Bridging the gap: Navigating the risks and mitigating claims in construction contract administration services

Introduction

In recent years, the design industry has experienced a significant disparity in experience levels among the workforce in the field of construction contract administration (CCA) services. With a visible gap between junior staff (1-5 years of experience) and senior staff (10+ years of experience), many firms are finding themselves in a conundrum, compelling less-experienced individuals to undertake roles that might be beyond their current skillset.

In the claim statistics compiled by Victor Insurance Managers LLC, the nation’s oldest professional liability insurer of design firms, this gap is leading to an increased frequency in claims related to construction phase services and has resulted in many paid claims with high severity—claims that not only consumed the time and deductible obligation of the insured firms, but lead to higher premium rates because of higher loss ratios.

This article seeks to illuminate the potential risks involved in underprepared staff handling CCA roles and the trends in related claims. Furthermore, it also aims to provide solutions and risk management strategies for architecture firms to mitigate these risks.

Inherent risks in construction contract administration

The role of CCA services is vital in the construction process as they are responsible for determining if all parties are adhering to the contractual obligations agreed upon before the start of the project. However, when less-experienced staff take on these responsibilities for the architect-of-record, there are inherent risks that may have significant implications:

1. Misinterpretation of contractual provisions: Understanding construction contracts requires a depth of knowledge and experience. Inexperienced staff may misinterpret contract provisions, leading to disagreements, project delays, and potential legal disputes.

The process of rejecting defective work is an area where misinterpretations can occur. During construction, the architecture firm’s role is usually as follows:

• Required by the client to reject work that does not conform to the contract documents;
• Authorized to mandate additional tests or inspections, including the uncovering of concealed work if it is suspected to be non-conforming; and
• Limited to ordering minor changes in the work that do not entail a change in either cost or time to keep the project moving forward.

Usually, the architect is not authorized to accept non-conforming work, and is only authorized to provide its professional opinion on acceptability. Substantive changes in the work require a modification to the contract as well as the client’s approval through the construction contract’s change order process.

2. Inadequate oversight: The CCA professional is contractually obligated to determine that all significant project elements align with the contract’s stipulations. Inadequate oversight may result in defective construction work or non-compliance with contractual obligations, impacting the overall quality of the project.

Payment certifications and the process therein are a good example of where oversight issues can develop. Informing the client of the progress of the work is a necessary prerequisite to the client making payment to the contractor. Usually, the architect is asked to certify (through a representation of the architect’s professional judgment) that the work has progressed at least to the degree of completion claimed and appears to be in conformance with the contract requirements. Such a certification is not a warranty and does not imply that the architecture firm has conducted extensive or exhaustive tests or audited the contractor’s expenditures, and the certification is usually qualified so that a final determination of payment can be evaluated upon substantial completion of the project. When the client makes a payment, however, the client is relying on the advice of the architect as its representative; the architect has a limited form of agency to act on the client’s behalf. The certification of the contractor’s applications for payment is a valuable service that places a requirement of a professional opinion as a buffer between the contractor’s request for payment and the client’s obligation to pay.

3. Poor communication: Effective communication is key on all construction projects. Less-experienced staff may struggle to communicate effectively with contractors, clients, and other stakeholders, which can lead to misunderstandings, disputes, and dissatisfaction. Sensing the inexperience of the architect’s site representative, the contractor might disrupt the process through demands, coercion, or even by creating a false sense of control over the inexperienced professional.

Another communication issue can arise through the process of reviewing shop drawings and other submittals. Shop drawings are communication tools, and they exist only to check the contractor’s documented instructions to a fabricator or subcontractor so that portions of the work will conform to the design intent as recorded in the contract documents. The approval by the architect as either the client’s agent or consultant does not relieve the contractor of liability for defective or non-conforming work. Shop drawings are not part of the contract documents and do not change the obligations of the contractor.

Submittals facilitate overall project coordination and enable selection from alternative products or finishes. Other submittals, like product data, document and illustrate materials and equipment. Samples may be required when only a physical sample will confirm conformance with the contract documents. Informational submittals, including warranties and operational and maintenance manuals, do not require action.

When submittals are not required, the contractor has no duty to provide them; when submittals are provided without being required, the architecture firm has no duty to review or retain those submittals.

Emerging claims trends related to CCA services

In recent years, Victor has observed a trend in the nature of claims related to CCA services. Here are some of the key trends:

1. Contractual disputes: We’ve noted an increase in construction contract disputes, often arising from misinterpreted contractual terms or poorly defined contractual responsibilities. Any dispute increases non-productive costs, and a contractual dispute often leads to an allegation of negligent performance by the architecture firm.
2. Construction delays and overruns: Claims related to construction delays and cost overruns have also increased. While almost every project is scheduled to take less time than is realistic and cost less than actually recognized, many professional liability claims comprise disputes over contract time and contract cost. These claims often result from inadequate oversight and poor project management, issues that less-experienced individuals might struggle with managing.
3. Negligence claims: There has been a rise in negligence claims, often attributed to insufficient quality control and inappropriate activities on the construction site. Such claims are brought by a client or construction team member, as well as third parties that experience property damages or bodily injuries.

Managing risk: Solutions and strategies

To bridge the experience gap and mitigate risks associated with inexperienced staff handling CCA services, firms can adopt the following strategies:

1. Comprehensive training programs: It is vital to develop a structured training program focusing on practical and theoretical aspects of CCA. Such a program can accelerate the learning curve for junior staff without overwhelming them with responsibilities they’re not yet equipped to handle. The resources provided to policyholders in the Victor and CNA program include articles on specific construction phase risk issues and a comprehensive continuing education program that assists firms in bringing less experienced staffers up to a higher level of competence.
2. Mentorship programs: Pairing junior staff with experienced professionals can provide the former with hands-on learning and guidance. Sharing refined procedures and communication techniques, including “Lessons Learned” through bad experiences, can help cultivate essential skills faster and prepare on-site professionals with more confidence.
3. Clear communication: Encouraging clear and effective communication and asking staff to complete professional development training is critical. This can minimize misunderstandings and reinforce the approved procedures so that everyone on the project team is on the same page.
4. Engage expert consultation: Realizing their own limitations can help firms manage their business and professional exposures. For complex projects, a firm might consider engaging expert consultation to supplement its team’s capabilities and confirm a thorough understanding of all contractual obligations.

By taking proactive steps, architecture firms can nurture the continued delivery of high-quality CCA services, irrespective of the experience gap. It is crucial for the industry to focus on nurturing talent and providing appropriate support for the next generation of CCA professionals so that they are prepared to navigate the complexities and demands of this crucial role.