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Articles|January 11, 2023

Don’t Let Subs Sink Your Projects

By Cavignac

By Tom Owens

The following material is provided for informational purposes only. Before taking any action that could have legal or other important consequences, speak with a qualified professional who can provide guidance that considers your unique circumstances.

When serving as the lead or prime designer on a major project, nothing is more reassuring than having a knowledgeable and reliable team of subconsultants you can count on to make the project a success. Ideally, lead designers build long-lasting relationships with subconsultants who understand the lead's business and can provide the skills and expertise needed to carry out their specialized roles at a high standard.

In good times, when quality projects, skilled professionals, labor, supplies and materials are readily available, putting together a talented design team of subconsultants with whom you are well familiar is typically the norm rather than the exception. But lately, with shortages of resources -- human and material-- putting together talented design teams to execute quality designs on budget and on schedule has proven more difficult.

It's a Different World

Over the past few years, largely due to the COVID pandemic and its repercussions (such as supply chain interruptions), the lead designer's stable of proven subconsultants has taken a serious hit. The shortage of experienced subconsultants has led to unprecedented competition for available talent. Project schedules have grown exponentially as lead designers require more time to assemble needed talent and materials.

Lead designers have ended up having to hire subconsultants with whom they have little or no experience. Not surprisingly, it has been somewhat hit and miss as far as the quality of subconsulting services are concerned and the time it takes to deliver them.

So how are lead designers coping with this shortage of available subconsultants? Those who are doing the best are highly proactive in their search for talent.

Start by contacting the subconsultants you currently use or have used in the recent past. Find out how they have dealt with the pandemic and resulting work delays and disruptions. Has the size of their staff been reduced? Have they added or subtracted design disciplines and services? Are they currently available for new projects or are they backlogged months into the future?

What is the typical lead time subconsultants need to commit to a new project? What types and sizes of projects are they currently equipped to take on? How much staff turnover have they experienced? What is the experience level of their current staff? Do they have new employees, and are they having inexperienced "rookies" executing complex designs?

Once these subconsultant profiles have been created you can match each one to your firm's needs. Make sure to update your firm's profile as well so you can better identify matches between the subconsultants' skills and your current and future projects.

After you have completed the profiles of your current subconsultants, conduct a similar exercise with other design firms whom you might hire as a sub in the future. Look for firms with talents and experience levels that match your projects and complement your current subconsultants and your staff. Try to develop a roster that includes all of the design disciplines you typically hire: civil engineers, structural engineers, electrical engineers, mechanical engineers, landscape architects, etc. Schedule face-to-face, get-acquainted meetings with the most promising subs with whom you have not yet worked.

Avoiding Vicarious Liability

Hiring skilled and knowledgeable subconsultants is key to delivering a quality project to your client. And delivering a quality project is key to avoiding vicarious liabilities for the lead designer.

What is vicarious liability? In this context, it is the liability that a lead designer assumes when a subconsultant he or she hires for a project creates a negligent act, error or omission that damages the client or others. Because the lead designer brought the subconsultant into the project he or she may be held responsible, in full or in part, for the subconsultant's mistakes.

It may seem unfair that the offending subconsultant is not fully and solely responsible for her negligent actions. After all, the lead designer did nothing wrong. But that is not the way the design and construction world turns.

Fortunately, there are ways to reduce this vicarious liability.

Contract Language Is The Key

You've heard it time and time again: A comprehensive written contract between a design firm and its client (often called the prime agreement) is key to avoiding liability, including vicarious liability. And for projects that use subconsultants, good contract language between the lead designer and its subs is equally important and effective in managing risks.

But drafting a prime agreement and separate subconsultant agreements is not enough. You need to make sure all of the contracts meld together to avoid contradictions and confusion regarding responsibilities, services to be performed and liabilities.

Your prime agreement should state that all limitations placed on your liability to the project owner shall be passed through to each subconsultant -- individuals and entities -- that you have retained to perform the services specified in the prime agreement.

For example, suppose your prime agreement reduces your risks through a limitation of liability (LoL) clause that caps the extent to which you are liable for a certain loss. Or, suppose the prime agreement has an indemnity clause that passes a liability from the client to the lead consultant. Chances are, you will want to pass through these contractual shifts in liabilities to subconsultants through your lead/subconsultant agreements. You can give a subconsultant the protection of that LoL clause or transfer a liability you would normally assume to the subconsultant as part of an indemnity agreement.

The AIA C401 standard form includes pass-through language it recommends to its architect members. In part, this form reads:

"The Architect shall assume toward the Consultant all obligations and responsibilities that the Owner assumes toward the Architect, and the Consultant shall assume toward the Architect all obligations and responsibilities that the Architect assumes toward the Owner...The Architect shall have the benefit of all rights, remedies and redress against the Consultant that the Owner, under the prime agreement, has against the Architect, and the Consultant shall have the benefit of all rights, remedies and redress against the Architect that the Architect, under the prime agreement, has against the Owner."

Beyond establishing roles, responsibilities and liabilities of the client, the lead designer and the subconsultant, other contract clauses are particularly important when hiring subconsultants. Consider these topics in both the prime agreement and your contracts with subconsultants:

Scope of services. When using subconsultants, make sure you specifically name all of the services the subs will perform. Include the scopes of services of all of the subconsultants to the project in the prime agreement as well so the client knows who is responsible for what.

Insurance. Make sure that all of the subconsultants have adequate professional liability insurance (also known as errors and omissions insurance). For most subs, that typically means minimum annual limits of $1 million to $2 million per claim. For higher-risk subconsulting services (such as structural engineering), minimum limits may be $2 million or higher. If subconsultants are underinsured you can bet that the lead designer becomes the target of a claimant even if a sub was clearly at fault. Be sure to obtain from each sub an Acord COI – certificate of insurance along with the signed and dated sub-agreement.

Mediation. It's important for the client and all subconsultants to commit to using mediation as the first dispute-resolution technique should a project upset occur. Unless there is a uniform commitment to mediation (or a similar alternate dispute resolution technique) through the prime agreement and all subconsultant contracts, it's nearly impossible to get all parties to work together to find a universally agreed-to way to handle project disputes.

Termination and suspension. Your prime agreement likely identifies under what circumstances your client can terminate or suspend your services (e.g., nonperformance) as well as under what circumstances you may suspend your services to your client (e.g., nonpayment). You'll want to make sure your agreements with your subconsultants pass through each party's right to terminate or suspend services. For instance, you might specify that if the client suspends or terminates your services you have the right to suspend or terminate the subconsultant's services.

Copyrights and ownership. In your contracts with subconsultants spell out who owns the design documents, copyrights and instruments of service related to the subconsultant's work. Also make sure the prime agreement addresses which designs, copyrights and instruments of service, if any, will belong to the client.

Billings and payments. Disputes commonly arise over the timing of billings and payments for services rendered. You'll want to make sure that payments are scheduled so that funds are dispersed in a manner that is acceptable to all parties. Consider using "pay when paid" clauses in your contracts with subconsultants to protect you in the event the client is slow on payments or refuses to make payments for services rendered.

These are only a few of the contract clauses that need to be negotiated with your client and your subconsultants. Work with your legal counsel and insurance advisors to address the unique contractual issues that relate to each of your active projects.

Client-Hired Subconsultants?
It's virtually impossible to avoid liabilities for the actions of the subconsultants you hire. You might, however, avoid liability for the subs on the projects you don't hire. How?

Consider suggesting that your client hires directly some of the key specialty service subconsultants who have high risks and major roles in the project. For instance, clients might be willing to directly hire geotechnical engineers or land surveyors on projects that present subsurface risks.

This client-hires-the-subconsultant approach provides the client with direct communication with these key players. However, the lead designer needs to ensure that it does not lose its ability to interact directly with the specialty service subconsultants hired by the client. Finding yourself out of the communication loop with key project participants will only lead to more potential liabilities, not fewer.

What if the client refuses to hire a subconsultant directly, yet insists that you hire a particular sub -- especially one you consider risky, or one with whom you have no relationship? Tell the client that you must perform due diligence before you would consider hiring such a subconsultant. You might also demand protective language in the prime contract. Then you'll have to make a business decision as to whether the subconsultant is sufficiently qualified to fill a key role in the project and whether you are willing to accept any vicarious liability that she or he presents.

Annual Updates
Update your roster of subconsultant profiles on an annual basis. Include new information on those who you have used and plan to use again, remove subconsultants who you no longer consider suitable for your projects, and add new candidates from those who have not been on your roster before. It's also helpful to gather information about your subconsultants when conducting post-project reviews. Finally, continue to obtain annual updated COIs from the subs to verify insurance coverage is still in place at the contracted amount for the stipulated duration of time.

Can We Be of Assistance?
We may be able to help you by providing referrals to consultants, and by providing guidance relative to insurance issues, and even to certain preventives, from construction observation through the development and application of sound human resources management policies and procedures. Please call on us for assistance. We’re a member of the Professional Liability Agents Network (PLAN). We’re here to help.

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