The design and engineering work that goes into a construction job is obviously critical to the overall success of the completion of the project. Accordingly, failure to devote the necessary care and attention to ensure that the work is executed properly is to expose that project to the potential for significant losses. For example, a structure that is poorly designed or that does not adequately account for the relevant mechanical, structural, electrical, and geographical needs is likely to fail.
Construction management firms have over the last decade taken on an increasing role in projects undertaken, which means that they face many of the same professional liability issues confronting architects and other design professionals. These firms often serve as the point person to design and build these projects, and as such, could benefit from construction management liability coverage.
Examine contracts carefully to help determine levels of risk
As a lender, owner, contractor, or subcontractor, your success relies heavily on your risk management capabilities. Within most contracts, risk is primarily allocated through indemnity and insurance requirement provisions, and there simply is no substitute for sound business and construction practices. Construction firms can benefit by carefully preparing and reviewing any contract they are involved with.
Important risk management concepts to consider
Owners and contractors can benefit by anticipating any potential project risks and determine whether or not to retain or transfer them since, from a risk management perspective, it’s crucial to pass the project risks to the parties most capable to manage them. Owners, many of whom are not practiced in the nuances of the construction industry, should strive to limit the number of parties with whom they contract.
The owner is better off engaging a project architect, who will take responsibility for engagement and oversight of all other design professionals. This holds true for the project’s construction activities; the owner should enter into a contract with the contractor, who will engage all subcontractors. In this way, the overall project risks belong to those familiar with the territory and therefore possess the greatest ability to control any construction management liability issues.
Why construction management firms need errors & omission insurance
As the project manager, the firm can be held liable if an individual doesn’t perform with the appropriate standard of care. While general contractors are not actively designing the project, they are vicariously liable for the actions of sub-consultants and therefore need this coverage if the work performed comes under scrutiny.