Claim Reduction is a monthly series by the ASCE Committee on Claims Reduction and Management designed to help engineers learn from problems that others have encountered.
Performing engineering services involves risk.
Projects have challenges the engineer is retained to resolve, and in the process, decisions are made involving both the project owner and their engineering consultant. As decisions are made, there are often cost and function trade-offs – the decisions carry risk including, in many cases, transferring portions of the risk to the contractor.
Risks can be accepted, transferred, mitigated, and/or insured. In today’s engineering environment, openly dealing with these project risks is more important than ever, because there is rarely “enough” money to completely design the risks out of a project or to pay for an over-design so that the risks are not an issue.
Project risk mitigation is now a strategic differentiator for successful projects, leading to both improved client satisfaction and improved performance of a consulting practice.
A risk mitigation program already exists within most engineering consulting firms. Leadership is required to proactively implement an actionable risk-mitigation culture in an engineering practice by formalizing, monitoring, and memorializing the risk mitigation program to elevate the effectiveness.
In this article you will be introduced to:
- Various internal processes for implementing a risk mitigation process
- Expected benefits
- Initial steps for implementing a program
- Establishing accountability and documentation
Most consulting firms have an established operating style that functions as risk mitigation. Often in a small consulting practice, the owner/leader/managing partner makes the decisions about what projects the consulting firm will and will not take. This is the first step of risk mitigation.
These decisions are rarely formally documented; they just happen. Key project managers develop a risk culture that reflects the company history and style. As companies grow and become more diverse in their technical offerings, using this established system for risk mitigation can grow problematic.
This leads to consulting firms accepting assignments that carry more risk than they are accustomed to and may involve interacting with owners and projects where the project risks are not as well understood.
Evolving the existing risk culture into a formal program should improve client satisfaction, reduce claims, and improve the profits of the consulting firm.
Establishing a risk mitigation program involves three key steps:
1. Pre-Proposal Go/No-Go Decision-Making
What is your company’s process for making go/no-go decisions in the pre-proposal phase? Is the process written down and formalized? In the pre-proposal phase the consulting firm needs to evaluate multiple factors:
- Does the history of the consulting practice indicate they have the experience and expertise to do the work?
- Have you previously done successful projects for this client or type of client?
- Is the size of the project within the normal historical range for your company?
- Does the schedule for the project fit with your current availability of staff and key subject matter experts?
- Are the business terms and insurance requirements in the contract similar to those you’ve worked within before?
Answering these questions will form the first step of implementing a risk mitigation process. If your company is not comfortable with the answers you develop during the pre-proposal phase, then evaluate how these specific issues will impact your risk profile on the proposed project. This evaluation impacts both the consultant and the project owner because each client has a different level of risk they are used to carrying, and not meeting client expectations on risk often leads to, at a minimum, significant project-related rework, or at worst, a claim at the end of the project.
Not being able to answer these questions does not mean that you will not prepare a proposal. It just means that if you do propose, you need to develop a process for project execution that will mitigate the identified risks.
2. Contract Evaluation
Every consulting firm should have a formalized contract review process that leads to risk mitigation functions. Contracts exist specifically to transfer risks. The project owner needs engineering work performed, and the engineering firm is paid to perform that work. The work that is performed should be done within the normal established Standard of Care, but in some contracts, the Standard of Care is not clearly identified or is confusing. In addition to Standard of Care language in the contract, sometimes contracts specifically transfer risks to the consultant for the purpose of resolving project issues. Some of the contract issues that should be considered in a risk mitigation program are:
- Legal defense obligations
- Indemnity
- Liquidated damages
- Consequential damages
- Limitation of liability
- Excessive insurance limits for professional liability and/or general liability
- Unavailability or unnecessary insurance coverage requirements
3. Technical Risks
Technical risks are very specific to each individual consulting company. Having the subject matter experts required by the project is fundamental. The risk review process must evaluate whether the consulting firm has the expertise to resolve the anticipated project issues. One risk consideration to have built into a risk mitigation program is to evaluate each project that is outside the normal technical range for the company. Questions to ask are:
- Do we employ the key subject matter expert(s) required for the scope of work?
- Will we be doing the work in an office that has done this type of work before?
- Will we be implementing a new or novel technology?
- Is there a potential for a catastrophic loss of life or property associated with the project?
- Does the project involve a superlative – “deepest,” “longest,” “highest,” “heaviest,” “tallest,” etc.? If so, are we clear on the Standard of Care?
Identifying technical risks will serve both the client and the consultant. Technical risks are often mitigated by implementing an elevated quality review process, conducting more testing or modeling, discussing transfer of certain design risks to contractors using a delegated design process, retaining a sub-consultant with the proper expertise, and by agreeing with the client as to the level of anticipated design versus the risk an increased design effort is intended to resolve.
Implementing a risk mitigation program is personal to each firm based on its established goals. In any case, the program should be written down and documentation should be established so that risk governance strategies become a company culture.
In some companies, reducing claims will be the goal. For those risk mitigation programs, you will want to honestly evaluate what decisions led to the claim. Was it a project where you overstretched your expertise or didn’t conduct a proper contract review? After determining the common issues that result in increased claims, formulate your risk mitigation program to identify those issues and either avoid them with a no-go decision or improve your internal processes during project execution. With a written risk mitigation program, the project manager can be delegated to have the accountability and responsibility to implement risk mitigation as part of the project management plan.
Finally, it should be noted that some projects involve risks that the owner must acknowledge. These project risks are managed by the consultant during the execution of the engineering. Having a robust up-front discussion and team meeting with the client will identify those risks, determine what consulting steps are planned to identify and resolve those risks, and what actionable steps will be implemented throughout the consulting assignment.
Daniel Harpstead, P.E., is a senior vice president at Kleinfelder and currently serves as the risk mitigation director for the company. He works with internal risk management and mitigation committees to identify potential project risks and how to best mitigate them, while also serving in risk mitigation roles on many projects. Harpstead holds a bachelor’s degree in civil engineering from Michigan State University and a master’s degree in civil engineering from Purdue University.
The Committee on Claims Reduction Management will conduct a Workshop on Reducing Claims Against Engineers on Alternative Delivery Projects, May 1-2 at ASCE headquarters in Reston, Virginia. Learn more at ASCE’s Risk Management Hub.
Read more helpful insights from the committee’s Claim Reduction series on the Civil Engineering Source.
