Fit for Purpose Statements

Fit for Purpose Statements

If a “fit for purpose” statement is required of the architect, the alarm bells should be ringing loudly. You should not accept that obligation without careful consideration, and it would be prudent to seek legal and insurance advice before doing so.
We have dealt with these issues in past Communiques which are all available on the website: see, for example: “Completion Statements”; “Changes to the Scope of Services”; “Hold Harmless Clauses”; “Limited Services”; “Non Standard Terms Of Consultant Agreements”; “On selling the project and selling out on the architect”.
Scope versus responsibility:
In the normal course of full service commissions the architect will be required to review the work on site for the purposes of certifying progress payments, practical completion, and final completion. Dependent on the project, that role may overlap with other consultants, but the scope of such attendances by the architect is (or should be) as described in the terms of engagement and in the general terms and conditions of the building contract, and the fees agreed accordingly.
The usual risks associated with those arrangements are covered by your PI policy.
We have seen many instances where the involvement of the architect during the construction phase does not match the responsibility assumed for it. A typical situation is when the architect is engaged at an early stage for limited design work, which is then brought to completion by the combined efforts of the project manager and design-build contractor, with the architect remaining for the purposes of finish elements and design intent and with very minor involvement in site observation or contract administration. Other consultants may be brought into the project at various stages. Nevertheless, the architect is required to vouch for the completed product. This usually takes the form of a “fit for purpose” statement.
To what extent do fitness for purpose statements by the architect pick up the responsibilities of those others?
Change in scope v change in responsibility:
A project manager may interpose between architect and client; the arrangement of the building contract may call for some design-build delivery; the consultants may be novated to the building contractor; on-sale of the whole project or parts of it (e.g. apartments) may change “the client”. Some of these changes may be without, or with only very limited input from the architect. They may impose some added role and responsibility beyond the original terms of engagement.
A similar risk arises when the architect is retained for early design stages but others carry out the construction documentation. The extent to which the first architect remains responsible for the later stages of the project will vary dependent on the project: unless the arrangements are clear at the outset, that risk is very largely beyond the control of the first architect.
Funding arrangements can be problematic:
We have had cases where the project funder has changed and the new funder requires assurances from the architect without which the project will stall. Where the sale and purchase agreement includes a requirement for the architect to sign off on each individual apartment and in addition on the whole development. When a monthly certificate must be provided by the architect to the effect that on the applicable date all contract and compliance requirements are being (and have been) met.
If the architect is retained for observation and contract administration, the proper execution of those roles should meet all the assurances a funder requires in seeking a “fit for purpose” statement, and if not, the scope of the assurances must be beyond the role of the architect. Conversely, if the architect is not retained for observation and contract administration, they are not in the position to be able to provide such assurances.
As a general principle, your contract is with your client; not the project funder, nor the project manager. An architect’s scope of services and responsibility is defined in the NZIA AAS (or similar) and the architectural fee is related to this service, responsibility and risk profile. A unilateral change by the client or project manager or project funder may be little different to taking something for no payment. It is even less acceptable when commercial leverage such as “do it or you won’t get another job” is applied.
The funder has a contractual relationship with the client. If that arrangement requires additional services by the architect, that should be by way of a variation to the terms of engagement with commensurate fee adjustment. It is NOT acceptable that the architect be required to accept separate contractual obligations to the funder or to other consultants.
Risk management:
In the calm light of day, these situations are clearly perilous. But they can gently unfold (the “boiling the frog scenario”) or be sprung along with commercial pressures such that the architect may feel they have to take on the risk and just hope that it is never manifested. That would be unwise: there is a prospect that an insurer might argue that you had knowingly taken on a risk beyond that of a normal prudent architect and beyond that for which the policy applies. Especially when, these days, a prudent architect would be aware of the possibility for the developer to have “disappeared”, the building contractor “gone bung”, the project manager having arranged things on an “all care no responsibility” basis, and that joint and several liability may require the architect to pick up the costs to a far greater extent than would be merited by their actual role in later problems.
There is no easy answer other than to make it very clear at the outset what you are required to do, and that any subsequent changes require your explicit agreement in writing as a variation to the engagement terms and at commensurate variation in fees. When considering such changes, you will need to be mindful of – and if necessary seek legal and insurance advice upon – changes to your responsibilities that may be beyond those contemplated in your PI policy cover.

Liaison with Government & Consultant Groups

Over the past year or so, NZACS has been represented on consultative groups formed by MBIE to formulate government procurement policies in the building industry, the standardisation of special conditions of contracts across different departments, and discussions on risk-based consenting and self-certification; we have had quarterly liaison meetings with MoE; and we have met with CEAS, NZIA and NZRAB representatives to air matters of common interest and concern.

Expert Witnesses

The Claims Committee (Graham Strez, Alec Couchman, Colin Orchiston) is informed about every claim when it is notified, and follows each through until the file is closed off – perhaps several years later. As part of that process they provide advice to lawyers and insurers, and liaise directly with NZACS members.

In addition, there is often the need to have an experienced architect to provide independent input on a fee-paid basis. In the May 2018 Communique we discussed the role of the expert witness, and invited any architects who had an interest in this sort of work to make contact with NZACS or with members of the Claims Committee. That invitation still stands.

The Insurance Market

The insurance market faces continued pressure to provide an acceptable profit margin in an environment of increased regulatory and compliance requirements. These are driving costs up, whilst reduced returns are bringing investment income down.

The building and construction industry, including the professions, is facing insurance restrictions because of its high-profile losses and potential systemic shortcomings worldwide. International insurers have taken corrective action to address what they see is a change in risk profile, and this has filtered through to New Zealand. The result is that we are likely to see more restrictions on our professional indemnity insurance in the future.

The impact of climate change is a very real reality, with weather related events, fires, droughts and floods becoming more frequent and forcing overseas insurers and reinsurers to review their catastrophe risk models and reassess the impact that large losses have on their premium pool. This has seen the cost of capacity from off shore insurers and re-insurers go up: meaning that insurance is now more expensive to get and there is less of it available. It has also resulted in larger indemnity limits being less readily available.

What this means for you and the 2019 insurance renewal is that the cost of professional indemnity insurance is going up, and pricing increases will apply.

So far, NZACS members have been spared the coverage exclusions imposed by many other insurers relating to cladding and building defects. But we have to anticipate that cover exclusions may become standard on professional indemnity insurance.
Aon, as the insurance brokers acting for NZACS, will be consulting with insurers during the next twelve months on these developments. We will keep you informed as and when we can.

Insurance Renewal – Change is on the Way

Insurance Renewal – Change is on the Way

For the majority of members, renewal is completed online via the Techcertain platform and this will continue for 2019. The release of proposals is later than in the past: we expect to send out renewal invitations early next week.

Keep an eye out for an email from professionalrisks-online.

NEW for 2019: We have included some new features, and this year you will be provided with quotation options online after completing the proposal form. You will receive an email advising you that the quotations are ready to be viewed and accepted. Once accepted, insurance certificates and policy wordings are made available to you to download.

Land Covenants, Unit Title Restrictions and Cross Lease Restrictions

• A covenant is a set of rules and restrictions that affect how a property can be used. Typically it will be imposed at the time of subdivision or redevelopment.
• In a Unit Title property, it is usual that the Body Corporate must agree to any alterations, and they will have rules setting out the basis on which alterations or new work can proceed. If changes to the unit trigger changes to the unit allocations, this can become an expensive and protracted process.
• Some multi-unit housing is in the form of company shares, where the company controls and owns the property and leases it to the occupants by way of an occupation licence, and (like the Unit Title arrangement), there will be a process and rules for alterations and new work.
• In a cross lease arrangement, each of the owners owns the overall property collectively, and each unit it is leased to an occupant, with lease terms controlling how the unit is used and may be altered.
It is in the nature of these arrangements that they are subject to the vagaries and personalities of and between neighbours. These can be problematic, and expressed in subjective ways, rather than being rational or objective.
We have had claims where, for various reasons, members have fallen foul of restrictions on the sites or the building on them. Some examples:
• Architects becoming the focus of a dispute between neighbours
• Sketch designs unrealisable when accurate survey and legal information is later available
• Existing fences and/or buildings straying over boundaries
• Misunderstandings about the use of common property, accessways, and rights of way
• Alterations to cross-lease properties without first seeking the approval of other cross-lease owners
• Ditto to unit title properties, where the need for approvals and re-assessments of unit allocations has not been recognised before the design proceeds
• Retail tenancies within shopping malls, where lease conditions have been assumed, instead of being checked
• Colour schemes not being complied with; ditto height controls, cladding materials, “standard of design”, viewshafts, site access for construction……
Land Covenants, Unit Title restrictions and Cross Lease restrictions should be shown on the certificate of title (and/or in a lease or Body Corp agreement), and it is not in your area of expertise as designer to interpret them, nor to advise the client in respect of them. But you do have a duty to recognise when and where they exist, or might exist, and to draw your client’s attention to the need for proper advice – maybe from a lawyer and/or surveyor. That advice needs to be provided to you in writing before or at the earliest stage of your design.
It will be your problem if your design does not meet the design criteria (if any) set out in a covenant. But where your client needs to seek approval from others, you should record that in writing and make it clear that it is their responsibility, not yours. Likewise, if it takes numerous design iterations to fit your client’s aspirations to their neighbours expectations, that is your client’s problem, not yours. The approval should be recorded in such a way that there can be no later doubt about the relevance of subsequent changes.

The Continuing Saga of Client-Imposed Agreements for Services

A recent enquiry to Aon from a member was in relation to a Housing NZ project, where HNZ was seeking a statement that “ …. XXXX Architects:
(1) warrants to HNZ that all work will be carried out in a good, professional and workmanlike manner (and in accordance with the provisions of the Contract);
(2) will be required to repair all defects in their works; make good and indemnify HNZ for all direct losses to the works arising from any defect in their works;
(3) will carry out any repair work for which they are liable under the warranty.
(4) if they do not do so within 14 days after receiving notice by HNZ, then HNZ may undertake the work and recover all costs;
(5) indemnifies and holds HNZ harmless for any costs, claims, liabilities etc for which HNZ may become liable arising from failure by the architect.”

This wording was all in relation to a Subcontractor Deed of Warranty sought from the Architect. It is not appropriate to a professional services contract; it is likely to impose terms and conditions beyond those covered by the PI policy.
The short point is: the NZIA or CCCS terms are “neutral” and built up from many years of experience in projects of all types and sizes, so you should be VERY AFRAID of attempts by others to reinvent the wheel, with the prospect of unexpected and potentially unwelcome outcomes.


Completion Statements

Completion Statements

When developer-driven housing projects cut out the architect for observation during the construction phase, it often turns out that they later require a completion statement in order to meet the terms of sale for the units. This task is fraught with problems: if you have not been involved in the construction as it happened, how can you possibly offer a sensible opinion on how that work was carried out?
No matter how carefully you seek to limit your completion statement to “what you can see, when you saw it” the pressure to expand that statement to meet the requirements of individual purchasers will be immense, and the interpretation of it several years later when things have gone wrong is beyond your control. Even if you were only required to certify in relation to fitness for occupation, inevitably the question will arise about why you did not – at the same time – see something else which (several years later) caused costly problems.
This is an issue that should be dealt with at the time you are engaged for the project, when the proper scope and risk management arrangements can be put in place. Hopefully the extent and purpose of your attendances during construction is clearly described. If it is limited in extent, that will be a very important matter to set down.
We have dealt with this many times before, and there is a longer paper on the matter on the NZACS website :

On a similar issue, different clients (and/or their funders) have different ideas about what a statement of practical completion should say. Again, this is an issue that should be discussed at the beginning (so you can prepare for and charge accordingly) rather than near the end of the project, when you can be leveraged to your disadvantage. Clients have been known to demand a statement of practical completion – using their text – in return for a prompt payment of long outstanding fee invoices.
You will recognise what comes next: The short point is: the NZIA or CCCS terms are “neutral” and built up from many years of experience in projects of all types and sizes, so you should be VERY AFRAID of attempts by others to reinvent the wheel, with the prospect of unexpected and potentially unwelcome outcomes.
You can only “certify” on the basis of the work you have undertaken; so it would be useful to qualify any statements so as to make it clear that you are only commenting on the basis of (and to the limited extent of) the scope of work for which you were engaged. And if others have altered what you did in any way (with or without your knowledge), you cannot be responsible for that unless you have specifically accepted the change.
In the absence of a statement limiting your involvement, the chances are that you will be held to have been part of or party to something that may have not been within your control. For example, if a client changes an item unilaterally or contrary to your advice, you do not want to be later confronted with the assertion that (by default) you agreed to it.
Be aware that if it comes to a claim against you, there is every prospect that any and all of your documents might be available to the claimant, whether you agree or not. That means that correspondence, site notes and office memos must all be consistent: in the event of discrepancy or contradictions or ambiguities, the claimant will exploit those against you.
If your statements are reliant on information provided to you, then make that clear. To some extent you will have a duty to review and accept that information, in other cases you would be wise to accept it without review, but in all cases, you will need to be satisfied that it meets your expectations as a prudent architect.
You should not be making a statement which might suggest your taking responsibility for the actions of others. By way of example, let’s take the issue of a CCC by the BCA. It would be a simple statement of fact if you confirmed that a CCC had been issued; but you would most assuredly be putting the noose around your neck to state that a CCC had been issued “and all compliance requirements have been met”. If it is later found that the CCC was wrongly issued, your statement will join you into that problem. It is easy to apply the same principle to all sorts of warranties and producer statements by others, where the issue will be whether the contract requirements (or consultant requirements) have been met.
Similarly, if you have adequately observed the work, you could reasonably state that the contract requirements set out in the documentation provided by you under the terms of your engagement have, to the best of your knowledge and belief, (and if relevant, in reliance on listed documentation by others) been satisfied. But there is no reason why you should put yourself at risk by saying that the work complies with this or that law or regulation, or that it is fit for purpose and/or meets the expectations of anyone else.