI) is a one-page form that summarizes information about your subconsultant’s insurance policies. It provides a snapshot of the types of coverage, effective dates, and limits of insurance. Many firms use the COI to ensure that the subconsultant has the correct limits – for example $1,000,000 of Professional Liability coverage. However, checking limits and then putting the COI in the project file will not suffice. While the insurance limits are important, design firms also need to make sure that their subconsultant satisfies the rest of the insurance obligations. In addition to certain limits of insurance, most contracts require specific insurance coverages, such as Additional Insured status. When your firm receives a COI, the document needs to be compared to the contract to make sure the subconsultant is in compliance. Below is a brief description of the most common insurance requirements: Additional Insured – This is an agreement to name your firm as an insured under the subconsultant’s General Liability and Auto Liability policies. Their insurance company agrees to provide coverage for claims against your firm that are caused by your subconsultant. The most common way to provide this valuable coverage is through a blanket additional insured endorsement, which automatically provides additional insured status when required by a written contract. The Additional Insured status is not available for Professional Liability claims. Waiver of Subrogation – This clause provides clarification that the consultant’s insurance company will waive their right to subrogate against the design firm and/or owner in the event of a claim. This means that the insurance company will not attempt to get reimbursed for the portion of the claim that was paid on your behalf as an Additional Insured. Waiver of Subrogation is available with the General Liability, Auto Liability, Worker’s Compensation and Professional Liability policies. Primary and Non-Contributory – The Primary and Non-Contributory clause clarifies the order in which the insurance policy will respond in the event of a claim. When you are listed as an Additional Insured on your consultant’s policy, you want their policy to respond first. With the non-contributory language, your policy will not contribute to the claim until the consultant exhausts their policy limits. Tracking insurance for contractual compliance can be time-consuming; however, it is a critical risk management component. You are vicariously liable for the actions of your subconsultants. Ensuring that your subconsultants have the correct insurance coverage helps reduce your financial exposure in the event of a claim....

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Impact of the Tax Cuts and Jobs Act of 2017 on Architect and Engineering Firms

Posted on December 22, 2017

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 subject to the limitations imposed on personal-service providers. This is a big tax benefit to architects and engineers as they will only be subject to the bulleted provisions outlined above. EFFECT ON SECTION 199 – DOMESTIC PRODUCTION ACTIVITIES DEDUCTION Current Tax Law The current tax law allows taxpayers to claim a deduction equal to 9% of the lesser of the taxpayer’s taxable or qualified production activities income subject to a limitation of 50% of W-2 wages paid by the taxpayer in a calendar year that are attributed to domestic production gross receipts. New Law The Tax Act of 2017 repeals Section 199. According to the Unified Tax Reform Framework, the Domestic Production Activity Deduction would no longer be necessary after the tax rate reduction and other tax-reducing initiatives take effect. For more information, please feel free to contact one of our Architecture and Engineering Group team members. Dennis Boo, CPA, Partner Member of Withum’s Architecture and Engineering Group dboo@withum.com (P) 407.849.1569 (C)...

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“Complying with all Laws” During Design and Construction

Posted on December 4, 2017

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 the attention of the GSA project manager for resolution. Similarly, the Department of Public Safety, Bureau of Building Codes & Standards, State of Maine, states that when conflicts between codes arise the Bureau will make changes. But until such changes are made, an architect may not be able to comply with all laws. Even national model codes can conflict with each other: Since the creation of the Technical Standards and Codes Board in 2009, the Board has reviewed several conflicts between the ICC Codes adopted and the NFPA Code. They have also made several amendments to the Code that was originally adopted. All of these changes should be reflected in the latest set of Chapters 1-6 that were done through Rule-making in the 126th Legislature… Furthermore, when architects agree to “comply with all laws, rules, and regulations” in either a modified B101 or a client’s customized contract, they may be agreeing to perform services beyond their expertise and normal responsibility. If “all laws, rules, and regulations” is construed to mean, for example, job-site safety, then OSHA regulations could apply, making...

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Key Clauses of a Consulting Agreement: Design Professional to Design Professional

Posted on October 3, 2017

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 this Contract. Consultant agrees to be bound to Designer in the same manner and to the same extent as Designer is to the Client under the terms of the Prime Agreement. If Consultant’s obligations, duties, and responsibilities under the Prime Agreement and the obligations, duties, and responsibilities in this Contract differ so that both cannot govern Consultant’s services, then the requirements of the Prime Agreement govern Consultant’s services. In addition to making sure that the scope your consultant is covering will satisfy your obligation for the consultant’s specialty under the Prime Agreement, you also eliminate any term in your consultant’s proposal to you to which you shouldn’t agree. Terms such as “limits of liability” or “waivers of consequential damages” can be very detrimental to you and are eliminated. Certainly, if you are able to negotiate those favorable terms with your client in the Agreement, the entire design team will benefit. Your consultants must accept the shared risk of the project. The suggested language causes the client requirements that you want to, or are required to, pass through to the consultant....

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