We consider the potential claims that architects may be exposed to in the current economic climate…
Claims exposures for architects
We consider the potential claims that architects may be exposed to in the current economic climate.
Over the first nine months of this year, 385 claims have been issued in the Technology and Construction Court. This represents over a 40 per cent increase in claims issued on a date-by-date basis, compared to this time last year. A notable proportion of these claims involve architects, either suing for unpaid fees, or being sued for alleged negligence.
What is causing this surge in litigation? The current economic climate is, of course, a major contributing factor. Along with manufacturing, the construction industry has been hardest hit by the recession. It has endured 17 months of continuous decline. The sector is contracting at a worrying speed, with £20 billion expected to be wiped off the industry this year.
The shortage of work, and cash flow problems are, in our experience, exacerbating the number of claims. Parties are no longer quite as willing to swallow the losses incurred on a difficult project in the broader interests of the relationship. They need the funds, and cannot be sure that their client will be in a position to give them much further work over the short to medium term.
Disputes between the contractor and the client can always spill over into a claim against members of the professional design team. We are aware that a number of clients are at least putting their consultants “on notice” of potential claims, usually resulting from claims being intimated by the contractor for loss and expense resulting from delays. Late design or design inadequacies are often cited as factors, which creates a potential exposure for the architect involved.
We regrettably suspect matters are going to get worse before they get better. With the threat of contractor insolvencies, the architect risks being seen as the only potential defendant with deep, “insurance-lined”, pockets. Many construction professionals are also currently undermanned, or trying to move into new areas. “Chasing the work” always creates the risk of picking up bad clients, or the consultants potentially lacking experience in the new field.
Going forwards, the nature of contractual relations on projects is changing. “Cost plus arrangements” appear to be being shelved in favour of fixed price contracts. The lessons learned from the early 1990s are that the greater the pricing risk that is placed on the contractor, the greater the potential for claims. Another worrying trend is that tender prices have started to fall in the face of a crumbling workload and are predicted to drop substantially further. Re-tendering by clients is becoming common as they perceive opportunities in a falling market. The dangers are that, if the contractor is cutting prices to win the job, this may simply be storing up the potential for claims further down the line.
Types of claim we are seeing
- An increase in claims by the contractor for extensions of time and loss and expense which the employer is seeking to pass on to the professional design team.
- With contractor insolvencies, claims for failing to supervise or adequately inspect the works, which give employers a roundabout route for suing for compensation for defective workmanship by the contractor.
- Claims against construction professionals for failing to provide accurate costing information on large projects, or to administer a project properly, where the developer has found itself short of funds.
- HSE prosecutions. The regulatory regime for construction Health & Safety has been tightened in recent years. Designers now have a pivotal role in ensuring, so far as reasonably practicable, that hazards are eliminated by their designs. A new Health & Safety (Offences) Act came into force in January 2009 which increased the level of fines that can be imposed in the event of a health and safety prosecution. In our experience, the HSE is tightening up its act and accidents on site will be rigorously scrutinised to see if someone is to blame
Please feel free to contact us for Risks Management advice to reduce your exposure.