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Scopes of Services for Design Professionals Part 6 – Elevated Standard of Care, Construction Cost Estimates, and Phased Authorizations

By Kevin O'Beirne, PE, FCSI, CCS, CCCA, CDT posted 09-25-2023 04:40 PM

  
This is the final installment in a six-part series on this blog addressing design professionals’ scopes of services, comprised of: (a) Part 1 – Key Concepts and Source Documents; (b) Part 2 – Elements of Design Professionals’ Scopes of Services; (c) Part 3 – Limitations: Introduction and Essentials; (d) Part 4 – Limitations: Construction Documents; (e) Part 5 – Limitations: Permitting and Disagreements; and (f) Part 6 – Elevated Standard of Care, construction Cost Estimates, and Phased Authorizations. 
Elevated Standard of Care
The standard of care is a generalized indication of the expected quality of services performed by a design professional. The typical standard of care, established by common law (case law) and expressly indicated in widely-used standard contracts for design professional services, such as AIA B101—2017, Standard Agreement Between Owner and Architect, and EJCDC E-500—2020, Agreement between Owner and Engineer for Professional Services, obligates the design professional to perform its services with the same level of skill, care, and professional judgment ordinarily exercised by other, similar design professionals performing similar services at the same time and in the same geographic locality as the project. The typical standard of care does not require perfection by the design professional, nor does the design professional warrant its services or their outcomes. A similar standard of care applies to other professionals, such as physicians, attorneys, and accountants. 
A design professional may, however, be bound to an elevated standard of care by the language of its professional services contract (including the scope of services), or other means, such as claims of performance made in proposals and marketing literature, correspondence, and even oral statements. Most architects’, engineers’ and geologists’ professional liability insurance policy provides coverage only for the typical standard of care, as discussed above, rather than an elevated standard created by unique contract language. When a design professional is bound to, and has failed to comply with, an elevated standard of care, the potential exists that the professional liability insurance carrier may refuse to cover the claim, resulting in the design professional having sole responsibility for the financial damages and other costs, such as defense costs.
Because of the significant risk associated with an elevated standard of care, it is in the interest of both the design professional and its client that the design professional be bound to the typical standard of care, to increase the potential that the required professional liability insurance coverage will be in effect.
In professional services contracts, an elevated standard of care may be established by the language of a standard of care provision, indemnification provisions, guarantees, or warranties made by the design professional (especially those regarding the performance of the completed project), and the language of the scope of services. 
Design professionals should be alert to contractual language, and other language and representations outside the contract, that may serve to elevate the standard of care. When in doubt, design professionals should seek advice from their professional liability insurance carrier (or insurance agent), or qualified legal counsel. Also, design professionals should carefully review client-drafted scope language instead of blindly incorporating such terms because such language often sets a higher performance standard for the design professional.
To reduce the potential of being bound to an elevated standard of care via the scope of services, design professionals should avoid the following language: 
  • “Expert services”.
  • “National expertise”.
  • “Best in class”.
  • Providing “best value”.
  • “[Consultant] will perform all services necessary…”
  • Evaluating “all options”.
  • Securing “all permits and approvals”.
  • Specified project or construction outcomes (e.g., designing to construction budget, change order percentage cap, or guaranteed performance of the completed project).
Construction Cost Estimates
Many project owners are, understandably, sensitive to discrepancies between design stage construction cost estimates and actual construction costs. Regardless of who prepared the project’s construction cost estimate, the design professional may have substantial liability when prices indicated in bids or proposals are significantly greater than the design stage construction cost estimate. Such liability may be contractual if the scope requires preparation of a design to conform to the expected price or required communication with the owner on potential cost overruns.  At a minimum, cost surprises will almost always result in an irritated client who may withhold future business from the design professional.
Because the term “cost estimate” may imply a level of effort, skill, and judgment similar to the cost estimates prepared by bidders or contractors in pricing the work, whereas design professionals typically devote considerably less effort to preparing their construction cost estimates, in contemporary practice, the term used for design professionals’ construction cost estimates is often “opinions of probable construction cost” or “opinions of probable bid prices”.
When the project’s available funds are limited, some owners may seek to bind the design professional to design the project within a contractually stipulated construction cost limit. Such provisions can significantly increase the design professional’s risk, especially when such clauses require the design professional to revise the design and construction documents, perhaps repeatedly, until the bids or proposals are within the stipulated cost limit. Because design professionals have little control over or familiarity with certain elements of a project’s construction cost, including market conditions and local and regional competition for resources, it is best to avoid being bound to design to a contractually stipulated construction cost limit. 
When an architect, engineer, or geologist agrees to design to a predetermined cost limit, the associated language in the professional services contract should be complete, detailed, and reasonable, such as the model language of EJCDC E-500—2014 Agreement between Owner and Engineer for Professional Services, Exhibit F (“Construction Cost Limit”), However, the exhibit was deleted from EJCDC E-500—2020 due to both a perceived lack of use and to discourage the practice of requiring engineers to design to a predetermined construction cost limit. E-500—2020 includes Article 5, “Opinions of Cost” expressly indicating that the engineer does not guarantee construction costs. In addition, E-500—2020 includes, in Paragraph 7.01.A, defined terms for “Construction Cost” and “Total Project Cost”, and the model scope of services in E-500 Exhibit A requires development, updating, and communication to the owner of the opinion of probable construction cost at various stages of the design, subject to Article 5. E-500’s Exhibit A Article A2 (“Additional Services”), Paragraphs A2.01.A.3 and A2.02.A.5 are also pertinent to opinions of probable construction cost. Finally, as each new phase of the project begins, E-500 2020 provides for the owner and engineer to re-visit the scope, compensation, and schedule and make necessary adjustments (by written amendment) to address significant changes in the project that might materially affect project cost.
Prior to finalizing the scope of services, the design professional should obtain a clear understanding of the client’s expectations of accuracy for opinions of probable construction costs and should develop the scope and budget accordingly.  Where construction cost estimate accuracy is important to the client, consider retaining (or the owner retaining) the services of a specialized construction cost estimating consultant.
The anticipated accuracy ranges should be in accordance with the construction cost classifications established by AACE International, formerly the Association for the Advancement of Cost Engineering. AACE publishes several different cost classification systems, apportioned by industry and type of construction.  Each cost classification system establishes appropriate accuracy ranges based on the level of project definition.
The design professional should clearly communicate to its client, at specific, designated points in the project’s design, updated opinions of probable construction cost. This writer has observed numerous design professional consultants’ project teams that update their cost estimate, but, surprisingly, fail to communicate the results to their client, which can result in unpleasant “bid day surprises”. 
Phased Authorizations
The design professional and its client may each undertake considerable financial risk when the scope of services encompasses multiple stages of the project, especially for later phases of design, such as design development and construction documents (AIA) or final design (EJCDC), procurement, or construction, when the scope is written prior to performing project conception and schematic design (AIA) and study/report phase and preliminary design (EJCDC) services. Project scope and the owner’s desired quality for the completed project often evolve as the level of project definition advances. 
To reduce the risk to both the design professional and its client, where possible, consideration should be given to authorizing the design professional’s services in phases, in which initial phases of the project are completed before the design professional’s scope of services for subsequent phases is developed and authorized. Such an approach reduces preconceptions and allows the parties to mutually develop the project desired by the owner, while reducing the risk to both the design professional and its client. This writer often used phased authorizations for capital projects, typically involving separate authorizations for: (1) project conception services (study/report EJCDC) or schematic design (AIA)), (2) preliminary design (EJCDC) or design development (AIA), (3) final design (EJCDC) or construction documents (AIA) plus procurement (bidding), and (4) construction and post-construction services.
Phased authorization of professional services may be facilitated by using a widely-used form of master services agreement, where the main agreement presents the basic contractual terms but where scope of services, schedule, and compensation are indicated and authorized in multiple “service orders” or “task orders”. Master services agreements may be used for multiple phases of a single project, or for multiple projects under a single master services agreement.  Such agreements include EJCDC E-505—2020, Agreement between Owner and Engineer for Professional Services—Task Order Edition, AIA B121—2018, Standard Form of Master Agreement Between Owner and Architect for Services Provided Under Multiple Service Orders, and AIA B221—2018, Service Order for Use with Master Agreement.
Phased authorization of services is fair to both the design professional and its client, and likely reduces the quantity and cost of amendments to the professional services contract. However, phased authorizations also essentially necessitate “stops” and “restarts” in the project, which may lengthen the time required prior to the start of construction. Also, some clients may become annoyed at what might perhaps be perceived as “repeated trips to the well for the same project.” Thus, deciding to use phased authorizations depends on the client and circumstances.
Conclusions
Drafters of scopes of professional services should carefully word the scope of services to avoid creating an elevated, and possibly uninsurable, standard of care. Scope language regarding opinions of probable construction cost should be worded with care and, where possible, should not attempt to bind design professionals to design to a predetermined construction cost limit. Because of its fairness to both the design professional and its client, consideration should be given to multiple, phased authorizations of professional services as the project’s definition advances.
Acknowledgments: The author gratefully acknowledges the assistance of Bruce Firkins, PE, PLS, of Bolton & Menk, Inc., in Minneapolis, MN. Mr. Firkins is the chair of EJCDC’s Engineering (E-Series) Subcommittee and kindly reviewed and commented on drafts of this article.
Copyright 2022-2023 by Kevin O’Beirne
The content of this blog post is by the author alone and should not be attributed to any other individual or entity.
The author of this blog post is not an attorney and nothing in this blog post constitutes legal advice. Readers in need of legal advice should consult with a qualified, experienced attorney.
Kevin O’Beirne, PE, FCSI, CCS, CCCA is a professional engineer licensed in NY and PA with over 35 years of experience designing and constructing water and wastewater infrastructure for public and private clients.  He is the engineering specifications manager for a global engineering and architecture design firm.  He has been a member of various CSI national committees and is the certification chair of CSI’s Buffalo-Western New York Chapter.  He is an ACEC voting delegate in the Engineers Joint Contract Documents Committee (EJCDC) and lives and works in the Buffalo NY area.  Kevin O’Beirne’s LinkedIn page.  
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Kevin:

I really appreciate the your careful and reasonable approach to an issue the construction industry must face, hopefully sooner than later. This idea might make an interesting panel discussion at the CSI Conference.

Again thanks for your response.

Robert - Thanks for reading the article and for posting a comment here on the blog. Such things are always very appreciated. Your questions is a very intriguing one. I suppose it can be looked at from a couple of different standpoints. 

From a standard of care standpoint, the design professional is expected to exercise the same level of skill, care, and professional judgement as other design professionals working in a similar capacity in the same discipline in the same geographic location as the project. Because standard of care cases typically turn on the testimony of expert witnesses, the outcome may well hinge on whether the expert witnesses in a given case believe the design professional should have designed to the code or other relevant design standard, or to something higher. If the typical practice has generally been to design to the building code, then the outcome of a standard of care case might well go in that direction. Of course, it is difficult to opine on a hypothetical situation. 

From a practical standpoint and the standpoint of meeting the client's expectations, the matter may, perhaps, be somewhat different. I suppose a prudent design consultant faced with the situation you describe should probably discuss with their client whether or not the project should be designed to the required minimum (such as merely complying with the code or other applicable design standard) or whether to design to a higher standard. Consulting with one's client on such questions strikes me as appropriate because designing to a higher standard means spending more of the project owner's money, so the owner and client (if other than the project owner) should be party to the decision as to whether or not to design to a higher standard. 

If the decision is made to design to a higher standard, then the question arises as to just how far beyond the required minimum the design should be. The answer could be something as simple as an arbitrary factor of safety or based on some type of analysis of available climate and environmental data and attempting to extrapolate a meaningful conclusion from it. Exactly how that could or should be done will probably depend on the project, the types of climatological and environmental data considered, design alternatives, the project owner's economics, and possibly other considerations as well. Again, with a hypothetical, it is difficult to attempt to provide a specific answer. 

While I am probably not qualified to opine much on how or whether building code requirements might need to be updated because of climate change in certain areas, as a civil engineer, I have certainly had to face similar questions, such as designing for "historic" high lake or river levels, design temperatures for process systems at treatment plants facilities, and similar matters on engineer-led water, wastewater, and storm water projects. Again, you pose a very intriguing and timely question facing the various design professions. 

Kevin:

Given the almost total deviation from historic data on temperatures, rain fall, wind events, and almost everything else under the broad heading of "Natural Causes" where does the design professional stand on trying to balance what the energy and building codes (minimal requirements) and what could be coming?