With growth comes risk

Opportunity must be met with the proper amount of risk management and proactive planning

Tony Johnson
TONY JOHNSON Davidson & Associates Insurance

As I look out my office window I can see two construction cranes and the ongoing development of the Vancouver Waterfront. As a community, we are seeing tremendous and exciting growth! This growth has created opportunity for many of our locally owned and operated companies; those firms in the design space are amongst those positively affected by this growth.

Many of these construction projects are typically led by general contractors with much work, including design work, subcontracted out to others. This strong economy has created opportunity for design firms. Two opportunities created are design-led design-build methodologies and expanding services by engineering firms. The focus of this article is to explore some of the advantages and risks of these opportunities.

Related to engineering firms expanding the service offerings brings to mind the following quote from Rob Palena, VP of construction management at MacKay Sposito: “Competent designers new to construction management must be careful about blurring the line between the engineer of record and construction manager when a different firm has prepared and stamped the construction documents. The temptation, though well intended, is for competent designers to efficiently keep construction moving forward by using their design skills to solve certain issues that are in fact best addressed by the engineer of record. Preserving the engineer of record’s control over the design preserves all protections afforded to the owner through their professional liability insurance.”

This quote explains well the risk of new service offering and understanding the roles and responsibilities of providing those services. From an insurance standpoint, professional liability is equipped to respond to these changing services, BUT it is important that a trusted adviser is involved in the discussion around going into new areas of service.

Related to design-led design-build methodology the advantages of that type of model are many to the design firm. One major advantage to this model is that the design firm can manage and maintain the owner relationship. Another advantage could be to control the project and perhaps get a stronger financial return for the same work done.

Some disadvantages of this model is that design firms are sometimes not set up from an insurance standpoint to transfer risk like a general contractor would normally do. Insurance requirements for construction are VERY different from insurance requirements for a design firm and that must be contemplated up front. A question design firms should ask themselves is, is this new work as a design-build firm putting our core company as a design firm at risk? It is advisable to consider looking at creating a new entity so there can be separation of liability.

It is clear that a growing economy brings much opportunity. It is clear that the opportunity must be met with the proper amount of risk management and proactive planning. Happy building!

Tony Johnson is a Certified Insurance Councilor (CIC) specializing in risk management for the business community and can be reached at Davidson & Associates Insurance, 360-514-9550 or Tony@Davidsoninsurance.com.