Quantitative pricing of design professional errors and omissions claims
The construction industry is comprised primarily of owners who have projects to be built, contractors who get these projects built, and design professionals who prepare the detailed plans and specifications that define exactly what is to be built. There are also many other parties in the industry that support these three groups, including financial institutions, vendors, subcontractors, subconsultants, and, of course, attorneys and courts.
This article deals with the liability of design professionals and how damages against these entities are, and should be, determined; and we focus on design professional errors/omissions that are typically discovered during the construction period.
Standard of Care
Beginning in the late 19th Century, courts began to adopt the principles of “reasonable and ordinary care.” In the 1896 case of Coombs v. Beede, the Maine Supreme Judicial Court held:
“The undertaking of an architect implies that he possesses skill and ability, including taste, sufficient to enable him to perform the required services at least ordinarily and reasonably well; and that he will exercise and apply, in the given case, this skill and ability, his judgment and taste, reasonably and without neglect. But the undertaking does not imply or warrant a satisfactory result.”
The concept continued to evolve, and, in 1954, the California Supreme Court held:
“The services of experts are sought because of their special skill. They have a duty to exercise the ordinary skill and competence of members of their profession, and a failure to discharge that duty will subject them to liability for negligence. On the other hand, those who hire such persons are not justified in expecting infallibility but can expect only reasonable care and competence. They purchased service, not insurance.”
And, in 1978, the Supreme Court of Minnesota held in City of Mounds View v. Walijarui that:
“[D]octors cannot promise that every operation will be successful; a lawyer can never be certain that a contract he drafts is without latent ambiguity; and an architect cannot be certain that a structural design will interact with natural forces as anticipated. Because of the inescapable possibility of error which inheres in these services, the law has traditionally required, not perfect results, but rather the exercise of that skill and judgment which can be reasonably expected from similarly situated professionals.”
Thus, the courts accept that the standard of care to which a design professional should be held is not perfection, but is the “exercise of that skill and judgment which can be reasonably expected from similarly situated professionals.” This standard has been adopted by the American Institute of Architects (AIA) and the Engineers Joint Contract Documents Committee (EJCDC), and is found in many design professional contacts in effect today.
Specific Errors/Omissions
Courts, while accepting the principles of “reasonable and ordinary care,” will nonetheless find liability on the part of the design professional. For example, the Delaware Supreme Court in Seiler v. Levitz, although acknowledging that the standard of care did not require either “a perfect plan or a satisfactory result,” upheld a finding of liability against an architect based on individual errors that the architect had committed. In doing so, the court relied on evidence bearing on the architect’s skill and knowledge as applied to each instance of defect without considering the magnitude of the total errors in light of the totality of the architect’s performance over the course of the project.
Similarly, in Swan Wooster Engineering 87-2 B.CA (CCH) 19,894 (1987), a Board of Contract Appeals began its analysis of the case employing the standard of care definition, but ultimately considered only specific allegations of design errors/omissions.
In “Quantifying Liability Under the Architects Standard of Care,” a treatise that, in part, analyzed the Swan Wooster Engineering decision, attorneys Murray H. Wright and David E. Boelzner found that the Board of Contract Appeals’ “reasoning leaves no room for errors of oversight or lack of thoroughness; instead the board examines in hindsight each defect alleged and measures it against the normal professional level of skill. The first claim in Swan Wooster Engineering is typical. The board said that ‘there is no dispute that the manholes were designed as 48” diameter when in fact 72” diameter was required. On this basis we conclude that appellant’s design of the manholes was negligent.’ Under this approach, each error in the architect’s work on a project can constitute negligence. If it causes delay, reconstruction, or other expenses, the architect will be liable. This is the very level of perfection that, according to the usual articulation of the standard of care, an architect is not expected to meet.”
They continue, “In Swan Wooster Engineering, a Board of Contract Appeals explicitly articulated the analysis many other courts apply without discussion. Stating the basic standard of care exactly as it has been embraced by the majority of jurisdictions, the board said that the degree of ordinary and reasonable care, skill and diligence is as it would be expected from an average member of the profession. Then, in the same paragraph, the board rejected testimony on the degree of the designer’s error measured as a percentage of the total cost, observing that ‘the board is not considering appellant’s overall professional competence, rather we are considering allegations of individual design deficiencies.’”
Thus, Swan Wooster Engineering and decisions that follow this trend show that, even if the totality of the design professional’s performance complied with the standard of care, liability can still be assessed based on individual errors or omissions.
However, some courts, such as the Indiana Court of Appeals [see Lukowski v. Vecta Educ. Corp., 401 N.E.2d 781 (Ind. Ct. App. 1980)], have indicated that if the design professional exercised reasonable skill, and errors or omissions still occur, then, because the design professional cannot warrant perfection of its plans and specifications, it may not be liable for the consequence of an individual error or omission.
In these courts, the potential exists for the standard of care to be measured by the cost of the error or omission against the total cost of the project.
Based on the paper by Wright and Boelzner, it becomes apparent for architects and other design professionals that “while a standard of care appropriate to their true role is articulated, resolution of some cases permits complaining owners to recover for errors that were made by a reasonably diligent architect who, because he was reasonably diligent, complied with the standard of care. Uncertainty arises when the law appears to promise one standard but often renders judgment according to another.”
The Cost of Design Errors & Omissions
In 2014, McGraw Hill Construction conducted a study into construction uncertainties and related costs for building projects. This study included input from 155 owners, 82 architects, and 78 general contractors. According to this study:
Thus, the owners in this study understood that a perfect design was not expected and that, up to some point, the design professionals’ “errors and omissions” would, in effect, be consistent with their expectation of the “reasonable and ordinary care” of the profession.
Likewise, the federal government has also examined additional costs caused by design mistakes. In the mid-1990s the Federal Facilities Council, which included members from several federal government agencies, asked the Building Research Board (BRB) to conduct a study that would help answer questions as to whether the responsibilities of design professional firms were being met. The BRB study concluded that, for conventional design-bid-build projects, changes due to architect and engineer errors/omissions should not increase costs more than 5%.
And, in a National Society of Professional Engineers publication, the author reported that the cost for corrections arising from design errors and omissions was in the 2% to 3% range.
From these and other studies, it becomes apparent that design professionals, practicing their profession normally, albeit imperfectly, create additional cost to a project in the 2% to 5% range before any costs due to negligence occur for design-bid-build projects. For design-build projects, the costs due to non-negligent design errors and omissions can be even higher.
Premium and Betterment Costs
Imagine that a design professional knew its client wanted a second door entering a room but forgot to include the door in the plans. If the design professional catches the error or omission and issues an amendment to the plans when they are already in the hands of bidding contractors, but before the final bids are submitted, what is the damage to the design professional’s client? As a general statement, there should be no damage since the owner received competitive bids for all of the work, including the added door.
Now imagine that the designer catches the mistake and issues a change to the plans that adds the door, but this time it is immediately after the client issued the contract to the successful bidder, now contractor. The contractor then provides a price for this added door and the client would pay this amount as a change order to the contractor. What damage did the design professional’s client now suffer? In this case, the client lost the advantage of bid competition and the contractor is in a position to raise its price over what it would have included for a competitively priced door. The client would therefore have been damaged by the difference between the two prices.
This difference is the “premium” cost and the competitively bid price is the “betterment” amount. If the design professional’s failure to include the door rose to the level of negligence, then the design professional would be liable for the premium amount that its client would have to pay, but would not be liable for the betterment amount. Of course, the premium portion of the incurred cost would increase due to factors such as the status of the project when the work on the new door begins as well as delay and inefficiency costs. If the design professional was found responsible for the entire cost of the added door (betterment and premium) then the owner would have gained an added door for free that he would have had to pay for if it was in the original plans.
Some U.S. courts agree with this principle. For example, the Florida appellate court, in Lochrane Engineering, Inc. v. Willingham Realgrowth Investment Fund, Ltd 552 So. 2d 228 (Fla. App. 1989) and Soriano v. Hunton, Shivers, Brady & Assocs. 524 So. 2d 488 (Fla. App. 1988), held that a design professional cannot, as a matter of law, be responsible for items that an owner would have paid for itself if the items had been in the original design.
Thus, the design professional should only be held liable for the costs incurred that would be above the cost that would have been in the original bid price had there have been no error/omission.
In determining liability for the errors and omissions of design professionals, the courts appear to agree that design professionals cannot guarantee or warrant perfection. From this principle, the courts have determined that design professionals, even though complying with the standard of care, may still make mistakes in performing their work on a project.
Nevertheless, regardless of professing this principle of imperfection, some courts may yet judge the design professional’s compliance with the standard of care on only one or a few issues on a project, regardless of the design professional’s overall performance on a project. This legal uncertainty will continue to lead to additional litigation costs, increased insurance costs and other contingent protection.
As stated by attorneys Wright and Boelzner, “Hoping to buy the problem [of normal design professional mistakes] off by paying tribute, in the form of judgments or increasing insurance premiums, is like adding levees along the Mississippi: it only forestalls the flood and may add to its ultimate severity.
Therefore, to reduce this problem of dealing with normal design professional mistakes, we propose that resolution of claims should rest on applying the standard of care principle of the design professional to its work on a project in its entirety, and not as to each detail. For example, the owner would agree to pay for errors and omissions up to a threshold percentage of the entire project cost demonstrated above to be in an approximate range of 2% to 5% of the project bid price. The design professional whose errors/omissions exceeded this threshold would be held liable for additional costs incurred by the claimant, but limited to the premium portion of these additional costs, above that threshold.
To minimize the consequence of adverse court decisions, we recommend:
Clyde & Co. professionals discuss this year's key trends
Dennis J. Kakol is president of Construction Technologies Consultants, Inc. dkakol@constructionlawclaims.com
CLM’s Construction Community provides a forum for construction-related claims and litigation professionals to exchange ideas and share best practices. The community identifies trends and creates needed resources to meet the needs of the industry.
