DESIGNPRO Insurance Group Blog

Two Phase Projects — Preliminary then Actual Design/Construction Projects

Tue, 04 Aug 2026 14:12:47 GMT

Certain design and construction projects may have two phases:

1) A Predesign/Construction Phase, Master Plan, or an Assessment and Feasibility Study, and then

2) An actual Design & Construction Administration Phase

The owner may desire to have their project for design and construction in two stages for a variety of reasons. The two-phase approach provides several key benefits:

• Risk Mitigation: It isolates technical and execution challenges. By completing the first phase, project teams can identify site conditions, zoning issues, or structural flaws before actual design or breaking ground, preventing costly mid-build redesigns.

• Accurate Budgeting: Splitting the project into two phases allows the project to be properly scoped. This results in more accurate funding for the project and reduces the likelihood of unpredictable cost overruns during the actual design and build phase.

• Budget Phasing & Financing: Owners can align their funding cycles. Phase one allows them to secure capital for design and construction, while phase two allows them to secure the larger construction loans once drawings and costs are finalized.

• Value Optimization: Bringing a builder in during a two-phase setup allows for peer reviews. Builders can offer real-world advice to architects and engineers to reduce costs and streamline the construction process.

• Operational Continuity: For renovations or expansions, phasing the project allows the existing business to remain open and generate revenue while segments of the building are worked on.

As a Caution to the Project Team Members

Terms and conditions for contracts for this two-phase approach should be treated as if it is for one phase, combing the preliminary and actual design/construction phase services. Any terms and conditions in the first phase can easily roll into a formal contract for the actual design and construction phase service. If an architect/engineering firm is engaged for the first phase and then the second phase services, it could be hard to

change certain terms and conditions that were agreed to because it was only for Predesign/Construction Phase, Master Plan, or Assessment and Feasibility Study.

The project owner could take the position that the architect/engineering firm agreed to the terms and conditions in the preliminary phase, so they should be able to agree to them in the formal contract for actual design and construction phase services.

In Conclusion - The Terms Should be Aligned Up Fairly in Both Phases

For example, such as:

1) The indemnification clause in the first phase should be fairly negotiated so that the second phase is consistent.

2) The first phase has no waiver of consequential damages clause because the parties to the contract thought it was only preliminary, but the architect/engineering firm insists that the waiver is needed for their risk management purposes in the second phase.

3) The first phase has no dispute resolution clause for mediation because the parties to the contract thought it was only preliminary, but the architect/engineering firm insists that the mediation is needed for their risk management purposes in the second phase.

4) The first phase has no limitation of liability (LOL) clause because the parties to the contract thought it was only preliminary, but the architect/engineering firm insists that the LOL clause is needed for their risk management purposes in the second phase.

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About the Author of this Risk Management Building Block Article

As a risk manager for the last 20 years for the design profession, Eric O. Pempus, FAIA, Esq., NCARB has experience in professional liability insurance and claims, architecture, engineering, land use, law, and a unique background in the construction industry. Prior to risk management, he has 25 years of experience in the practice of architecture/engineering, and as an adjunct professor teaching professional practice courses at the undergraduate and graduate levels for 37 years at Kent State University’s College of Architecture & Environmental Design.

Canada. He is a former member and chair of his city’s Board of Zoning & Building Appeals for 24 years, and is a licensed architect, attorney, and property & casualty insurance professional.

His educational background includes a JD from Southwestern University School of Law, Los Angeles; Master of Science in Architecture from University of Cincinnati; and BA in psychology/architecture from Miami University, Oxford, Ohio.

The above comments are based upon DesignPro Insurance Group’s experience with Risk Management Loss Prevention activities and should not be construed to represent a determination of legal issues but are offered for general guidance with respect to your own risk management and loss prevention. The above comments do not replace your need for you to rely on your counsel for advice and a legal review, since every project and circumstance differs from every other set of facts.

Disclaimer: The viewpoints expressed in this article are those of the author(s) and are not necessarily approved by, reflective of or edited by other individuals, groups, or institutions and this article is an expression by the author to generate discussion and interest in this topic.

Back to Basics: The Contractual Liability Exclusion

Thu, 09 Jul 2026 19:54:26 GMT

What is the Contractual Liability Exclusion?

One of the most elementary concepts for design professionals to be aware of when it comes to professional liability insurance is the contractual liability exclusion. This exclusion is present in just about every professional liability insurance policy.

The exclusion works by excluding coverage for any obligations design professionals agree to in a contract that do not already exist under the common law. In other words, it excludes coverage for obligations that would not exist in absence of the contract. One could also think of it as an exclusion of “breach of contract” claims.

Sample Language:

Here’s an example of the exact language pulled from one professional liability policy:

IV. EXCLUSIONS

B. Contractual Liability

arising out of:

1. The Insured’s actual or alleged liability under any oral or written contract or agreement, including but not limited to express warranties or guarantees; or

2. any actual or alleged liability of others that the Insured assumes under any oral or written contract or agreement.

Common Law

The common law standard of care that design professionals must meet when performing their services is: the ordinary skill and care usually exercised by members of the profession under similar circumstances and in the same or similar locality.

Design professionals are required to meet this standard of care regardless of whether it is explicitly stated in a contract. It’s important to emphasize that this means design professionals do not have an obligation to be perfect.

Why This Matters

Often times, design professionals are presented with contracts that ask for a higher standard of care than the common law standard outlined above.

For example, I have seen plenty of contracts that ask the design professional to use their “best efforts” when performing the services. See the following clause:

Consultant understands the importance of the Project discussed herein and therefore agrees to use its best possible efforts when performing the services.

On its face, this clause might seem harmless and perfectly reasonable. However, agreeing to this clause would raise the standard of care. Design professionals are not required to use their “best possible efforts” under the common law standard of care, so agreeing to do so would be agreeing to an obligation that does not exist in absence of the contract.

Consequently, in the event of a lawsuit against a design professional who agreed to this clause, the contractual liability exclusion would apply. The design professional would therefore be forced to pay any damages out of pocket should it be found that the “best possible efforts” were not used, even if the design professional met the common law standard of care. The effects of having to pay a large judgment or verdict completely out of pocket can be devastating to any business, which is why it’s so crucial for design firms to never agree to any contract clauses that raise the standard of care.

Conclusion

Professional liability insurance is intended to cover design professionals in cases where they fail to meet the common law standard of care. However, design professionals are often faced with contract clauses that seek to raise that standard, which can be very problematic.

The contractual liability exclusion in professional liability policies excludes coverage for claims stemming from a failure to meet contractual obligations that do not already exist under the common law. Because of this, design professionals should never agree to any contract clauses that raise the standard of care.

About the Author

Mike Pettit is in his second year as an A/E Risk Manager. Prior to his current role, he worked in personal lines.

Mike received a bachelor’s degree in risk management & insurance from Florida State University in 2019, and a Juris Doctor from Ohio Northern University Pettit College of Law in 2023.

Prevailing Party in Dispute Resolution

Tue, 02 Jun 2026 13:32:45 GMT

Many design and construction industry contracts include a clause in the disputes provisions stating that the “prevailing party” shall be entitled to recover its attorney’s fees and legal expenses from the other party, because they won the case or other legal action. In other words, a prevailing party in a dispute is the party who wins the majority of contested issues, obtains a favorable judgment, or achieves a net monetary recovery, making them eligible to recover legal costs and fees from the losing party.

A Typical Party Clause

A prevailing party clause includes language such as:

In the event of any litigation arising from breach of this agreement, or the services provided under this agreement, the prevailing party shall be entitled to recover from the non-prevailing party all reasonable costs incurred including staff time, court costs, attorneys fees, and all other related expenses incurred in such litigation.

However, a prevailing party clause only applies to binding legal proceedings including arbitration and litigation. It does not apply to non-binding dispute resolution proceedings including, but not limited to, mediation and negotiation in which a settlement or offer is arrived at outside a legal proceeding.

The American Rule

These clauses alter the standard where both sides pay their own legal expenses. In the U.S., attorneys' fees are not generally awardable to the prevailing party in litigation unless the litigant acted in bad faith, or the award of attorneys' fees is contractually agreed to.

Historically, many in the insurance industry and the legal profession recommended that mutual prevailing party clauses be included in design professional contracts. The logic was that such clauses make a client of an architect or engineer think twice before bringing a frivolous or otherwise questionable claim against a design firm. The prospect of paying the defendant’s legal bills in the event the plaintiff does not prevail makes a prospective plaintiff reconsider filing a lawsuit. None the less, the professional liability insurance industry remains divided on its opinion regarding the use of prevailing party clauses, for design professionals.

Prevailing party clauses were especially attractive from a design firm’s perspective when forced to sue a client for nonpayment of fees. However, the prospect of spending thousands of dollars on legal fees to collect receivables, without the possibility of recovering legal costs, caused many firms to throw up their hands, and forget about recovering the fees and chalk the loss up to experience. With a prevailing party clause, a design firm is more apt to keep its resolve and fight for the fees it deserves.

Considerations When These Causes are Used

The problem with prevailing party clauses is many-fold. Of utmost importance is the fact that professional liability policies do not cover attorney’s fees that an insured design professional is required to pay (only as the result of a contractual liability clause), such as the prevailing party attorney’s fees clause. A professional liability policy contains coverage exclusions for liabilities assumed by contract that would not exist in the absence of the contract.

The second problem is that the term “prevailing party” is undefined and ambiguous in its meaning. Courts can interpret it to mean anything they deem appropriate. It is even possible for a party to recover less than 10 percent of its claim and be awarded 100 percent of its attorney’s fees as the “prevailing party.”

Another point is that in multiple party design and construction disputes/cases, many times liabilities are distributed to more than one entity. Larger disputes may likely include architects, engineers, design consultants, construction contractors and subcontractors, construction managers, special consultants such as estimators, landscape architects, interior designers, etc. Thus, there could no clear cut “prevailing” party, and a judge could have a difficult time sorting the situation out of who is what. Since the vast majority of construction cases are settled through mediation, all parties likely will contribute to cover the loss. If that is the case, no one wins (prevails), since everyone shares the loss. Prevailing party clauses are simply not suited for larger cases.

Since the prevailing party attorney’s fees clause may create uninsurable losses, the preferred course of action is to strike this clause from design professional contracts. But if the project owner refuses to strike it, and a design professional is willing to assume the risk of these uninsurable attorney’s fees, then at a minimum, the term “prevailing party” needs to be carefully defined.

At Least Define What Prevailing Means

In order to avoid confusion, never agree to a prevailing party’s attorney’s fee unless you add a definition such as the one below. Note that there are numerous ways to draft a definition and different percentages can be used at the option of the parties.

Prevailing Party is the party who recovers at least 67% (two-thirds) of its total claim in the action, or who is required to pay no more than 33% of the other party’s total claims in the action when considered in the totality of claims and counterclaims, if any. In claims for monetary damages, the total amount of recoverable attorney’s fees and costs shall not exceed the net monetary award of the Prevailing Party.

Conclusion

A party does not need to win on every single claim to be considered the prevailing party, but they generally cannot recover fees for specific, separate issues they lost. Courts often look at who won on the "most significant issue" rather than just the total number of claims. The bottom line is that it is a business decision on a person’s part as to what your risk tolerance is when agreeing or not to a prevailing party clause. There are many pros and cons regarding this legal provision.

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About the Author of this Risk Management Building Block Article

As a Fellow of the American Institute of Architects and AIA National Ethics Council 2021 Chair, he has demonstrated his impact on architectural profession. He has presented numerous loss prevention and continuing educational programs to design professionals since 2000 on topics of ethics, contracts, and professional practice in various venues across the United States and Canada. He is a former member and chair of his city’s Board of Zoning & Building Appeals for 24 years, and is a licensed architect, attorney, and property & casualty insurance professional.

The “First Dollar Defense” Endorsement

Tue, 12 May 2026 04:00:00 GMT

While insurance policy endorsements are additional costs up front, many of them can lead to substantial savings later down the road. One optional endorsement that most professional liability carriers offer is known as the “First Dollar Defense” endorsement. Generally speaking, choosing to add this endorsement to a professional liability policy is a good risk management choice for design firms.

What is First Dollar Defense?

A design firm who has the First Dollar Defense endorsement does not have to pay the policy deductible if the only costs incurred on a claim are defense costs. In other words, if no verdict, judgement, or settlement is awarded to the claimant, the design firm does not have to pay the deductible.

Some even refer to First Dollar Defense as an “indemnity-only deductible” because the deductible is only due if an indemnity payment (i.e., a compensatory payment for damages as a result of a verdict, judgement, or settlement) is made to the claimant. Claims that only incur defense costs are not exactly uncommon, so this endorsement certainly provides an extra layer of protection.

First Dollar Defense in Action

Here’s a hypothetical to provide a better idea of exactly how the First Dollar Defense endorsement works:

A design firm has a professional liability policy with limits of $1,000,000 per claim and $2,000,000 per year. The policy deductible is $5,000 per claim.
A claim is filed against the design firm, and the insurance carrier incurs $9,000 in defense costs, but the claimant is not awarded anything.

In such a case, the design firm would not be responsible for paying the $5,000 deductible out of pocket. On the other hand, a design firm who had an identical policy minus the First Dollar Defense endorsement would be forced to pay the $5,000 deductible.

Are all Design Firms Eligible for First Dollar Defense?

The simple answer is no—not all design firms are eligible for the First Dollar Defense endorsement.

Insurance carriers might not offer this endorsement to large firms with really high deductibles. Additionally, design firms with less-than-ideal claim histories may also be barred from adding First Dollar Defense to their policies.

Nonetheless, this endorsement remains a good option for a large number of firms. Design firms who are interested in the First Dollar Defense endorsement should contact their insurance account managers to see if it is available.

Conclusion

Although adding First Dollar Defense to a professional liability policy costs a little more up front, it can often result in greater savings down the road. Claims that only incur defense costs are relatively common, so it is worth it for most design firms to at least inquire about adding First Dollar Defense to their policies.

About the Author

Mike Pettit is in his second year as an A/E Risk Manager. Prior to his current role, he worked in personal lines.

Mike received a bachelor’s degree in risk management & insurance from Florida State University in 2019, and a Juris Doctor from Ohio Northern University Pettit College of Law in 2023.

Disclaimer: The viewpoints expressed in this article are those of the author(s) and are not necessarily approved by, reflective of or edited by other individuals, groups, or institutions and this article is an expression by the author to generate discussion and interest in this topic.

What Liquidated Damages Are & Are Not in the Design/Construction Industry?

Thu, 09 Apr 2026 12:48:47 GMT

April 2026

What Are Liquidated Damages?

Liquidated damages are pre-agreed, specific monetary sums stipulated in a contract to be paid by one party to another if a particular breach occurs, such as a late design/construction project completion. They represent a reasonable, estimated compensation for anticipated losses that are difficult to calculate at the time of contract formation.

Clients of architects and engineers often face situations where the consequences of not completing a project on time may be very costly. The prospect of a delayed project often drives clients to include a liquidated damage provision in their contracts. In a perfect world, if someone is late on a project, you’d just calculate the actual damages and call it a day. But the real world doesn’t always work that way.

For Example

Consider a football stadium that is scheduled to kick-off with the most anticipated season opener by a certain date, but the project is delayed. The costs and reputations could be astronomical if the team had to arrange their games in another stadium.

Purpose: They provide certainty and avoid complex, costly litigation to prove actual damages.
Enforceability: For a clause to be valid, the agreed amount must be a reasonable forecast of just compensation for the breach. Generally, courts have held that the amount of liquidated damage must bear some reasonable resemblance to the actual damage that might be suffered. Furthermore, the amount set as a liquidated damage cannot be irrespective of the actual impact of the breach of contract.
Penalty vs. Damages: If the amount is set merely to punish the breaching party rather than compensate for loss, courts may deem it an unenforceable "penalty." So, it doesn’t work to have clause labeled “PENALTY” if is intended to be effective.
Common Usage: Frequently used in construction contracts (e.g., $500 per day of delay) and commercial leases, before any breach occurs. Project plans and specifications should prescribe a clear definition of the possible delay of performance, so it is relatively easy to determine when the contract’s services are completed. It could be defined as the date of substantial completion, the date of beneficial occupancy, or some other measurable completion milestone.
Components: Often calculated based on a daily or weekly rate for delays in performance.
Substitute for Proof: The injured party does not need to prove their actual losses to collect the agreed-upon amount. But this raises the question—may the injured party claim damages beyond the stipulated damages?

What Liquidated Damages Are Not:

Liquidated damages are generally considered inappropriate for professional design services, as they can jeopardize professional liability insurance coverage and fail to account for factors outside the design professional’s control. This includes, but is not limited to, client-driven changes, material availability, consultant delays, permitting issues, or trades not working on schedule, etc.

Keep in mind that most design/construction projects are like a concert performance (with a lot of moving parts), with all musicians working on a copy of the same sheets of music. In reality, a construction project is usually delivered with a team of design professionals and constructors that may never have worked together before and may not again. On the other hand, musicians practice their concert over-and-over again, before playing in front of audiences. And, if the parties to a construction contract do negotiate a provision for weather delays, it raises another issue.

When a liquidated damages clause is placed in a contract with an architect or engineer, it creates a contractual liability that is not easily managed by the design professional firm. Firms are generally tasked with producing instruments of service that have sufficient information to allow a contractor to construct the project. This could include timely completion of work by others that are contracted directly by the client (e.g., geotechnical investigations, land surveys, or specialists on sustainability), and obtaining necessary site control and easements or zoning approvals, securing necessary permits from various agencies and unforeseen conditions that alter the original design assumptions.

A Liquidated Damages Clause Can Also Impact the Quality of the Design

If such a contract clause is included in the design professional’s agreement with their client, an architect or engineer may feel compelled to deliver their instruments of service to meet the stated deadline to avoid paying liquidated damages—even if the drawings and specifications are not yet completed. The client may ultimately be better served by professional services that are completed with sufficient time and information for the construction contractor to complete the project, rather than a set of documents that have been delivered on time with insufficient competence.

Furthermore, a liquidated damages provision may present the design professional firm with a conflict of interest between their desire to provide an adequate set of instruments of service that meets the client's needs and their wish to avoid paying liquidated damages. A liquidated damages provision triggered by a failure to meet a specified date does not take those circumstances into account.

Standard of Care of Design Professionals

While common in construction for contractors, applying them to design services is risky, as professional liability is based on a standard of care, not strict time completion. Design professionals should ensure their contracts emphasize performance based on professional standards rather than strict, scheduled-backed deadlines.

Architectural and engineering firms are required to provide professional services in a manner that meets the standard of care, which is commonly defined as an obligation to provide services with "the skill and care used by members of design professionals' profession practicing under similar circumstances at the same time and in the same locality."

One of the key provisions of this clause is that the quality of the services provided is examined under similar circumstances that prevailed during the course of the project. Those circumstances are a key element of the standard of care expected of design professionals. Since a liquidated damages clause is not related to negligence in the performance of professional services (not meeting the standard of care), the professional liability insurance policy may not respond. Most professional liability policies specifically exclude coverage for liquidated damages.

In Summary

A liquidated damages clause is not appropriate for design services and jeopardizes the available coverage of a professional liability policy. Lastly, liquidated damages must be added to contract formation, at the time of signing the agreement.

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About the Author of this Risk Management Building Block Article

As a Fellow of the American Institute of Architects and AIA National Ethics Council 2021 Chair, he has demonstrated his impact on architectural profession. He has presented numerous loss prevention and continuing educational programs to design professionals since 2000 on topics of ethics, contracts, and professional practice in various venues across the United States and Canada. He is a former member and chair of his city’s Board of Zoning & Building Appeals for 24 years, and is a licensed architect, attorney, and property & casualty insurance professional.

Architects’ & Engineers’ Moral Rights are not What They Think They Are

Tue, 31 Mar 2026 19:33:14 GMT

August 2024

Moral rights are personal rights that connect the creator, such as an architect or engineer (A/E), to documents that they created when rendering their professional services. Moral rights are about being properly named or credited when their work is used, and the way the work is treated and shown. When doing so, moral rights require that their name is always shown within their work. This is also called right of attribution.

The preserving of the integrity of the work allows the author to object to alteration, distortion, or mutilation of the work that is "prejudicial to the author's honor or reputation.” Anything else that may detract from the artist's relationship with the work even after it leaves the artist's possession or ownership may bring these moral rights into play. Moral rights are distinct from any economic rights tied to copyrights. Even if an artist has assigned his or her copyright rights to a work to a third party, he or she still maintains the moral rights to the work.

Sundara Rajan, Mira T. (2006). Copyright and Creative Freedom: A Study of Post-Socialist Law Reform. Routledge Studies in International Law. Taylor & Francis. pp. 41–42. ISBN 978-0-20396-776-8.

How does this apply in architectural and engineering professional practice?

Professional association model agreements, such as authored by the American Institute of Architects (AIA) and the Engineers Joint Contract Documents Committee (EJCDC), between a design professional and their client (the project owner) specify that the A/E retains ownership of their documents. Nonetheless, these days there is almost unanimous shift by project owners to require that their A/E relinquish ownership of their documents.

As an example, see an edited AIA Standard Form of Agreement Between Owner & Architect B101 (2017) edited by an owner’s legal counsel.

§ 7.2 The Architect and the Architect’s consultants shall be deemed the authors and owners of their respective Instruments of Service, including the Drawings and Specifications, and shall retain all common law, statutory and other reserved rights, including copyrights. The Drawings and Specifications prepared by the Architect or its consultants are the Instruments of Service and the Owner shall be deemed to be the owner, and shall retain all common law, statutory, and other reserved rights, including copyrights. Submission or distribution of Instruments of Service to meet official regulatory requirements or for similar purposes in connection with the Project is not to be construed as publication in derogation of the reserved rights of the Architect and the Architect’s consultants.

§ 7.3 Upon execution of this Agreement, the Architect grants to the Owner full ownership of the Architect’s Instruments of Service …

At times, the project owner (actually the owner’s legal counsel) reaches further into their arsenal of onerous contract clauses and requires the design professional also relinquish their “moral rights.”

§ 7.3 Upon execution of this Agreement, the Architect grants to the Owner full ownership and moral rights of the Architect’s Instruments of Service …

A Symposium co-sponsored by The United States Copyright Office and The George Mason University School of Law and its Center for the Protection of Intellectual Property: This symposium began a conversation about the role of moral rights protection in the United States. This day-long event brought together authors, scholars, and other stakeholders for a broad discussion of copyright issues related to moral rights. Topics included the historical development of moral rights, the value that authors place on moral rights generally and individual moral rights specifically, the various ways these rights are provided for under current law, and new considerations for the digital age. Further study of moral rights under U.S. copyright law was among the recommendations made by the Register of Copyrights in testimony before Congress last spring and was requested by the Ranking Member of the House Judiciary Committee.

WHAT IS THE DIFFERENCE BETWEEN COPYRIGHTS AND MORAL RIGHTS?

While moral rights and copyrights both arise automatically from the creation of a work, it is important to be aware that copyright is separate and distinct from moral rights. A copyright is directed to the economic rights and commercial use of a work, and is grounded in the idea that the owner (who may not be the author) of a work should be able to capitalize on the work through publication and reproduction. In contrast, moral rights are a bundle of rights directed to the personal rights of an author (who may not be the copyright owner) with respect to the work, such as attribution and integrity.

The United States protects moral rights through the Visual Artists Rights Act of 1990 (VARA), which is very limited in scope as compared to moral rights protections granted in other countries. There are two types of moral rights that are recognized in the United States: the right of attribution, specifically to be credited as the author of the work and to disclaim works the author did not create; and the right of integrity, specifically to prevent distortion, mutilation, modification, and destruction of the work. Moral rights under VARA are effective for the duration of the life of the author, and can be waived, but cannot be assigned or licensed.

https://www.amundsendavislaw.c...

IN CONCLUSION

Design professionals should push back on the over-reaching language to the detriment of their rights of attribution.

The July 2018 DesignPro Insurance Group’s BUILDING BLOCKS risk management article titled “Ownership of Documents – What Your Client Expects” addresses the concerns of relinquishing ownership of design professionals’ documents. See:

https://www.designproins.com/b...

About the Author of this Risk Management Building Block Article

As a risk manager for the last 18 years for the design profession, Eric has experience in professional liability insurance and claims, architecture, engineering, land use, law, and a unique background in the construction industry. Prior to risk management, he has 25 years of experience in the practice of architecture/engineering, and as an adjunct professor teaching professional practice courses at the undergraduate and graduate levels for the last 35 years at Kent State University’s College of Architecture & Environmental Design.

Disclaimer: The viewpoints expressed in this article are those of the author(s) and are not necessarily approved by, reflective of or edited by other individuals, groups, or institutions. This article is an expression by the author(s) to generate discussion and interest in this topic.

Changes are Inevitable in the Design Professions & Construction Industry

Tue, 31 Mar 2026 19:15:30 GMT

September 2024

In the business world, changing the course in mid-stream in a project can be distressful, time consumption and costly. For example, you order blue new chairs for the entire office, and just after they are in production, you change them to brown. In contrast, in the design professions and construction industry, changes are commonplace. In fact, they are inevitable. Unanticipated field or concealed conditions, unknown surroundings, modifications due to changed circumstances, and errors or omissions in design or construction are just a few of the situations that may occur.

To accommodate changes in the design and construction industry, professional association documents have devised mechanisms to handle revisions to a project. Certainly, changes during the design of an architectural or engineering (A/E) project will at least involve some time and probably a fee adjustment. But during construction of a project, where the rubber meets the road, things become different.

PROFESSIONAL ASSOCIATION DOCUMENTS

The Engineers Joint Contract Documents Committee (“EJCDC”) Standard General Conditions of the Construction Contract C-700 states that:

In contrast, the American Institute of Architects’ (AIA) General Conditions of the Contract for Construction, Document A201, has a different approach. There are three options to handle a change during the construction phase of a project. These options are 1) a Change Order, 2) a Construction Change Directive, and 3) a Minor Change of the Work. The AIA A201 Article 7 states:

AS A REAL-LIFE EXAMPLE

To illustrate how these three options may play out, consider this scenario of a change to the required access for an American Disabilities Act (ADA) ramp to the new seating at a high school stadium.

Photo by Eric Pempus, Author of the article

A concrete landing and pathway at the bottom of the wheelchair handicap ramp was poured with incorrect dimensions. The error was discovered after an aluminum ramp was installed. To comply with ADA dimensions for wheelchairs access, the concrete contractor had to extend the size of the access area more than one foot and five inches in two directions on the ground. See below.

Photo by Eric Pempus, Author of the article

Using the three A201 Article 7 options of 1) a Change Order, 2) a Construction Change Directive, and 3) a Minor Change of the Work, consider the following:

Change Order (CO)

By agreement between Owner (in this instance—a school district), a concrete Contractor and the Architect for the ADA project, a change in the time to accomplish the work and extra cost for the labor and materials could be arrived upon. This agreement could happen even before the work is accomplished, or shortly thereafter.

Construction Change Directive (CCD)

Should there be a disagreement for the change in the concrete landing and pathway, the Architect would prepare a written directive for an adjustment of the time for the work, or the cost for the labor and material, or both. To complete the stadium seating project by the first high school football game of the season, at a later date, the Owner, Contractor and Architect would negotiate the final resolution of the time and cost involved. This keeps the project on schedule.

Minor Change in the Work (MCW)

If the change in the expanded concrete landing and pathway was such the contractor felt that the work was inconsequential, and there was no disagreement of time or cost, everyone would go on with other work to complete the stadium seating project with no issues.

RESULT OF THE ADA ACCESS CHANGE

Unfortunately, not knowing the result of the change, one could only assume that there was some sort of a Change Order. The extra excavation, concrete and reinforcing steel needed to comply with the ADA’s landing and pathway requirements, and the impending fall high school football schedule, was a relatively significant cost. For example, when two different concrete slabs are poured next to each other, there is a possibility of differential settlement between the adjacent pours. To combat this effect, the contractor needed to drill and stall horizontal reinforcing rods (rebar) to tie together the two concrete slabs.

I Googled the school board’s meeting minutes during and after the concrete construction but could not discover if there was a cost for the change (there were several board resolutions that I cannot find that were probably involved). Fortunately, the error was discovered before the concrete contractor had finished other work for sidewalks at the site, so perhaps the impact on the project schedule was not major. In fact, the change was accomplished in plenty of time. As the author of this risk management article, I visited this stadium from time to time walking the track, to see the project unfold to its completion.

About the Author of this Risk Management Building Block Article

Disclaimer: The viewpoints expressed in this article are those of the author(s) and are not necessarily approved by, reflective of or edited by other individuals, groups, or institutions. This article is an expression by the author(s) to generate discussion and interest in this topic.

Specifications | Complimenting the Drawings in Architectural & Engineering Construction Projects

Tue, 31 Mar 2026 18:59:12 GMT

October 2024

When people think of the documents that are prepared and used to construct a project, many times the other thing that they think of are the drawings. But drawings are just half of the story on how to design and build a project. The other half are the specifications.

Defined, specifying (specifications) is an act of describing or identifying something precisely or of stating a precise requirement. The word specification is broadly stated as "to state explicitly or in detail" or "to be specific". A specification is a documented requirement, or set of documented requirements, to be satisfied by a given material, design, product, etc.

INTRODUCTION

Since it is not practical to include sufficient information on construction drawings to describe in detail all the product types, qualities and installation methods, a separate written document is typically needed. In so many words, the drawings define what materials are used, where, and in what quantity to build a project. The specifications define the remainder.

In the design and construction industry, this separate document is commonly called the “Spec Book” (8.5 inches by 11 inches). But accurately termed, this written document is actually called the “Project Manual.” This manual contains the specifications but may also contain many other documents, including numerous reference materials to communicate the design of a project for the construction contract to build a project. These involve procuring and executing the work of construction contractors, including but not limited to the bidding documents or other construction procurement documents, geotechnical and existing conditions information, a sample/model construction agreement for execution between the project owner and contractor(s), bond forms, General Conditions of the Contract for Construction, Supplementary General Conditions, etc.

The coordination of the drawings and specifications is critical. At times, there may be conflicts between these documents. The American Institute of Architects (AIA) address this situation in its AIA General Conditions of the Contract, A 201 as follows:

§ 1.2 Correlation and Intent of the Contract Documents

§ 1.2.1 The intent of the Contract Documents is to include all items necessary for the proper execution and completion of the Work by the Contractor. The Contract Documenst are complementary, and what is required by one shall be as binding as if required by all; performance by the Contractor shall be required only to the extent consistent with the Contract Documents and reasonably inferable from them as being necessary to produce the indicated results.

Therefore, if there is an omission in the specifications but is included in the drawings, the omitted item is still required from the project. And vice versa, if something is omitted in the drawings but is included in the specifications, the project owner still owes that item in its bid for the project’s design. In other words, there is no order of preference between drawings or specifications. They are complementary, and what is required by one shall be as binding as if required by all.

From a risk management standpoint, not only for design professionals but also the construction contractors, this is axiomatic.

STANDARDIZATION IS THE KEY WHEN SPECIFYING

A standardized approach to placing the project information in the construction documents simplifies the process so a project can be constructed efficiently and properly. A construction project has seemingly an infinite number of moving parts to coalesce into a completed building. This approach also reduces the possibility of conflicts, errors and omissions in construction documents. Lastly, a critical precept is that each bit of information should only be used one time, at its proper location. This theoretically eliminates the errors and mistakes, especially if one piece of information is changed but overlooked at other places in the construction documents.

As far as drawings are concerned, a standardized approach is also utilized. But let’s dive deeper into how the Project Manual is organized. The specifications are organized into “divisions” based upon the material designed into the construction project.

Masterformat CSI Divisions

00 GENERAL PROJECT REQUIREMENTS	12 FURNISHINGS	33 UTILITIES
01 GENERAL REQUIREMENTS	13 SPECIAL CONSTRUCTION	34 TRANSPORTATION
02 EXISTING CONDITIONS	14 CONVEYING EQUIPMENT	35 WATERWAY AND MARINE CONSTRUCTION
03 CONCRETE	21 FIRE SUPPRESSION	40 PROCESS INTEGRATION
04 MASONRY	22 PLUMBING	41 MATERIAL PROCESSING AND HANDLING EQUIPMENT
05 METALS	23 HEATING, VENTILATING, AND AIR CONDITIONING (HVAC)	42 PROCESS HEATING, COOLING, AND DRYING EQUIPMENT
06 WOOD, PLASTICS, AND COMPOSITES	25 INTEGRATED AUTOMATION	43 PROCESS GAS AND LIQUID HANDLING, PURIFICATION, AND STORAGE EQUIPMENT
07 THERMAL AND MOISTURE PROTECTION	26 ELECTRICAL	44 POLLUTION AND WASTE CONTROL EQUIPMENT
08 OPENINGS	27 COMMUNICATIONS	45 INDUSTRY-SPECIFIC MANUFACTURING EQUIPMENT
09 FINISHES	28 ELECTRONIC SAFETY AND SECURITY	46 WATER AND WASTEWATER EQUIPMENT
10 SPECIALTIES	31 EARTHWORK	48 ELECTRICAL POWER GENERATION
11 EQUIPMENT	32 EXTERIOR IMPROVEMENTS

THE CONSTRUCTION SPECIFICATION INSTITUTE (CSI)

The well-recognized and established organization in the design and construction industry is the Construction Specification Institute.

Founded in 1948, CSI is a national not-for-profit association of more than 6,000 members dedicated to improving the communication of construction information throughout continuous development and transformation of standards and formats, education and certification of professionals to improve project delivery processes. CSI members work tirelessly to effectively communicate the designers’ vision, the material producers’ solutions and the constructors’ techniques to create outstanding facilities that meet facility owners’ objectives.

CSI is dedicated to improving the communication of construction information through:

A diversified membership base of allied professionals involved in the creation and management of the built environment.
Continuous development and transformation of standards and formats.
Education and certification of professionals to improve project delivery processes.
Creation of practice tools to assist users throughout the facility life-cycle.

Design professionals seeking to further their knowledge and at the same time may seek recognition of their kraft by obtaining the following certifications:

Within each division there as “sections” defining the material in more detail. And each section is then broken down into three parts: Part 1 – General, Part 2 – Products, and Part 3 – Execution. Each part consists of specific information regarding that section of the specification. The three parts are included in all specification sections and are consistent in number and title.

There are four methods of specifying: performance, descriptive, reference standard, and proprietary. See https://services.caddetails.com/blog/do-you-know-the-four-methods-of-specifying.

Performance Specifications

Performance specifying focuses on the end result, and includes information for verifying the end result. There are no limitations on the method of achieving this result. To be effective, a performance specification must clearly define the desired end result. If this is not done, the project can suffer from a loss of quality control. The end result should be somehow measurable through testing or evaluation. Descriptions of materials and processes should be minimal. Performance specifying encourages innovation to achieve desired results.

Performance specifying can be used in any specification. Performance specifications can be selected as a way to access a range of options using current technology. It can also be used to invite innovation for technologies that are not yet developed or standard in the construction industry.

Descriptive Specifications

While descriptive specifications were once the preferred method of specifying, they are now used less often due to project complexity and increasing availability of reference standards. Descriptive specifications are detailed descriptions of the properties required of a material, product or piece of equipment. Detailed descriptions of workmanship required for installation are used. For descriptive specifications, the burden of performance rests with the architect or engineer. Descriptive specifications are lengthy, and writing them can be an involved process. They may be chosen when proprietary specifying is not an option and reference standards are not available

Reference Standard Specifications

Industry standards are published by professional groups, trade associations, standards-writing organizations, institutions, and governments. Industry standards are incorporated into reference standard specifications by reference to a number, title, or other designation. Use of standards saves the task of writing text that would indicate the requirements of the standard. The specification writer on a project should know the standard and incorporate it properly into the specification. Additionally, the specification writer should be aware of potential pitfalls including that standards usually refer to minimum requirements, and inadequate reference standards exist and should be avoided. Once a reference standard is included in a specification, means should be provided to ensure the standards are being met. This can involve test reports, samples, on-site reviews, test reports, manufacturer's literature, and other submittals.

Proprietary Specifications

Selected products may be identified directly in proprietary specifications. A specification is also considered proprietary even if a manufacturer’s name is not mentioned if the specified product is available from a single source. Proprietary specifications on construction projects allow for control of product selection. This can reduce costs and save design time, and simplify the bidding process. The drawbacks of proprietary specifications include reduced competition, or errors made in model or product designations. Closed proprietary specifications name a single product, or several as options and substitutions are not allowed. Open proprietary specifications permit for substitutions, but require approval of the architect or engineer.

And lastly there are five C’s of effective specifications to effectively communicate requirements. Specifications must be Clear, Concise, Complete, Correct, and Consistent.

IN CONCLUSION

The topic of specification and how to effectively and professionally develop these construction documents is immense. There are numerous reference materials published made available to design professionals, for both architects or engineers.

About the Author of this Risk Management Building Block Article

Disclaimer: The viewpoints expressed in this article are those of the author(s) and are not necessarily approved by, reflective of or edited by other individuals, groups, or institutions. This article is an expression by the author(s) to generate discussion and interest in this topic.

Excluded Professional Services from Architect & Engineering Agreements

Tue, 31 Mar 2026 18:40:36 GMT

November 2024

There are times where there are misunderstandings between a design professional and their client on a project. Professional association model agreements strive to dispel any ambiguous scope of services in these agreements, but it is easier said than done. This risk management article discusses how this may occur and how to determine solutions to this problem between an architect/engineer (A/E) and their client.

ADDRESSING THE ISSUE

The problem may raise its ugly head if the design professional not only states what is basic and optional additional services, but also creates a list of services that are “excluded” in the agreement. Herein is the dilemma.

If the design professional creates an “excluded” list of items, what may occur is something that is understood to be outside of a basic or additional services is omitted from the list, and it would be presumed to be as included. And this creates disputes between the parties to the agreement or a claim involving professional fees, especially when the client is inexperienced with procuring design consulting services. Expectations can easily be misaligned.

To solve this problem, the American Institute of Architect (AIA) model agreement B101 does not create a specific list of excluded services. Rather, an architect’s client has a “Owner’s Responsibilities” section that takes responsibility for certain services that otherwise could be on an excluded list. For example,

§ 5.4 The Owner shall furnish surveys to describe physical characteristics, legal limitations and utility locations for the site of the Project, and a written legal description of the site. The surveys and legal information shall include, as applicable, grades and lines of streets, alleys, pavements and adjoining property and structures; designated wetlands; adjacent drainage; rights-of-way, restrictions, easements, encroachments, zoning, deed restrictions, boundaries and contours of the site; locations, dimensions, and other necessary data with respect to existing buildings, other improvements and trees; and information concerning available utility services and lines, both public and private, above and below grade, including inverts and depths. All the information on the survey shall be referenced to a Project benchmark.

§ 5.5 The Owner shall furnish services of geotechnical engineers, which may include test borings, test pits, determinations of soil bearing values, percolation tests, evaluations of hazardous materials, seismic evaluation, ground corrosion tests and resistivity tests, including necessary operations for anticipating subsoil conditions, with written reports and appropriate recommendations.

Whether an American Institute of Architect (AIA) or an Engineers Joint Contract Documents Committee (EJCDC) model agreement, they both delineate services as either “basic” or “additional” services. The AIA approach has gone one step further and has divided non-basic services into “supplemental” and “additional” services.

SUPPLEMENTAL

AIA B101 Model Agreement Between Architect & Owner

§ 4.1.1 The services listed below are not included in Basic Services but may be required for the Project. The Architect shall provide the listed Supplemental Services only if specifically designated in the table below as the Architect’s responsibility, and the Owner shall compensate the Architect as provided in Section 11.2. Unless otherwise specifically addressed in this Agreement, if neither the Owner nor the Architect is designated, the parties agree that the listed Supplemental Service is not being provided for the Project.

(Designate the Architect’s Supplemental Services and the Owner’s Supplemental Services required for the Project by indicating whether the Architect or Owner shall be responsible for providing the identified Supplemental Service. Insert a description of the Supplemental Services in Section 4.1.2 below or attach the description of services as an exhibit to this Agreement.)

Supplemental Services	Responsibility (Architect, Owner, or not provided)
§ 4.1.1.1 Programming
§ 4.1.1.2 Multiple preliminary designs
§ 4.1.1.3 Measured drawings
§ 4.1.1.4 Existing facilities surveys
§ 4.1.1.5 Site evaluation and planning
§ 4.1.1.6 Building Information Model management responsibilities
§ 4.1.1.7 Development of Building Information Models for post construction use
§ 4.1.1.8 Civil engineering
§ 4.1.1.9 Landscape design
§ 4.1.1.10 Architectural interior design
§ 4.1.1.11 Value analysis
§ 4.1.1.12 Detailed cost estimating beyond that required in Section 6.3
§ 4.1.1.13 On-site project representation
§ 4.1.1.14 Conformed documents for construction
§ 4.1.1.15 As-designed record drawings
§ 4.1.1.16 As-constructed record drawings
§ 4.1.1.17 Post-occupancy evaluation
§ 4.1.1.18 Facility support services
§ 4.1.1.19 Tenant-related services
§ 4.1.1.20 Architect’s coordination of the Owner’s consultants
§ 4.1.1.21 Telecommunications/data design
§ 4.1.1.22 Security evaluation and planning
§ 4.1.1.23 Commissioning
§ 4.1.1.24 Sustainable Project Services pursuant to Section 4.1.3
§ 4.1.1.25 Fast-track design services
§ 4.1.1.26 Multiple bid packages
§ 4.1.1.27 Historic preservation
§ 4.1.1.28 Furniture, furnishings, and equipment design
§ 4.1.1.29 Other services provided by specialty Consultants
§ 4.1.1.30 Other Supplemental Services

ADDITIONAL

§ 4.2 Architect’s Additional Services

The Architect may provide Additional Services after execution of this Agreement without invalidating the Agreement. Except for services required due to the fault of the Architect, any Additional Services provided in accordance with this Section 4.2 shall entitle the Architect to compensation pursuant to Section 11.3 and an appropriate adjustment in the Architect’s schedule.

§ 4.2.1 Upon recognizing the need to perform the following Additional Services, the Architect shall notify the Owner with reasonable promptness and explain the facts and circumstances giving rise to the need. The Architect shall not proceed to provide the following Additional Services until the Architect receives the Owner’s written authorization:

.1 Services necessitated by a change in the Initial Information, previous instructions or approvals given by the Owner, or a material change in the Project including size, quality, complexity, the Owner’s schedule or budget for Cost of the Work, or procurement or delivery method;

.2 Services necessitated by the enactment or revision of codes, laws, or regulations, including changing or editing previously prepared Instruments of Service;

.3 Changing or editing previously prepared Instruments of Service necessitated by official interpretations of applicable codes, laws or regulations that are either (a) contrary to specific interpretations by the applicable authorities having jurisdiction made prior to the issuance of the building permit, or (b) contrary to requirements of the Instruments of Service when those Instruments of Service were prepared in accordance with the applicable standard of care;

.4 Services necessitated by decisions of the Owner not rendered in a timely manner or any other failure of performance on the part of the Owner or the Owner’s consultants or contractors;

.5 Preparing digital models or other design documentation for transmission to the Owner’s consultants and contractors, or to other Owner-authorized recipients;

.6 Preparation of design and documentation for alternate bid or proposal requests proposed by the Owner;

.7 Preparation for, and attendance at, a public presentation, meeting or hearing;

.8 Preparation for, and attendance at, a dispute resolution proceeding or legal proceeding, except where the Architect is party thereto;

.9 Evaluation of the qualifications of entities providing bids or proposals;

.10 Consultation concerning replacement of Work resulting from fire or other cause during construction; or,

.11 Assistance to the Initial Decision Maker, if other than the Architect.

IN CONCLUSION

If the client/design professional agrees to language that states the A/E will provide “complete” or “necessary” services, another opportunity may arise for misaligned expectations. Such words are called “Extreme Words” and are best eliminated from professional service agreements. See the DesignPro Insurance Group’s risk management article titled “Extreme Words – Bad for Architects & Engineers,” November 2021 at designproins.com/blog/2021/11/Extreme-Words–Bad-for-Architects-Engineers.

About the Author of this Risk Management Building Block Article

Disclaimer: The viewpoints expressed in this article are those of the author(s) and are not necessarily approved by, reflective of or edited by other individuals, groups, or institutions. This article is an expression by the author(s) to generate discussion and interest in this topic.

Contingency Funds in the Design Professions & the Construction Industry

Tue, 31 Mar 2026 04:00:00 GMT

December 2024

In the design professions and the construction industry unexpected costs in a project seem inevitable. A certain level of ambiguity, defects and errors or omissions should be anticipated, and in fact, are normal. This is true in every project, be it new construction but especially in renovation projects. Renovation, rebuilding and remodeling buildings is changeling with unknown and concealed conditions. Some would agree that it is an “art” and not a “science.” See DesignPro’s risk management article titled “Renovating, Remodeling or Rebuilding - Risk Management for Design Professionals,” July 2022:

https://www.designproins.com/blog/2022/07/renovating-remodeling-or-rebuilding-risk-management-for-design-professional.

A STANDARD OF CARE DISPELS IMPERFECTION

Both in “the common law” and in agreements between design professionals with their clients, they ordinarily include a standard care statement. Consider this as an example.

The standard of care for professional design services performed or furnished by Design Professional under this Agreement will be the skill and care used by members of Design Professional’s profession practicing under similar circumstances at the same time and in the same locality. Design Professional makes no warranties, express or implied, under this Agreement or otherwise, in connection with Design Professional 's services. This Standard of Care under this Agreement shall not be modified notwithstanding any provisions elsewhere in this Agreement. Furthermore, Design Professional is an independent contractor at all times during the performance of its services, and any provisions in this Agreement, either expressed or implied, shall not create an agency or fiduciary relationship with its client.

Likewise, it is a good idea that a design professional should educate their client, especially if that client is inexperienced in design and construction. Proactively addressing expenses involving ambiguities, defects and errors or omissions in advance of when a problem occurs is good risk management for all parties to a project.

WHY A CONTINGENCY FUND IN A PROJECT

A contingency fund is a dedicated reserve of money set aside to handle unexpected expenses and emergencies, ensuring financial stability when life takes a surprise turn. Think of it as a monetary safety net, ready to catch you when unforeseen costs arise. A contingency fund covers all types of unexpected expenses. Cambridge Dictionary - Cambridge University Press

CONTINGENCIES FIND THEMSELVES IN AGREEMENTS

This is the place where the parties to an agreement spell out the understanding of a contingency’s terms and conditions. An example of such clause is in the American Institute of Architects’ (AIA) Standard Form of Agreement Between Owner & Architect for a Complex Project, B103, Article § 5.3.1

The Owner acknowledges that accelerated, phased or fast-track scheduling provides a benefit, but also carries with it associated risks. Such risks include the Owner incurring costs for the Architect to coordinate and redesign portions of the Project affected by procuring or installing elements of the Project prior to the completion of all relevant Construction Documents, and costs for the Contractor to remove and replace previously installed Work. If the Owner selects accelerated, phased or fast-track scheduling, the Owner agrees to include in the budget for the Project sufficient contingencies to cover such costs.

TYPES OF CONSTRUCTION CONTINGENCY FUNDS

For the construction industry, there are two main types of construction contingency funds.

Contractor contingency

A contractor contingency is an amount built into the contractor's anticipated price for the project to account for various risk factors that cannot otherwise be accounted for in a schedule of values.

This money is set aside to account for any errors that occur on behalf of the contractor. Accordingly, contractors consider these funds spent money. Building this extra funding into an estimate is the contractor accepting the fact that unpredictable costs are all part of the construction process.

Owner contingency

A project owner's reserve is an amount set aside for additions or modifications of the scope of the work. These types of contingencies are used mainly in guaranteed maximum price (GMP) contracts.

Any changes not included in the initial bid will have to be paid by the owner-funded contingency. Incomplete plans or owner-directed changes are the leading causes of dipping into an owner contingency fund.

https://www.procore.com/library/construction-contingency by Alex Bernarroche, June 13, 2024

ESTABLISHING THE AMOUNT OF A CONTINGENCY FUND

There is a lot of latitude in establishing the amount. Factors include but are not limited to the scope, size, schedule, limitations, complexity, quality of the work, risk levels, environmental factors, unusual features of the project, and even the character and professionalism of the parties involved. It could be negotiated and set with a lump sum of money or a percentage of the project budget.

IN CONCLUSION

Contingency funds are good risk management for unforeseen incomplete designs, errors or omission in construction documents, construction project delays, substitute subcontractors, price increases, and any other number of unexpected costs. The project owner should discuss establishing a contingency fund when engaging design professionals and construction contractors.

About the Author of this Risk Management Building Block Article

Disclaimer: The viewpoints expressed in this article are those of the author(s) and are not necessarily approved by, reflective of or edited by other individuals, groups, or institutions. This article is an expression by the author(s) to generate discussion and interest in this topic.