Contracts and Liability Issues for Residential Construction? 1

[AAHstruct]

Hi. I’m a Professional Engineer in structural looking to start up a little side-business in Idaho, and I have a couple of questions regarding contracting and liability. I think that my situation is pretty commonplace, and I hope to tap into other’s expertise for advice. (I apologize if these questions have already been addressed, but I couldn’t find any threads on these topics elsewhere and my experience with a construction lawyer earlier this week was less than satisfying).

I’ve been recently contacted by several designers looking for an engineer that will provide limited scope services for their residential structures. Most of the time they need calculations on a portal wall, a perforated shear wall, tall walls, or anything that doesn’t fit under conventional construction, in order to secure a building permit.

The following are the questions I have about this process:

1. Is there a standard contract I can use for these types of projects, or is there an example of a contract I could use? Would a standard AIA C142 contract or a standard EJCDC 520 contract apply for these types of projects? (I’d like to know if they’d work before I purchase copies of them).

2. Since I’d be doing work for the designer, who is under contract by the owner, I have concerns about getting paid, being so far removed from the money. Wouldn’t it be better to be contracted directly with the owner? And have people been successful in securing contracts with the owner over the designer? From the owner’s perspective, I assume they pay the designer a lot and expect them to be able to secure the permits for their custom home without having to mess with hiring an engineer. From the designer’s perspective, engineering is a commodity business, and they just want the cheapest, fastest engineer they can find that will get them their permit. I don’t want to fall into the commodity trap, if possible.

3. If my professional seal is required on the construction drawings because it contains engineered elements, is it possible to limit my liability to only the engineered components, or would I be accepting liability to all information on the drawing? Could I put a disclaimer next to the seal which states specifically what elements my engineering seal pertains to? I’ve had someone suggest to me that I create a separate drawing for only the engineered portions and provide my seal only on that drawing; however, for simplicity, and from the contractor’s perspective, it would probably be better to have similar information shown in the same place (for example, if typical conventional structure holdowns are shown on the floor plan, but the holdowns for the engineered portion of the building are on a separate sheet, it would likely be missed by a contractor).

4. Finally, I’m also concerned about doing engineering services for portions of structures to be built in multiple locations by developers. I think it should be possible to define in a contract exactly where and how many residences of a particular design can be built (because as more residences are built, the more liability risk I would assume), but I’m concerned about developers (or designers for developers) using my engineered designs and calculations for residences that are outside of the original contract without authorization. Have people had success in limiting the quantity and locations where these designs can be used by developers? And have people had success in getting subsequent contracts for the design to be used in places outside of the original contract (with a review for applicability of the original design, of course)?

I'm sorry this post is so long, but I’d REALLY appreciate any advice people could give me on these matters and I’m looking forward to reading the responses. Naturally, I’m really gun-shy about starting a business, and want to make sure I have all my bases covered before I get myself into trouble. By the way, I’m in the process of applying for my E&O insurance, the business will be a sole proprietorship, and I’ll be working out of my home office. THANKS!

 

[csd72]

I dont know much about the first three.

For item 4, my employer does a lot of signs in NY and he is always requested to do generic drawings (which he refuses).

On his drawings (and I think his contracts) he states that the drawing remain the property of [his company] and any alterations are a violation of the NY state education law (which covers intellectual property e.t.c.

This is not really applicable in your situation, but I hope it helps point you in the right direction.

 

[MillR]

I have a small engineering business and have dealt with very similar issues, including the small scope on larger projects.

1. I had a lawyer write a contract for me, but found that my insurance company (XL) was a huge resource for contracts and liability education in general. I also reviewed sample contracts from friends who own engineering companies.

2. Getting paid from an owner is just as difficult as getting paid from a designer or architect. Getting paid is a good reason to use a contract and include clauses about what happens when you aren't. I prefer working for designers rather than owner because they are generally more professional and they intercept a large amount of the hand holding required by owners that aren't construction savvy. Also, designers generate repeat business and owners may pass your name on to a friend, but it likely won't come to anything. In any case, if you find yourself pressured to be fastest/cheapest, you can decline future jobs.

3. Definitely limit your liability to those items you engineered. Put it in your contract under scope of services and those items not included. Put a note next to your seal on pages that show architectural items. And keep as much of the structural stuff as possible on an S sheet.

4. In general, avoid developers that reuse plans. Of course in the real world you take the work you get. One thing to try is to insist on site visits for every version of the house that gets built. This allows for some quality control and can save the developer money in mistakes. Put a note on your drawing about unauthorized reuses. Don't work for a developer you don't trust. Try to insist on re-engineering whenever the plans are used in a new location (loads and soils change).

Good luck. Also consider turning your company into an LLC. The taxes are a little more complicated if you are a corpoate LLC, but it does give you some liability protection. And congratulations.

 

[csd72]

I found the note we put on our drawings:

This (these) drawings and associated documents are the property of the engineer of record,.......They shall not be copied, in whole or in part, without his written permission. The documents are furnished to the client for a fee and shall be used only in connection with the construction shown and only at the location indicated therein.

As I stated before, this was written for new york, I do not know if it holds water elsewhere.

 

[powerhusker]

If you carry E&O insurance, run from anything residential as fast as you can. They are litigation magnates.

If you don't carry E&O insurance, make sure you are operating as a corporation or an LLC so you can protect your personnal assets in case of trouble.

But I would still run from them as quickly as possible.