Professional liability: Why it is important

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In the first of a new series of articles, FIDIC president Tony Barry looks at the expanding complexity of professional liability in recent decades and how big an issue this is for global infrastructure delivery. 

For the last 40 years, the liability borne by consulting engineers has been problematic and is becoming more onerous. It has put increasing pressure on consulting firms and on their insurers. It has also impacted individuals both professionally and personally and now has big implications for global infrastructure delivery.

Until the late 1980s, the consulting engineer’s liability was focussed on negligence in the performance of their professional duty, where negligence was defined as being a breach of the standard of care reasonably expected of consulting engineers performing similar services.

In effect, the claims made by clients addressed engineering failures which resulted in death and injury and property damage. That was what liability insurance was for and generally the consultant’s insurance responded to negligence claims and claims were settled or, in some cases, awarded through the courts.

What liability once referred to

The majority of liability cases at that time were limited to claims regarding death, personal injury and loss of quality of life and the direct cost of repair, replacement or rectification relating to property damage or construction works.

Where there were situations in which consulting engineers may have made mistakes which gave rise to variations on construction contracts, delays and changes on site during construction, these were often resolved between the clients and consulting engineers through fee concessions or future service provision at a discount.

So what has changed since then to create very significant liability exposures for consulting engineers?

The big changes

There are a number of big changes that have changed professional liability and its significance to the profession and the industry. These are outlined below and addressed in following articles.

1. Changes in project delivery

In the 1980s, project delivery methods, which involved a contractor taking primary responsibility for design, construction, maintenance and sometimes operations, began to emerge. These were described variously as design & construct, design, construct and maintain or design construct maintain and operate. These forms of contract were also embedded in public-private partnerships.

The very significant impact of these forms of contract was that the contractors assumed nearly all risks involved in delivery of the infrastructure and governments and principals ensured that the contractors did so through often bespoke contract terms. For contractors, these contracts went a long way to preventing any claims against the principals under the contract. The contractor’s primary opportunity to recover from adverse risk outcomes was to make claims against the contractors subcontractors and designers. Recognising this opportunity, contractors moved to pass on head contract conditions to their subcontractors and consultants and to develop conditions of contract which imposed very significant obligations on design consultants and created avenues for potential claims against designer consultants and others.

2. Innovation in contractual obligations

Typically in the oil and gas, mining, food and beverage manufacturing industries, process designers owned the intellectual property rights to their process designs and the fees charged to clients reflected the value of and research and development put into these technologies. Clients relied on these processes as being core to their business and sought ‘fitness for purpose’ warranties and guarantees form the process designers.

Fitness for purpose obligations began to appear in bespoke design and construct contracts and eventually were passed from head contractor to design consultants. These fitness for purpose  obligations placed on design consultants were also broadened to cover functional performance, technical requirement compliance, buildability, cost effectiveness and programme compliance obligations assumed by the head contractor. These appeared in multiple forms in bespoke agreements between head contractors and design consultants.

3. Changes in consumer protection and competition law

While supportive of consumer protection and competition, laws regulating these areas have had a significant impact on the liability exposure of many professionals as well as removing the ability of bodies such as member associations to work on these issues collaboratively with industry participants or publish standardised fee scales.

Consumer protection legislation in many cases also include provisions relating to false and misleading misrepresentations.

Provisions relating to misrepresentations have created a potential avenue for parties to make claims outside the contract between the client and consulting engineer. This has had a profound effect in the sense that errors and misstatements can be treated as false and misleading. More importantly, these provisions have been used to step around limits of liability which may be agreed under the contract of service between client and consulting engineer.

Why are these issues important?

Our industry needs to deliver new infrastructure at an unprecedented scale and there is a real problem with risk limiting the ability of an industry to design and deliver effectively.

It is not unusual for firms to respond to excessive risk exposure by restricting the scope for innovation practices and innovative solutions and rather focus on compliance and adoption of tried and tested methods, even where the opportunity may exist to design an alternative solution for everybody’s benefit.

Consultants have also responded by establishing substantial legal capabilities, liability management capabilities and rigorous project procedures to limit their practical exposures to risk. Firms have developed strong risk management capability and project procedures to manage project risk effectively. This has come at a cost which is passed on to projects and clients alike, reducing the potential to improve the overall return on investment of the project.

Notably, in markets where legal jurisdictions are difficult, where ‘design construct maintain (and operate)’ are prevalent, claims against consultants are commonplace and the cost and terms under which professional indemnity insurance is provided has become more problematic and very much more costly where available.

Looking forward

So in this series of articles, we will explore these issues in some detail and showcase approaches and possibly examples that we think work well, within and beyond infrastructure – where similar liability challenges are also being addressed.

FIDIC is seeking to collaborate across industry to develop better approaches to client – consultant agreements, effective and efficient risk management and innovation. FIDIC will strive to create market conditions that ensure the future of the industry remains viable for clients, contractors, consultants and insurers.

That is something we must achieve if the wider industry is to deliver on its commitment to innovate and create the sustainable and cost-effective infrastructure the world needs.

About this series
Infrastructure Global is pleased to have Tony Barry, president of international engineering body FIDIC, write a series of articles looking at the growing problem of professional liability standing in the way of collaborative global infrastructure delivery and what can be done about it.

Tony has over 40 years’ experience in infrastructure design and delivery. He is not a lawyer and does not have any specific contract law training. He has written this series of opinion articles to promote discussion and awareness of the liability issues facing consulting engineers. Please seek specific legal advice if any of the issues described in these articles concern you.

For the next article in the series – Bespoke head contract obligations – click here.