Consultants are at a greater risk of being sued in the downturn, but if you follow these basic rules, you can mitigate a potential claim

Consultants across all disciplines are at a greater risk of being sued during an economic downturn. Although there hasn’t been a significant increase in the notification of claims against architects in the past two years, trends show that they have gone up.

Claims tend to arise from disgruntled developers and contractors who are looking to the lead consultant as a possible means of redress on a project that has overrun or where there has been overspend and their profit margins have been squeezed. 

So what can firms do to minimise the likelihood of a dispute and a claim on your professional indemnity insurance?

Assume nothing, record everything. And if in doubt, pick up the phone to your broker

  • Ensure you understand your client’s expectations. One of the most common causes of claims is the failure to understand a client’s needs.  Make sure you get written instructions from the outset and record any changes in writing and clarify anything which is unclear.
  • Avoid onerous contractual terms.  Wherever possible, use a contract standard to your industry and limiting your liability. However, it is becoming more and more common for the client to insist on their own terms and conditions and these will invariably include onerous clauses, such as an indemnity agreement. These clauses can seek to recover losses which go beyond those normally recoverable at law and once agreed you would be bound by their terms. This may leave your insurers with no defence and result in any claims falling outside the scope of cover provided by your professional indemnity insurance policy. 
  • Make sure you fully understand your duties under a contract and who you owe those duties to. For example, if you are undertaking a contract administration role, you are expected to reach decisions fairly with both the client’s and contractor’s interests in mind, and your assessments must be independent and accurate.
  • With increased competition, contractors are submitting relatively low fees on tenders in order to win work. It is therefore important for the contract administrator to stand firm against any attempts by the contractor to claw back money through extensions of time, loss and expense. You should also resist clauses in the appointment which require you to seek the client’s approval before you take any step which will increase the cost of the project. 
  • Proper administration of the contract involves making periodic inspections of the work. So agree at the outset how often such inspections will take place and keep a record of what was observed on site. This could prove invaluable in the event of a subsequent allegation of negligence. Where you are undertaking a project management role, you must understand the extent of the role you are being asked to undertake. Generally project managers are expected to organise and co-ordinate the activities of a multidisciplinary team to complete a project on time and on budget.
  • Ensure there is adequate supervision of staff and that there are relevant sign-off procedures by senior members of staff - for example, on new commissions or any work to be conducted outside of the firm’s core expertise. Internal communication is also key, particularly when it comes to escalating complaints from clients to the person in charge of purchasing your professional indemnity insurance.
  • The first sign of a potential professional indemnity claim is late payment of fees, so billing clients regularly, especially on work in progress, will help maintain a regular cash flow and highlight any impending problems early on.

Also, maintaining a close relationship with your client is one of the best ways to monitor for signs of trouble. The sooner a potential problem is identified, the more
likely it is that the situation can be resolved before any formal claims action is taken.

The devil, as always, is in the detail.  It is vital that the client understands and agrees the detail of the project, and that you understand the extent
of, and the duties within, your role.  Assume nothing, record everything. And if in doubt, pick up the phone to your broker. Advice at the right time may just save you a lot of pain later on.

Matt Farman is a director of Howden Insurance Brokers