A half-century of reflection on A/E issues

August 11, 2010

Fifteen years ago I wrote the first of this series of articles relating to legal developments affecting architects and engineers. I was exposed to the subject primarily as the result of my 40 years serving as general counsel of the National Society of Professional Engineers (NSPE).

On the occasion of my retirement from writing this column on a monthly basis, it was suggested that I comment on my more than 50 years of observing legal issues affecting the design and construction community.

When I joined NSPE in 1946 following four years in the Corps of Engineers during World War II, the design professions consisted mainly of individual practitioners operating as sole proprietors or in partnership with other architects and engineers. Except for a few large design and construction firms involved in major utility projects, corporate practice was hardly known.

Federal income taxes became a major concern after the war, prompting a movement to allow professional firms of all kinds to practice in the corporate form. Corporate shareholders could thus enjoy favorable tax treatment in the form of pensions. Following a protracted legislative battle, the Keogh Law was enacted. It allowed self-employed professionals to direct a portion of their income into tax-deferred pension accounts. That ability is of less consequence today, because state licensing laws have been amended. Professional design firms may now operate as a regular corporation, albeit with some restrictions.

A major issue in the A/E community was opposition to competitive bidding by professional firms. The rationale was that price competition would inevitably lead to a reduction in design quality-and even dangerous construction as a result of cutting corners. Consequently, the ethics codes of design professional organizations held competitive bidding of design to be unethical.

The U.S. Department of Justice took a dim view of that proscription, claiming that such an "agreement" was a violation of the Sherman Antitrust Law. NSPE elected to challenge the department's contention, triggering a six-year court battle that ultimately led to a Supreme Court decision that upheld the Justice Department's positions. As a consequence, the anti-bidding portion of the ethics codes were deleted.

It may be said, however, that while the battle was lost, the war was won through enactment in 1972 of the Brooks Law, which is applicable to federal and federally assisted projects. It requires that agencies must initially select the best qualified design firm, after considering all firms seeking the contract. Only after this has been accomplished can negotiation of a fee be discussed. Virtually all of the states have followed suit with their own "mini-Brooks Laws."

"Liability crisis" hits hard

The mid-1980's "liability crisis" had a serious impact on the design professions, as well as other sectors of the economy. It was characterized by a rash of lawsuits by injured parties seeking compensation from those deemed responsible for their injuries. The leaders of the American Institute of Architects and NSPE had earlier noted a substantial increase in the number of lawsuits against their members. They also found that no insurer was willing to underwrite A/E liability coverage. A major insurer ultimately agreed to develop a special liability policy for design professional firms, and other insurers subsequently entered the market.

In other actions to limit liability exposure, design professional organizations developed contract documents intended to better define the scope and extent of A/E services.

A number of these contract documents have become controversial. These include limitation of the design firm's liability, attempts to limit the period during which a claim may be brought against an A/E-even when the owner is unaware of the time limitation-and an effort to shift responsibility for shop drawings from the designer to the contractor. At the same time, design professionals have been successful in getting states to enact statutes of repose, which limit the filing of claims to a specified period following substantial project completion.

As design professional organizations have expanded their standard documents and added more self-protective language, both owners and contractors have retaliated with their own documents. Some owner-oriented documents seek to make the design professional a virtual guarantor of "perfect" documents. This is a departure from the long-accepted standard in the design and construction community that architecture and engineering are not "exact sciences," and that the governing legal principle is whether the design meets the "standard of care" by conforming to the accepted practice of other professionals in the same area under similar facts and circumstances.

Design/build raises new issues

The growth of design/build has generated new concerns for both designers and contractors. The concept is not new: it is noted that Egyptians used a design/build process to build the pyramids. But design/build's rapid recent growth has raised numerous legal issues.

With the exception of a few large firms that have experienced personnel to perform both design and construction, the design/builder is usually a contractor who retains an outside design firm. Under this scenario, the question becomes who will protect the interest of the owner during construction to assure that the project is being built in accordance with the plans and specifications.

The preceding commentary covers only some of the A/E legal issues that have arisen over the years. The list, alphabetically, runs the gamut from arbitration to warranties, and each has a dynamic of its own.

For me this has been a happy journey. It provided an opportunity to work with interesting and thoughtful people who shared a common purpose even though sometimes substantially disagreeing over policy issues.

Milton F. Lunch is former general counsel of the National Society of Professional Engineers, and presently is a consultant on architect/engineer legal matters. The editors thank him for his years of insightful and popular contributions to this page. A new law columnist will appear next month.

         
 

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