Q&A from the PSMJ Resources, Inc. / XL Group Webinar on September 18, 2012: Developing Satisfied Clients: 6 Steps That Can Save Your Assets

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1 Q&A from the PSMJ Resources, Inc. / XL Group Webinar on September 18, 2012: Developing Satisfied Clients: 6 Steps That Can Save Your Assets Q: Can you give us examples of how to set up a procedure to ID conflicts, errors & omissions? An excellent way is to implement a routine feedback process at key milestones on the project. The feedback process should be more than just asking, How are we doing? but should address communication, schedule, attention to scope, etc. Q: It's not hard to get to the site. It's hard to get the owner to pay for it these days. Agreed, but if CA is not part of your scope of services you should attempt to limit your liability for errors that may come up during the construction phase. If you are a policyholder, you can consult the Design Without Construction Phase Services chapter of XL Group s Contract eguide for Design Professionals, which offers strategies and suggested language. Q: Weekly reports, even if you visit the site every other week and prepare reports after each visit? We suggest weekly project reports on the status of the overall project (progress made during the week, planned accomplishments for the upcoming week, a status on the budget, scope and schedule, and things you are waiting for or need from the client). Site visit reports are a thing in and of themselves that report what you observed during a site visit. Q: If there is a "claim trigger," how can that risk driver be mitigated by BETTER handling when it's identified? The single largest Risk Driver by far is Communication. Knowing the common claim triggers for specific project types or client types helps a designer to be better prepared and be proactive when on those projects. For example, we know that Scope of services not explained to client accounts for 13% of the claims in the Communication Risk Driver category. Say you re working with a client who lacks experience in the design and construction process; it becomes especially important to spend extra time and attention to education the client on what your scope includes and what it doesn t. The best strategy is always to avoid the claim before it comes up by controlling the risk. Q: Any advantage to have survey performed prior to construction. For instance, we are more of house plan company and seldom provide CA since projects are outside of our state. Should only survey after the client has built or after end of our services which are typically at drawing delivery? We re not sure of the exact question here. If your business consists mostly of selling house plans, you should make sure your contract does not include any construction administration, nor any site-specific scope involvement. 1

2 Q: What would be the best way to convince a client that they will benefit from CA services? Unfortunately, some of my clients do not want to pay for this extra service. The easiest course is to use standard professional association agreements. Nearly all of these contemplate the A/E s involvement in CA services. The AIA B101 and the EJCDC , along with the related general conditions of the construction contract and other documents in the series, have done the work for you. Beyond that, you need to use your persuasive powers. Underscore that such services can help lessen delays and mistakes, and can preserve the integrity of design the client has agreed to. Another option is to offer the client a cost/benefit analysis. Assess the results of your projects when you provide CA and compare the results when you do not. By measuring budgets, schedules and delays, you are in a position to demonstrate to the client the value of having these services being provided by you. If your owners routinely eliminate you from CA, you should guard yourself against your liability that might arise during construction with adequate indemnification language and/or a limitation of liability in your contract. Q: What is the best way to communicate to clients the potential unknowns in a project? The best way is to give them the benefit of your experience on similar projects. Classify them into known unknowns such as price increases in materials, number of meetings with state officials or zoning boards, etc, and unknown unknowns like weather conditions or unforeseen site conditions. All of these buttress the owner s need for contingency fees on most projects. Q: How do you get the client to listen to you early in the process? You may want to talk about construction aspect and they are still looking at the design. How do you get their attention? If the client still wants to talk about design there is a reason for that. Part of the designer s job is to listen to the client. If there are aspects of construction that bear on the design, certainly bring them up and segue into the construction process, but don t force the client forward until they are ready. Q: In many projects there are many different stakeholders participating in a project with many different agendas. With limited fees how do you manage this circumstance? This depends, of course, on where you are contractually on the project hierarchy and the method of project delivery. If you are the architect in a typical design-bid-build project, part of your job is to manage the subconsultants and to organize the various stakeholders. You should be charging sufficient fee to cover this activity. If you are not, or choose not, you should contractually limit your activities with a very tight scope of work that states that these activities are not a part of your scope of services. Q: If you have a change in client leadership mid-project and the ground rules substantially change, how can an architect head off different expectations (happens all the time in school projects). Some polite but clear intervention is necessary. Do you suggest reconfirming front end goals in a formal way? Anything else? Reconfirmation is a great step, but you sometimes have to deal with a whole different set of expectations brought on by the new leadership team. The only way to surface these expectations is to talk about them. 2

3 Communication is the key, and earlier rather than later. Q: Not a question, just a little feedback: It would be great to do this webinar again very soon. Audio cut out very often and some of the technical bugs got in the way. Great content! Worth hearing over and over. I had ever single PM in our office sitting in on the webinar. Thanks for the feedback. We will be publishing a rerecorded version on the XL Group Design Professional website, and we ll notify participants as soon as it s available. Q: When the owner has their own PM and they act as a filter and incorrectly gives you bad information making you look bad, how do you mitigate that risk to you and your reputation. Document, document, document, and don t assume anything. Use a technique called active listening with the owner and PM to clarify what they have really said, and then put it in writing. Active listening involves saying something like, What I understand you want then repeating back to them what they have just said. Frequently, they will either clarify or redefine what they have just said to you. Then send a confirmation letter that states once again what they have said. Q: If the client refuses to pay for CA should you get a reduction in your liability for the project? If you can t convince the client to include provide full CA services, you should negotiate for the best indemnity protection possible. Show in your workscope's Excluded Services section that the owner has declined your construction phase services, and then get contractual protection for not being allowed to provide those services. Also, clients sometimes decide mid-project to curtail your contracted CA services in a misguided attempt to save money. In that event, you won t have any reduction in your contractual liability unless you ve negotiated it up-front. We recommend a self-executing clause that is triggered by any reduction in scope and calls for the client to indemnify you for claims, damages, losses or costs associated with or arising out of such reduction in services. Q: Is it true that the owner is always right? It is true that you should always leave the owner feeling that they are right. That does not mean that the owner is always right. Q: We typically work for architects, not owners. How do we educate the client when once removed? And how can we guard against poor decisions by the architect? This is one reason why Communication is the single largest Risk Driver. If you have an issue where you believe the owner needs some education specific to your scope and discipline, the architect should in a perfect world be your biggest supporter. If an architect insists on doing something you consider truly a poor decision, document that design choice and state that it was done despite your objection. If it is a 3

4 matter of health and safety, you may have valid reasons to elevate the objection or to leave the project. Q: Many clients transfer trust to contractors during construction how do you counteract that when you are on site weekly and they are on site daily? Hopefully you have established a good level of trust in all the stages up until construction. Part of your job is also to educate the client on what happens during a typical construction phase of a project such as theirs. Bring up the subject of contractor-suggested substitutions and how they should be evaluated, etc. Q: How do you manage scope creep, specifically when do the nickel and dimes add up to a Change Order? The best way to manage scope creep is to write a tight scope in the first place, describing both what services you will provide and what services will be provided by others. The other way is to quantify what typical scope changes cost you. It is ok to give some small changes away, but you should know how much these amount to and hold fast on changes that represent larger amounts of time or money. Q: I have found that some clients will take my scope and "find" additional responsibilities or work items that were clearly not part of the scope. How do we manage this client and keep the relationship positive when the design professional must say no, this is not in the scope? Again, one specific slice of the Communication Risk Driver pie chart is Scope of services not explained to client. Going over your scope of work with the client before the project kickoff meeting and asking ahead of time, Do you want me to do this? helps to surface these issues. The relationship stays positive because you are showing your knowledge of the entire process and trying to foresee any pitfalls. Q: How is an Architect to manage project costs in a Cost-Plus job? When is a GC's error or omission in construction budget a change order? Do we assume liability for cost control being required to review pay-apps? First, we assume you mean the architect s project costs and not the total project costs in this question. Unfortunately, cost-plus payment has a built-in incentive to maximize the number of hours charged to a project. When you combine that with the usual pressure on staff to meet an internal utilization goal, they form a recipe for inflating the costs to the owner. One way of controlling these costs internally is to price out the work breakout structure of the project by hours and give each task an hourly budget. That way the staff has to meet their budget for a specific task or explain to you why it has taken more time to complete. If a GC makes an error or omission, your job is solely to approve or reject the work if you have CA services as a part of your scope. Some GCs will ask for a change order to the construction budget when, in fact, they underbid the project to get it. One way of controlling this is to have contractors sign and submit an acknowledgement notice along with their bid which attests that they have read the plans and specifications and that their bid is made on a full understanding of the plans and specs. 4

5 Generally, we don t see a lot claims related to pay-app review. And when we do, they tend to be related more to construction observation responsibilities than to budget issues. For example, an owner files a claim against the architect because the firm approved the pay-app for a particular part of the work, yet a construction defect was later found in that work. Q: What constitutes an error and omission? All projects have change orders. How do you handle a client who expected perfection and feels all change orders are errors or omissions. The third leading Risk Driver is Client Selection. You should identify those clients who expect perfection ahead of time through lots of discussion and keeping your own early warning systems in place. Many times the best project you ll ever have is the project you don t take on. Q: How did this industry go Pay When Paid? Both primes and subs want to get paid it s only fair. From the prime s perspective, Pay-When-Paid seems reasonable. Architects, for example, cannot afford to pay subconsultants while waiting for the owner to pay them. What is really at fault is owners unwilling to pay a retainer or subconsultants unwilling to mark up their fees for the carrying cost of capital. Owners who understand the process realize that they will pay the same amount of money over the project even if they pay a retainer up-front. What owners are effectively doing by being slow to pay is extracting an interest-free loan from the design professionals for the first days of the project. Q: Seems we as professionals are allowing pay cycles to extend to levels not seen in other professions. Any suggestions on how to change this? First, as in the previous question, insist on retainers for the first 90 days of work. If you are a sub-consultant, explain that if you cannot get a retainer that you will have to mark up your fees to reflect the carrying cost of the interest. Second, find out when your client pays their invoices at the startup of the project and make sure that your invoices reach them one week prior to that date. Not everyone cuts their checks on the same date. If you issue all your invoices once a month on the 1 st and your client cuts their checks on the 1 st, you will automatically wait 30 days to be paid. If you know they cut their checks on the 1 st and make sure they receive your invoice on the 23 rd, you have cut more than 20 days off that client s accounts receivable. 5