How Engineers Can Minimise Legal and Financial Risk

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Wednesday, September 9th, 2015
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Throughout Australia, engineering consultants face a number of risks which need to be managed from a technical, legal, and financial perspective.

While the precise nature of these will vary across disciplines (structural, mechanical, project management, etc.), experts say there are a number of aspects to managing the issues involved.

First, there are considerations surrounding the type of projects you wish to accept and the type of clients with whom you want to do business. While challenging projects are not necessarily problematic, Darren Pavic, a broking manager at Melbourne-based insurance brokerage and risk consulting outfit Bovill Risk & Insurance Consultants says, it is important to be aware of the limits of your capabilities and to think about additional resources which may be needed for projects which stretch these. In terms of clients, he says it is worth looking into their history and to consider avoiding any who have a reputation for litigation and confrontation.

“One of the key risks that is not adequately considered sometimes is the client,” Pavic said. “Is this somebody we want to be doing work for? What sort of client selection criteria do I have? Does the client have a reputation – have I checked them out?

“Some contractors are notorious in their approach to consultants in basically screwing the consultant down and not being shy at having a go at them at the first sign of any issues.”

Also, it is important to bid only at a price which is sufficient to allow for adequate time in which to perform the work diligently and properly.

“Don’t buy the job. Don’t cut on price because like anything if you don’t charge enough, then you run the risk of cutting corners,” Conjoint Professor Kim Lovegrove FAIB, a partner at Melbourne-based construction law outfit Lovegrove, Smith and Cotton said.

Having deciding to bid for a job, it is important to have clear terms of engagement which spell out the scope and extent of your project, responsibilities and deliverables as well as any inclusions and exclusions. These terms must also clearly define the areas of responsibility vested upon each party. In addition, it pays to be aware about any aspects of the contract which expose you to risks which may potentially not be covered by your insurance program; client drafted contracts often impose obligations upon engineers that are beyond their normal common law or statutory liabilities.

When producing the design, Richard Robinson, a director and chairperson of Melbourne-based risk engineering consultancy R2A says a common mistake revolves around simply relying on relevant industry standards. These, he says, do not provide protection against prosecution under law unless it is specifically called up under the relevant statute and therefore would not be a defence against, for example, breaches of the relatively new occupational health and safety legislation.

Instead, Robinson suggests first identifying all of the significant risks associated with the project and working out strategies to mitigate or eliminate them. Standards, he says, should then be used as a back-up reference to ensure minimum requirements had been met and nothing had been overlooked.

“Just relying on the standard as a design tool and saying ‘I’ve done it to the standard’ has never been a defence unless (the standard) has been called up by statute,” he said. “What you have got to do is work out how (the design) ought to be first up, then you go and check and see that you haven’t overlooked anything by referring to the standard.”

Also, it is important to allow sufficient time to perform computations accurately and to talk things over with peers in your office in order to arrive at the best possible engineering solution.

Finally, Pavic and Lovegrove say there are further legal and insurance issues to consider. In terms of insurance, Pavic says policies vary in terms of what they cover and it is important to get the right policy to suit individual requirements. While some insurers are now offering more flexible policies in this regard, many still do not cover forms of liability which are vested upon the consultant by virtue of contractual terms as opposed to statutory law or common law. Also, many professional indemnity policies will cover only civil claims for compensation and will not cover costs associated with penalties or expenses incurred in defence efforts with regard to criminal prosecution for matters like Safety in Design. Policy options which do cover these types of things, however, are becoming increasingly available.

In terms of legal matters, Lovegrove says it is important to be registered in states where registration is required. He says in states such as in Victoria, registration with the Building Practitioners Board is required for a number of categories of engineers such as civil, mechanical, structural or electrical but not all practitioners actually realise this is indeed the case.

Also, when issuing compliance certificates to verify that work complies with the Building Code of Australia, Lovegrove says engineers should recognise that they rather than the building surveyor will be held liable for any defects. He says it is important to understand what to certify as well as the magnitude of risk attached to the furnishing of the compliance certificate, and not to certify more than you should.

“When you are providing a compliance certificate, understand that that will bestow the relevant building surveyor with a statutory immunity,” he said. “So if the building surveyor relies upon that compliance certificate under the Building Act or the Environmental Planning Assessment Act in NSW, they will be exonerated from liability (and the engineer who issued the certificate will be left carrying the can.)”

Key points

Below are some key points with regard to managing risk for engineering consultants:

  • Choose carefully the type of jobs for which to bid and clients for which to work. Be aware of the limitations of your competency sets and of the prospective client’s reputation regarding litigation.
  • Do not buy work. Bid only at prices which allow sufficient time to get the job done properly.
  • Ensure scope of contract is clearly defined.
  • Don’t rush – take enough time to do things right.
  • Do not rely on relevant standards as a legal defence. Develop a sound plan and use the standards as a check only.
  • Be registered in states where this is required.
  • Ensure you have insurance which is suitable for your needs.
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