Pitfalls and challenges in the design and engineering process
Underwriter, Zurich Construction Professional Indemnity
Audrey Lau specialises in construction professional liability risks and underwrites annual and project specific programmes for contractors, construction professional service firms and major project owner/developers.
Vice President, Zurich ConstructionTom is responsible for the underwriting management activities of Zurich’s Subguard® coverage and its Contractors and Architects & Engineers professional liability products.
Vice President, Zurich Construction
Tom is responsible for the underwriting management activities of Zurich’s Subguard® coverage and its Contractors and Architects & Engineers professional liability products.
Design errors are one of the major causes of construction cost overruns and delays. Past studies have shown that up to 75% of problems encountered during construction are generated in the design phase*. Constructability issues, incomplete plans and insufficient design details are some of the more common design errors/omissions encountered on construction projects. When these errors are not identified and corrected during the design phase, they are likely to manifest during or after construction. Consequently, they may result in more substantial delays and cost overruns.
Recent cases illustrate how design problems can severely impact project schedules and budgets:
On a US project, a geotechnical engineer incorrectly designed a foundation piling system. Several months after installation, the piles and corresponding structure began to experience considerable settlement and structural distress. Work on the project was stopped and the owner was forced to hire a third party to evaluate and remediate the problem. When the project was finally completed, it was nearly 200 days late and over budget by approximately USD 21 million.
On a commercial building project in the UK, a developer incurred over GBP 40 million in losses after a structural defect began to manifest in one of the buildings shortly after completion. The defect was attributed to improper structural design and the building was deemed unstable. As a result, the developer had to demolish and rebuild most of the structure. Although the developer’s loss included the additional costs to rebuild the structure, three quarters of their loss was actually attributed to consequential damages from the loss of use of the building during its closure.
Design errors can occur on all construction projects, but early identification of these errors allows for early rectification without significant impact to the construction. Some best practices that can help project owners to minimize the risk of severe design issues include:
Robust consultant pre-qualification procedures
Avoid selecting project design consultants on price or aesthetics alone. Instead, establish a pre-qualification process that also evaluates the consultant’s:
- direct relevant technical experience
- resources and ability to sufficiently staff for your project.
Typically, this should be provided to the project owner in the consultant’s ‘Statement of Qualifications’. This document should identify:
- project/professional references
- litigation history (Professional Indemnity claims)
- technical specialties
- organization and project management systems
- key members of your project team
- budget/pricing techniques
- proven experience with contemporary design techniques such as Building Information Modelling (BIM).
Establish early communication between all parties
Early involvement of all parties (owners, design consultants and contractors) during a pre-construction phase provides a better opportunity for everyone to understand project requirements and design briefs.
Allow sufficient time for the design phase
Fast track construction projects are under tight schedules and are more prone to design problems due to the limited amount of time available for design review and correction. Particularly when dealing with more complex or aesthetic designs, it is best to go for traditional procurement and ensure sufficient time is allocated to the design phase.
Use independent peer reviews when possible
As a best practice, engage a third party consultant or constructor to conduct design reviews and constructability assessments. A fresh set of eyes is better able to identify design errors and omissions.
Ensure your project is adequately insured
Make sure your design professionals carry a sufficient level of coverage under their Professional Indemnity (PI) policies. In both our claims examples, the project owners’ only way to recoup their losses was through pursuing the negligent design professional’s PI insurance. However, project owners need to be mindful of the fact that a design professional’s PI policy typically covers all of the firm’s projects and these policy limits may be impacted by other claims.
Design errors/omissions can be costly and while these best practices can help project owners to reduce the risk of a severe design related loss, they do not eliminate the risk entirely. To protect themselves from the unexpected, owners may want to consider an Owner’s Protective Professional Indemnity (OPPI) policy. OPPI is an umbrella-type project PI cover that sits above the design professional’s insurance and protects the owner in the event that the design professional’s insurance limits are insufficient for the size of the claim, are eroded due to other claims or were subjected to other events that might encumber the design professional’s limits.