Focusing on the Fundamentals
BY ARTHUR SCHWARTZ
As an attorney with more than 35 years of working closely with professional engineers, I’ve been asked a lot of questions about the legal intricacies of engineering practice. Many of those Q&As have been published on PE magazine’s “Legal Beat” page and in other NSPE publications. They’ve covered just about everything: personal liability, copyright, defamation, noncompete agreements, employment policies, serving as an expert witness, and many other topics.
But three areas have sparked some of the most common queries: document retention, agreements between owners and engineers, and liability laws.
1. Document Retention
As PEs well know, today’s projects have become increasingly complex. They can involve multiple large teams that are geographically dispersed. Complexity also grows from factors such as schedule, political sensitivities, time, budget, risks, and changing technologies.
Not only are projects growing in complexity, so too are businesses themselves. As a result, design and construction firms generate a lot of project documents and records as well as documents and records related to day-to-day business operations.
What should you keep? Discard? It depends, and thus the reason document policies are necessary.
Document retention policies address several challenges. Documents take up physical and digital space, and these come with a cost. Engineers also face the potential of litigation, which can require quick access to a project’s records. Plus, simple ease of access to your documents can make life much easier.
Document retention policies can vary widely depending on the type of firm, the type of projects, and other factors. In general, these policies should cover retention and destruction, project records, corporate records, paper files, and electronic files. Another consideration is to set document retention protocols for projects based on two or three levels of risk categories.
As I’ve reported in PE magazine’s Legal Beat, as a general rule, working versions and superseded versions of documents should generally be discarded after final versions of the documents are issued (but all milestone deliverables should be maintained). Also, during a project, informal and internal communications that offer critiques, suggestions for improving plans or reports, or self-critical analysis may have been prepared. While these comments may have been helpful at the time to improve the finished product, they could become damaging in the event of litigation and should be discarded after the final version of the drawing or report is created.
Additionally, each state has a statute of repose that limits claims that can be brought against professional engineers measured from the date of substantial completion of a facility. Keep this in mind when determining how long to archive your records.
Another consideration: the language in your project agreements. For example, the Standard Form of Agreement Between Owner and Engineer (E-500), published by the Engineers Joint Contract Documents Committee, recommends preserving all project documents for five years following project completion or termination of services.
As you begin considering a document retention policy, be sure to consult with legal counsel as well as tax and financial advisors for assistance in preparing the policy and an audit procedure to insure compliance.
For more details, read the free Document Retention Guidelines.
2. Agreements Between Owners and Engineers
The relationship between owners and engineers is at the heart of projects, so it’s not surprising that the legal agreements between the two raise a lot of questions.
Owner-engineer agreements cover many areas, but the questions I’ve received are often in four categories.
Construction Costs: It’s not uncommon for owners to ask engineers for guidance on the total cost of a construction project or ask for some assurance—maybe even a warranty—that a project won’t exceed a certain dollar amount. As a general rule, an engineer’s opinions of probable construction costs are based on the engineer’s experience and qualifications and represent the engineer’s best judgment as an experienced and qualified professional engineer generally familiar with the construction industry. But there are many contributing variables that are beyond the engineer’s control: cost of labor, materials, equipment, or services furnished by others; contractors’ methods of determining prices; competitive bidding requirements; and market conditions. If the owner wants greater assurances, the engineer should advise the owner to hire an independent cost estimator.
Standard of Care: As professionals, PEs are held to a professional standard of care. Unlike the more onerous “contractor standard,” which warrants or guarantees a result, the professional standard of care does not. In virtually every state, when performing professional services, engineers are held to the “professional negligence standard of care,” which means that when a PE is sued for negligence, the plaintiff must establish that the PE breached a “reasonableness” standard as established by expert testimony, usually by another PE. To prevail against the PE, it is not enough necessarily that the suing party suffered harm. It is possible that the engineer’s design was “reasonable” under the circumstances and, therefore, the PE did not “breach the standard of care” but did all that a reasonably prudent PE would have done under the same or similar circumstances.
The “professional standard of care” does not automatically apply to other services, such as when a PE acts as a design-build entity, provided by a professional engineer for a client. The engineer and the client, however, may agree by contract for that standard to apply. A good example of this is found in the Standard Form of Agreement Between Owner and Engineer for Professional Services (E-500, 2014 Edition) published by the Engineers Joint Contract Documents Committee. This contract states that “the standard of care for all professional engineering and related services performed or furnished by Engineer under this Agreement will be the care and skill ordinarily used by members of the subject profession practicing under similar circumstances at the same time and in the same locality. Engineer makes no warranties, express or implied, under this Agreement or otherwise, in connection with any services performed or furnished by Engineer.”
Keep in mind that each project is different. As the specific circumstances and location change, so will the standard of care.
Responsibility for Construction: Another issue related to performance standards involves the engineer’s role in construction. There are many kinds of scenarios in which the engineer may be “involved” in construction. In some cases, for example, clients who don’t know a lot about design and construction may refer to engineers as contractors in a project agreement, even though the two are obviously different. Or in other cases, engineers providing construction-phase services may be asked by contractors for advice on certain matters. Whatever the case, engineers need to be very cautious to not unwittingly subject themselves to possible liability.
As stated in EJCDC’s Standard Form of Agreement Between Owner and Engineer for Professional Services: “Engineer shall not at any time supervise, direct, control, or have authority over any Constructor’s work, nor shall Engineer have authority over or be responsible for the means, methods, techniques, sequences, or procedures of construction selected or used by any Constructor, or the safety precautions and programs incident thereto, for security or safety at the Site, nor for any failure of a Constructor to comply with Laws and Regulations applicable to that Constructor’s furnishing and performing of its work. Engineer shall not be responsible for the acts or omissions of any Constructor.”
3. State Liability Laws
NSPE regularly reports on liability issues of concern to PEs and is always on the lookout for legislation that could be detrimental to engineering practice. Laws covering five particular areas of liability are most important: statutes of repose, sole source workers’ compensation, certificate of merit, joint-and-several liability, and anti-indemnity and limitation of liability.
The practice of engineering comes with legal risks. Each of these types of laws have a profound impact upon that practice.
Statutes of Repose: All states have statutes of repose, but they are different, and courts often make decisions that determine how the laws are interpreted. These statutes continually bar actions against design professionals after a certain period following the completion of services or the substantial completion of construction. Statutes of repose do not totally absolve the design professional of any liability but merely prevent them from having to defend an action brought many years after they have completed the project, for which the design professional cannot reasonably be held responsible.
Sole Source Workers’ Compensation: When injured employees sue to recover damages, design professionals may be targeted, even though they are not the employer of the injured person, because they are presumed to have malpractice insurance.
Injured employees may allege that a design professional’s negligence in preparing the plans and specifications, or in observing construction to determine compliance with the plans and specifications, was the proximate cause of the injury or death. These liability claims are a source of considerable cost to design professionals in terms of both direct expenses and lost productive time.
Some states, however, have amended their workers’ compensation statutes to provide immunity to design professionals on construction projects when they are not responsible under contract for the means, methods, techniques, sequences, and procedures of construction or for employee safety.
Certificate of Merit: To prevent baseless lawsuits, a few states have adopted certificate-of-merit laws, which require the plaintiff to consult with a third-party design professional to review the facts of the claim before moving it forward. The plaintiff must then file with the court a certificate from the third-party design professional declaring that, based on their review of the allegations, the third-party design professional believes that there is a reasonable basis for commencement of the action.
Joint-and-Several Liability: Modifying the application of joint-and-several liability means that an engineer who is only partly at fault for a cost, loss, damage, or injury is responsible only for the harm created by the engineer’s negligence or the negligence of another party, such as a subconsultant, for whom the engineer is liable. If the harm is not fully rectified by the action against the engineer, the plaintiff has no further recourse against the engineer for the other harm experienced by the plaintiff.
Anti-Indemnity and Limitation of Liability: Engineers often face substantial liability risk on projects but receive a one-time fee that is a small percentage of the project’s value. On the other hand, project owners receive the principal rewards and the long-term benefits. One solution to this risk-reward discrepancy is to have the owner agree to limit the engineer’s liability exposure to a degree that bears a reasonable relationship to the reward received by the engineer.
For details on these types of statutes, see A State-by-State Summary of Liability Laws Affecting the Practice of Engineering (2018) and NSPE Position Statement No. 1751.
The Next Level
These are just a few of the complicated areas that lead to questions from PEs. Although professional engineers are paid for their technical expertise, a solid grasp of professional practice issues can help you stand out from your peers and perhaps move into leadership roles. Knowledge of business, ethics, project management, communication, and other topics can push you to the next career level. Understanding the legal aspects of engineering can too, but you’ll also be better equipped to keep yourself and your business safe from potential liability.
Arthur Schwartz is NSPE’s deputy executive director and general counsel. He also serves as executive director of the National Academy of Forensic Engineers. If you have questions, he can be reached at firstname.lastname@example.org, but he reminds you to consult your own attorney when looking for specific legal advice.