Adopting Strategies to Minimize Professional Liability
A. Realizing the benefits of proper documentation
Maintaining documentation for a project is not only helpful in litigation, but it is also helpful in resolving disputes during the course of a project. The contract is typically not the only document in a project file. A project file can contain a myriad of documents, including, for example, plans, bid records, notes, reports, project logs, daily diaries, meeting minutes, contracts, payment applications, checks, expense reports, invoices, correspondence, memoranda, photographs, videos, schedules, adjustments or updates to schedules, and any critical path schedules or analysis for the project. In the case of plans, there are often multiple sets, each with possible changes. It is important to keep all such documentation as it relates to a project. If you keep information stored on a computer server, regularly back-up the computer system. Any office should have a plan in place to keep hard files of projects for a certain number of years. An insurance carrier may also have requirements to keep hard files of projects for a certain number of years, as well as to maintain back-ups, so it is important to check with the requirements of your insurer. It is important to maintain documentation because litigation may appear well after the project is completed. Often, someone may not remember why something was or was not done with respect to a project years after the fact. Employees also switch jobs, and it may be difficult to find someone who had the best knowledge of a certain project. It is always a good idea to maintain proper documentation for those reasons.
- Documenting all agreements and changes
Ideally, the contract will properly define the scope of services, including the services the engineer will and will not perform. That way, there should be a clear understanding of the role of the engineer for the project. The engineer should avoid performing services that exceed his or her responsibilities under the contract. At the same time, the engineer must also make sure that he or she is performing the duties that were contracted for. In particular, the contract should address the role of the engineer in determining how the work is performed and the engineer’s responsibility in overseeing the work.
It is also important for the engineer to take extra precautions to avoid leading an owner or another party to have greater expectations than the contract requires. Many clients have elevated expectations of performance to a level beyond the legal definition of standard of care, and litigation usually commences when the engineer fails to live up to these expectations, or fails to fully comply with the terms of the contract.
It is typical for a contract to require changes to the work to be in writing. The Arizona Supreme Court has held that where a contract provided that an owner should not be liable for changes, unless authorized in writing, the contractor could not claim credit for changes not so authorized. Massachusetts Bonding & Ins. Co. v. Lentz, 40 Ariz. 46, 9 P.2d 408 (1932). However, the Arizona Supreme Court also has held that building contract provisions providing that alterations should not be made except on written orders did not prevent parties from orally modifying written contract. Sitkin v. Smith, 35 Ariz. 226, 276 P. 521 (1929). For whatever reason, sometimes it is necessary to make changes to the project in the field, especially if time is tight. However, be sure to document all such changes. If you are an engineer and want to make a claim to payment based on work performed in the field, be sure to get make sure the client approves such work.
- Document retention policies and practices
Engineering firms should have a document retention policy in place, but establishing such guidelines are usually complex. Some potential complications include whether the firm performs work in more than one state that may trigger different laws, and whether the firm performs work for governmental agencies that require specific policies. The desire to retain documents also must be weighed against the cost of maintaining such documents. Engineering firms should also check to see if their insurance policy contains any specific requirements as to retaining documents.
Each firm has different needs, and a universal document retention policy does not work in practice. Notwithstanding, a document retention policy should be in writing, and should specify policies with respect to at least the following areas:
(1) Human resource and administration;
(2) Accounting and financial;
(3) Legal (including contracts);
(4) Drawings and specifications;
(5) Studies and reports;
(6) Calculations and design;
(8) Approvals and reviews; and
Such a policy should be followed consistently, and it would be beneficial if one person were charged with supervising the policy. This person should ensure that documents are organized, secure, and easy to retrieve. If documents are stored on a computer, backup copies must be regularly made in case of a computer failure. However, it is often easier to read hard copies of certain types of documents, such as oversized plans, so hard copies of documents should be maintained, even if your firm stores everything on a computer.
From a litigation point of view, documents should be maintained until the applicable statute of limitations or statute of repose expires. However, statute of limitations can be tolled or extended in some cases. In general, the statute of limitations for the breach of a written contract is six years (A.R.S. § 12-548). The statute of limitations can be tolled under certain circumstances. However, A.R.S. § 12-552(A), the statute of repose, provides that “[n]otwithstanding any other statute, no action or arbitration based in contract may be instituted or maintained against a person who develops or develops and sells real property, or performs or furnishes the design, specifications, surveying, planning, supervision, testing, construction or observation of construction of an improvement to real property more than eight years after substantial completion of the improvement to real property.” However, as the statute later provides, this eight-year limitation can be extended by one additional year to nine years where “the injury occurred during the eighth year after the substantial completion, or, in the case of a latent defect, was not discovered until the eighth year after substantial completion.” A.R.S. § 12-552(B). Thus, A.R.S. § 12-552 bars certain claims after nine years, no matter when the claim was discovered.
Finally, a party has a duty to preserve evidence when it is placed on notice that evidence is relevant to a litigation, or when the party should have known that evidence may be relevant to future litigation. Once a party reasonably anticipates litigation, it should suspend its routine document retention/destruction policy and put in place a “litigation hold” to ensure the preservation of relevant documents. Courts have sanctioned parties for gross spoliation of evidence due to a failure to preserve documents. In addition, a party can also be prosecuted for obstruction of justice under certain circumstances. Former accounting firm Arthur Andersen was prosecuted under 18 U.S.C. § 1512(b)(2)(A) and (B), which made it a crime to “knowingly … corruptly persuad[e] another person … with intent to … cause” that person to “withhold” documents from, or “alter” documents for use in, an “official proceeding.” However, the United States Supreme Court later overturned the felony conviction of Arthur Andersen because the jury instructions were improper. Arthur Andersen v. United States, 544 U.S. 696 (2005).
B. Establishing and maintaining good communications
Closely examine the contract, and make sure that it properly defines the roles and responsibilities of the client and the engineer. Engineers should obviously not do work that others are supposed to do and that they are not being paid for. It goes without saying that engineers should have a good working relationship with the client and all other professionals on the project. Requests for additional information are common, and the engineer should stand ready to provide additional clarification where necessary. Projects often have strict deadlines, and you do not want to be the one that is delaying the project. All such communications should be documented, as outlined above. In the event of future litigation, a record of all such communications would be helpful. All important communications, status and progress reports, and payments should be documented. However, anything in writing could later be used as an exhibit in litigation. Therefore, pay attention to what is documented, especially if the document is negative towards an individual or company.
Establishing and maintaining good communications is important to do not only with the client or prospective client, but also with fellow employees. When projects are big, it is important that everyone knows his or her role in the project so that duplication of work is avoided and all necessary work is performed and approved. Everyone should be aware of all of the contract terms to avoid performing services that are not part of the contract and to avoid failing to perform services that are part of the contract.
C. Other strategies for minimizing professional liability
There are many defensive practices and procedures that engineers can use to minimize potential problems.
First, engineers should make sure that all of his or her certifications and memberships are up-to-date.
Second, engineers should also maintain insurance, and timely notify insurance carriers of potential claims. Contracts sometimes include insurance requirements. Note that inaccuracies in the work performed may occur without triggering a breach of the standard of care of the contract. Design or construction documents typically contain some errors and omissions, and the remedy is to identify and correct each problem as it arises with the participation of everyone involved.
Third, engineers should keep up-to-date with all codes, regulations, etc., and attend continuing education courses when available. Failure to comply with these standards may be negligence per se. Gunnell v. Arizona Public Service Co., 202 Ariz. 388, 46 P.3d 399 (2002) (violation of a statutory standard of care is usually held to be negligence per se). In Arizona, the Board of Technical Registration regulates architects and engineers, and other professionals. The general purpose of the Board of Technical Registration is to provide for the safety, health and welfare of the public through the promulgation and enforcement of standards of qualification for those individuals registered or certified and seeking registration or certification. A.R.S. § 32-101(A). Any person or firm seeking to practice a board-regulated professional must secure a certificate or registration to practice. A.R.S. § 32-121. A person who practices without a proper or valid license or improperly holds himself out as a professional may be guilty of a class 2 misdemeanor. A.R.S. § 32-145. In a malpractice action against a professional, the plaintiff’s attorney shall forward a copy of the complaint to the Board of Technical Registration, and the Board shall initiate an investigation into the matter to determine if there was a violation of any statute or rule. A.R.S. § 32-146. Any person may report information to the Board of Technical Registration regarding grounds for a disciplinary action, and anyone who reports or provides such information in good faith in not subject to civil damages. A.R.S. § 32-147. Moreover, the identity of the person who reported the information to the Board of Technical Registration shall not be disclosed if confidentiality is requested, but the name may be disclosed if essential to a disciplinary proceeding. Id. Failure to comply with an order of the Board of Technical Registration may be cause for suspension or revocation of a license. A.R.S. § 32-150. Additionally, in Arizona, the Arizona Administrative Code has a section relating to the rules of professional conduct for registrants under the Board of Technical Registration. In sum, there are 20 separate rules of professional conduct, and A.A.C. R4-30-301 provides as follow:
All registrants shall comply with the following rules of professional conduct:
1. A registrant shall not submit any materially false statements or fail to disclose any material facts requested in connection with an application for registration or certification, or in response to a subpoena.
2. A registrant shall not engage in fraud, deceit, misrepresentation or concealment of material facts in advertising, soliciting, or providing professional services to members of the public.
3. A registrant shall not commit bribery of a public servant as proscribed in A.R.S. § 13-2602, commit commercial bribery as proscribed in A.R.S. § 13-2605, or violate any federal statute concerning bribery.
4. A registrant shall comply with state, municipal, and county laws, codes, ordinances, and regulations pertaining to the registrant’s area of practice.
5. A registrant shall not violate any state or federal criminal statute involving dishonesty, fraud, misrepresentation, embezzlement, theft, forgery, perjury, bribery, or breach of fiduciary duty, if the violation is reasonably related to the registrant’s area of practice.
6. A registrant shall apply the technical knowledge and skill that would be applied by other qualified registrants who practice the same profession in the same area and at the same time.
7. A registrant shall not accept an engagement if the duty to a client or the public would conflict with the registrant’s personal interest or the interest of another client without making a full written disclosure of all material facts of the conflict to each person who might be related to or affected by the engagement.
8. A registrant shall not accept compensation for services related to the same engagement from more than one party without making a full written disclosure of all material facts to all parties and obtaining the express written consent of all parties involved.
9. A registrant shall make full disclosure to all parties concerning:
a. Any transaction involving payments to any person for the purpose of securing a contract, assignment, or engagement, except payments for actual and substantial technical assistance in preparing the proposal; or
b. Any monetary, financial, or beneficial interest the registrant holds in a contracting firm or other entity providing goods or services, other than the registrant’s professional services, to a project or engagement.
10. A registrant shall not solicit, receive, or accept compensation from material, equipment, or other product or services suppliers for specifying or endorsing their products, goods or services to any client or other person without full written disclosure to all parties.
11. If a registrant’s professional judgment is overruled or not adhered to under circumstances where a serious threat to the public health, safety, or welfare may result, the registrant shall immediately notify the responsible party, appropriate building official, or agency, and the Board of the specific nature of the public threat.
12. If called upon or employed as an arbitrator to interpret contracts, to judge contract performance, or to perform any other arbitration duties, the registrant shall render decisions impartially and without bias to any party.
13. To the extent applicable to the professional engagement, a registrant shall conduct a land survey engagement in accordance with the April 12, 2001 Arizona Professional Lands Surveyors Association (APLS) Arizona Boundary Survey Minimum Standards, as adopted by the Board on June 15, 2001, the provisions of which are incorporated in this subsection by reference and on file with the Office of the Secretary of State. This incorporation by reference does not include any later amendments or editions and is available at the Board’s office and APLS at www.aia.org.
14. A registrant shall comply with any subpoena issued by the Board or its designated administrative law judge.
15. A registrant shall update the registrant’s address and telephone number of record with the Board within 30 days of the date of any change.
16. A registrant shall not sign, stamp, or seal any professional documents not prepared by the registrant or a bona fide employee of the registrant.
17. Except as provided in subsections (18) and (19), a registrant shall not accept any professional engagement or assignment outside the registrant’s professional registration category unless:
a. The registrant is qualified by education, technical knowledge, or experience to perform the work; and
b. The work is exempt under A.R.S. § 32-143.
18. A registered professional engineer may accept professional engagements or assignments in branches of engineering other than that branch in which the registrant has demonstrated proficiency by registration but only if the registrant has the education, technical knowledge, or experience to perform such engagements or assignments.
19. Except as otherwise provided by law, a registrant may act as the prime professional for a given project and select collaborating professionals; however, the registrant shall perform only those professional services for which the registrant is qualified by registration to perform and shall seal and sign only the work prepared by the registrant or by the registrant’s bona fide employee.
20. A registrant who is designated as a responsible registrant shall be responsible for the firm or corporation. The Board may impose disciplinary action on the responsible registrant for any violation of Board statutes or rules that is committed by a non-registrant employee, firm, or corporation.
21. A registrant shall not enter into a contract for expert witness services on a contingency fee basis or any other arrangement in a disputed matter where the registrant’s fee is directly related to the outcome of the dispute.
Fourth, engineers should be aware that every job involves some risks, and an engineer cannot avoid risks altogether. The only way for an engineer to avoid all risks is to change professions. Engineers are trained and educated to deal with risks. However, when engineers take on additional risks, they should be properly compensated. In evaluating potential risks, assess them, allocate them to the best and most qualified people on the team, and fully document the job. An engineer should probably take on risks that he or she is qualified to handle. If certain services are not part of the services that an engineer typically performs, the engineer should not assume the risk unless qualified, even if there is additional compensation involved. Moreover, insurance policies may not provide coverage in such situations.
Fifth, A.A.C. R4-30-301, which is set forth above, provides the rules of professional conduct for registrants under the Arizona Board of Technical Registration, and one of these rules relates to conflicts of interest. Specifically, A.A.C R4-30-301(7) provides as follows: “a registrant shall not accept an assignment if the duty to a client or the public would conflict with the registrant’s personal interest or the interest of another client without full disclosure of all material facts of the conflict to each person who might be related to or affected by the project or engagement in question.” In order to avoid potential conflicts of interest, engineers should set up internal systems designed to discover potential conflicts. Without adequate safeguards, it may be difficult to discover potential conflicts, especially in larger firms. The simplest method to determine whether a conflict exists is to send an e-mail around the office, but more sophisticated methods is available. During the initial contact with a potential client, gather as much information as possible, including the names of other business entities that are associated with the client. Certain clients prefer to set up separate business entities for each project that they work on, so it would be difficult to discover a potential conflict without knowing the names of other entities associated with the client.