Risk management insights regarding the coronavirus
It’s easy to feel anxious and isolated in these uncertain times. We at Beazley want you to know we are sending best wishes to you, your families, and friends. As partners in your business success, we strive to manage risk together and offer guidance on unique considerations you may face from a risk management perspective during this difficult time and the economic impact that is expected to follow. We’re all being bombarded with updates via email and television, so we provide concise recommendations below.
Project stoppages and delays
We already know construction projects have been suspended by the City of Boston, Massachusetts due to the coronavirus and anticipate more suspensions and other delays across the globe. It is likely that we will see delay claims as a result. The importance of detailed documentation cannot be overstated. If a project is suspended, you must do your best to document the status of the project at the time of suspension. Do your best to understand the construction schedule so you are in a position to protect yourself in the event of a delay claim.
Now more than ever, it’s critically important to contractually define your obligations with respect to
project delays and appropriately manage risk associated with delays beyond your control. We specifically recommend incorporating a force majeure provision in your agreements. Such a provision operates to excuse the design professional when a project is delayed due to causes beyond your reasonable control. Our recommended language is as follows:
“The Design Professional shall not be responsible for delays caused by factors beyond the Design Professional’s reasonable control, including but not limited to delays because of strikes, lockouts, work slowdowns or stoppages, government ordered industry shutdowns, power or server outages, acts of nature, widespread infectious disease outbreaks (including, but not limited to epidemics and pandemics), failure of any governmental or other regulatory authority to act in a timely manner, failure of the Client to furnish timely information or approve or disapprove of the Design Professional’s services or work product, or delays caused by faulty performance by the Client’s or by contractors of any level. When such delays beyond the Design Professional’s reasonable control occur, the Client agrees that the Design Professional shall not be responsible for damages, nor shall the Design Professional be deemed in default of this Agreement.”
Approval of payment applications
In the last recession, we saw a substantial uptick in owner claims where the contractor had gone out of business and the design professional had approved the contractor’s payment applications for work not yet completed. Now is a critical time to make sure that the work has proceeded to the point indicated by the contractor’s pay applications. In short, make sure the approval process is not a “rubber stamp” exercise. If the owner insists on making payment without your approval, make sure you document it.
Lender conditional consent to assignments
We may see lenders ratcheting up the language they put in assignment documents. Hold the course! In the event the lender takes over the contract they should be stepping into the shoes of the owner: you should not agree to any obligations that go beyond those set forth in your contract; you should not grant any rights that your original client did not have; and you should be entitled to full payment under the contract as if your original client was still involved.
Your professional services contracts
Finally, as we learned in the last recession, don’t let your guard down when negotiating your contracts. You know what your firm’s risk appetite is and you have risk management procedures in place, so stay on track when assessing projects, clients, and contract terms and conditions. You may feel pressure to take on projects that you would ordinarily decline, but the prudent design professional will take the long term approach when assessing possible work.
Don’t forget our risk management website
For more on general and specific project risk management, we have loads of information available exclusively to you as Beazley A&E insureds and broker partners on the Beazley A&E risk management website both in article and webinar format if you want to take a break from Netflix or the news channels. Our next A&E risk management webinar will be April 23, 2020 and we will send out invitations soon. Until then, feel free to contact us to discuss your risk management concerns and please stay safe.
About the author:
Colleen joined Beazley in December 2007 as an A&E Risk Manager and is based in the New York office. Before joining Beazley, Colleen was a practicing attorney in Boston, MA, where she focused on assisting architects and engineers. She specialized in providing risk management services to design professionals on a nationwide basis, including conducting risk management seminars and advising on contractual issues. Colleen earned her Bachelor of Science degree in Biology from Cornell University and her Juris Doctor, cum laude, from the University of Miami School of Law.