Kia ora koutou
The recent Matariki celebrations offered a reminder of the value of reflection — not just culturally, but professionally. The Claims Committee regularly reviews past claim notifications to identify lessons that can inform future practice through Communique and other NZACS activities. Unfortunately, there are some familiar situations where the design profession continues to repeat the same mistakes.
One of the main areas of repeated notifications concerns costs. It’s not unusual for non-construction costs to eat up 25-40% of an overall project budget, so we have an article from Claims Committee chair Alec Couchman to remind everyone of the importance of clarifying this and other aspects of cost management with your clients.
A perennial source of claims is where architects are not commissioned for site observation/administration. The practice of excluding architects from these workstages seems to be increasing – not a surprise in the current economic environment – but it’s important to communicate the risks of this to your client.The last example of repeated failings are situations where, despite the requirements of NZRAB rule 58A, architects and designers do not have clearly defined written service agreements and terms of engagement.
It’s tempting to reduce clients’ costs by relying on Schedule 1 of the Building Act to avoid applying for a Building Consent but you increase your exposure to a claim if something goes wrong, so we have some words on that topic.We finish with three articles provided by our insurance partners Aon. The first is about some research data from large scale international projects, where the lessons are relevant to all project sizes. The second is to clarify what the role of the broker – in our case Aon – is. And finally, there’s a heads up of a proposal about changing the annual renewal date.
Ngā mihi
Cost over-runs are a frequent cause of disputes in residential projects. One role of the architect is to manage the difference between client expectations and their budgets. In some cases, they may not like the ‘bad news’ but better that than non-payment of fees, a claim, or a complaint to the NZRAB.
Budget discussions for residential clients should address the following:
For non-standard projects, engaging a QS for a cost estimate is a worthwhile exercise before proceeding further with design. Be very wary of 'friendly builders' who offer to do that instead, with the prospect of getting the job later. Either way, make it clear that the advice given is theirs, not yours. You take a risk in advising your client to continue with an agreed design when the QS estimate suggests otherwise.Finally, keep a record of the communications that you have with clients on costs and scope of work.
A recent notification arose where the member was not commissioned for site observation and thus could not spot a misinterpretation of a dimension by the contractor. This led to the client looking for someone to pay for the fix-up.
Many residential contract disputes arise because the client is managing the contract without input from the architect. Many commercial contract disputes arise because a project manager with little or no involvement in the design process is on the lookout for scapegoats when things get difficult.
An architect engaged for observation without also being engaged for contract administration is also in the unenviable role of advising on contract performance without any leverage to obtain it.
It’s often difficult to convince clients of the value of architects providing site observation and contract administration services but we see many claims arising from decisions made without consulting the architect. In order to negotiate for ongoing involvement during construction, you could reasonably suggest the following – all of which present the client with higher costs or risk:
If, despite your best endeavours, you aren’t commissioned for Site Observation or Contract Administration, then it’s important that you write to the client making clear that your liability is reduced, and also pointing out all the things that they will have to attend to. We’ll provide more detail on that in an upcoming Communique.
A member recently made contact asking if it was sufficient for their letter of engagement to make reference to the NZIA AAS Conditions rather than actually including these in their Letter of Engagement. In answering this for registered architects we should begin with the requirements of the NZRAB Code of Minimum Standards of Ethical Conduct for Registered Architects.
Rule 58A(2) requires the following to be covered in the ‘written terms of appointment’:
a) the scope of the work; and
b) the allocation of responsibilities; and
c) any limitation of responsibilities; and
d) fees, or any methods for calculating fees; and
e) how billing will occur.
Rule 58A(1) requires:
a) written terms of appointment appropriate to the commission or services to be undertaken have been provided; and
b) the client, having agreed to the written terms of appointment, has provided an instruction to proceed.
It’s all too easy to focus on the list in 58A (2) but the real impact lies in 58A (1). For most commissions beyond the very basic (e.g. providing a colour scheme or a letterbox design) it would be argued that an industry standard document like the NZIA Agreement for Architects Services (or the short form version for smaller commissions), or the ACENZ Conditions of Contract for Consultancy Services (CCCS), is ‘appropriate’ to the commission. These have to be ‘provided’ and so merely referring to them in a letter of engagement is unlikely to meet that requirement and in fact there is case law that suggests that reference to even widely available Terms and Conditions is not sufficient to ensure these are binding.
The client then has to provide the ‘instruction to proceed’…before you can provide any professional services. This could be a verbal instruction but this doesn’t provide any evidence. It could be by email but it is so much better to simply get a counter-signed version of the written terms of agreement.
In many cases it is difficult to provide exact scope and definition for later work stages, but a full version of a standard agreement can still be used and the scope and fee sections for later stages simply left blank or with a TBC note.
For designers and non-architects it is highly recommended to also use standard agreements like the ADNZ Agreement for Architectural Design Services, and get them counter-signed.
There are clients who expect the work to proceed but for one reason or another do not sign and return an Agreement which is specific to the project. In that situation it would be wise to state at the outset (or in a later communication) that if they instruct you to proceed then they are deemed to have agreed to the terms as provided. While it is not a specific requirement of the NZACS PI Insurance policy to have a signed agreement, insurers take a dim view if the scope of work and fees are not clear.
Schedule 1 of the Building Act 2004 provides a list of building work for which a Building Consent is not required. In most cases these examples are reasonably clear, but it’s important to look into the detail.
One situation where you might get caught out is the exemption under Part 1, Clause 1 for ‘General repair, maintenance, and replacement’. Sub-clause (3)(c) states that this exemption does not include a situation where one is remediating a failure to satisfy the provisions of the building code for durability, for example, through a failure to comply with the external moisture requirements of the building code. The problem is that this failure may not become evident until you are underway with the work.
When the work that you are designing falls into a grey area for consent, or might expand in scope, it pays to err on the side of conservative and make an application. Where a client is reluctant to apply for a consent, it is often useful to advise that if at some future date the property is to be sold or transferred, retrospective approvals will be required. These may or may not be achievable, and either way are likely to require considerable effort and cost.
Unfortunately – in a classic Catch-22 - BCA’s will not provide advice on whether the work is exempted from a consent until you actually make a consent application, but this is better than finding out too late that the work should have been consented.
Although it is concerned with very large projects, a recent CRUX Insight annual report by International Risk Consultancy HKA titled ‘Changing the Narrative – an analysis of claims and dispute causation on engineering and construction projects’ has some lessons that apply to more modest project scales. Gaynor Roberts of the Aon claims team has extracted the more pertinent contents.
Industry data indicates that the most common issues for disputes under contract are:
In an attempt to speed up projects there is a growing tendency to overlap design and construction – this has been found to create more issues and delays than the traditional approach of finalising design before construction.
In addition, the relationship between contract parties - owners, architects, engineers and contractors, has a significant effect on how a project develops – collaboration is key, and setting the tone at that start of the project is the first step.
In the present economic climate, there is a danger that a contractor will accept a lower price to secure the project and rely on later claims to recover costs. Contractors who are more risk aware and less overconfident can provide a better outcome.
Brokers play a pivotal role in bridging the gap between clients and insurers. Their expertise and guidance are invaluable in helping clients navigate the myriad of insurance products available, ensuring that they find the coverage that best suits their needs.
Understanding the Broker's Role. A broker acts as an intermediary between the client and the insurance company. Unlike insurance agents who represent specific insurers, brokers work independently and represent the interests of the client. This independence allows brokers to offer a wide range of products from various insurers, providing clients with more options and competitive pricing.
For NZACS members, Aon are the Broker and work with NZACS on behalf of its members. Aon advocate on your behalf, representing your interests in negotiating with Insurers and securing insurance cover.
Key Responsibilities of your Aon Broker
Over the years, members have expressed some dissatisfaction with the renewal date for the NZACS policy being December 1st. This date coincides with a usually busy time of year and is then followed by a period of challenging cashflows, just when the premiums have to be paid. Members will be emailed directly to request feedback to a change to a September 1st renewal date.
Speaking of challenging cashflows we remind members of the availability of the Premium Funding scheme which can spread premium payments out over a longer period. Contact Aon at nz.nzacs@aon.com for advice on this.