Communique May 2002

Claim Statistics & Fault Analysis

Reviewed Feb 2017From time to time, NZACS Claims Directors carry out an analysis of the recent claims to see if there is a general trend in any particular direction.For analysis purposes, the claims are divided into some 35 sections.Broadly they resolve into those failures that are primarily under the technical control of the architect, performance failures of other consultants, performance failures by contractors or suppliers, those caused by difficult clients (including fee disputes), and a catch all of the miscellaneous causes.Very broadly, the research shows that the sources of claims arise from three distinct areas:

• One third sourced from the failures by the architect.
• One third sourced from failures by consultants/contractors/suppliers.
• And one third from all other sources.

A more detailed look reveals some interesting trends, even after allowing for possible variation in the inevitably somewhat subjective bias when allocating a broad classification.As at 2016/2017, the number of leaky home claims is far less than the preceding few years, but has to some extent been offset by some significant claims for leaky or failing school buildings. With the focus of leaky buildings diminished, the spread of claims has been broader, and not dissimilar to the pattern seen before about 2002.In the last ten years or so there have been fewer claims attributable to poor detailing or inadequate contract administration by architects; however, this gain has been somewhat offset by an increase in claims attributable to inadequate or ambiguous documentation.That is a reflection of both the building technology changes since the leaky buildings saga, and because we are being asked to do ever more documentation without a commensurate increase in fees.The fees issue is again highlighted by an increase in claims resulting from fee disputes, partial services, and difficult clients.Our research indicates that the vast majority of complaints to the NZRAB are about non-NZACS members: those that do involve NZACS members are generally about contract issues (as distinct from ethics or practice issues) that should and could have been dealt with under the usual contract provisions for dispute resolution. An NZRAB complaint – regardless of merit - is seen by some clients as an opportunity to leverage their dispute with an architect.There is very little correlation between the number of claims – or the reason for them - and the resulting costs; or between the sizes of projects or firms and the cost of claims. Larger firms naturally do more - and generally larger - work, and are thus more often at risk, but this is somewhat offset by the fact that they have the resources and controls in place to be able to avoid, monitor and manage those risks. For smaller firms, some claims may not have arisen if they had had similar resources. Obviously, there are many more smaller firms than bigger ones. So on balance, the claims from smaller firms are more numerous but of lesser value, and vice-versa.But only very broad generalizations can be extracted from comparing sources of claims with their costs to the NZACS Insurers, or their spread over different sizes and types of firms and types of projects, or their call upon the assistance of the Claims Committee.If there is any pattern, then it may be that difficult and/or uninformed clients feature in many claims, particularly in housing work.One aspect is glaringly obvious: partial services cost us all very dearly, and the costs are disproportionate to the actual number of claims.Typically, many claims arise because:

• The scope of professional services to be undertaken were not made clear at the outset;
• the architect (not retained for contract observation) is called upon for partial site observation or some further services (perhaps signing off a Practical Completion Certificate required for financing or sale and purchase agreements,) and is then held to have assumed contract observation responsibilities;
• clients are cutting costs in all directions and we bear some of the spin-off from the resulting hassles which are further exacerbated by the client’s frustrations at the resultant costs;
• documentation compiled for Building Consent application only (or even Resource Consent only) is used for construction in the absence of further detailing: when the contractor’s detailing or substitution of materials proves unsatisfactory, the architect is held to account;
• the specifications and/or drawings are not “perfect”, and the builder’s failures thus become “design faults”;
• the client and /or builder makes changes to the contracted works which come adrift;
• unsatisfactory selection of - or inadequate contract conditions with - the builder.
• the client considers that the architect’s poor performance has caused the client loss

Obviously, the costs of defending claims, which subsequently prove to be a construction fault, are significant, and members should bear this in mind during contract documentation and observation.Less obvious is that the “trigger” is the client’s perception of events, combined with their assessment of the chances of making a recovery from the architect.A failure in contractor performance inevitably leads to a claim that the “architect failed to supervise”, and - quite apart from the insurer’s costs - defending that claim can be very stressful and onerous for the practice.It will probably come as no surprise that defending claims caused by difficult or vexatious clients - possibly involving a “try-on” - represent a regrettably large proportion of our costs. Often these costs are mostly in legal defence, because such clients continue to be difficult and/or irrational, pursuing their cause irrespective of facts and logic.No harm is done by notifying a claim, and we would far prefer a notified claim that came to nothing to one which has accumulated “critical mass” before we get to know about it.Many notified claims amount to nothing, and the Claims Committee and/or panel lawyers may resolve them by a phone chat or “ghost-written” letter. Early and thorough background information from, and co-operation of the member involved is often the key to such resolution.Often, a settlement only becomes a prospect when the information is viewed objectively by someone who has the necessary expertise and detachment. At that stage, the costs and effort of continuing the dispute may suggest that settlement – despite angst and gritted teeth – is a more favorable option for all.