Guest blog post written by Joseph W. Cooch, Esq., of Lee/Shoemaker PLLC. Joseph W. Cooch is Counsel at Lee/Shoemaker PLLC, a law firm devoted to the representation of design professionals, in DC, Maryland, and Virginia. The content of this article was prepared to educate related to potential risks, but is not intended to be a substitute for professional legal advice.
On February 11, 2020, the World Health Organization declared COVID-19 a global pandemic. The public health impacts of the novel virus will not be known for months, but the impact on business and economic activity has been immediately felt as countless business and public institutions have closed, either voluntarily or by order of state governments. Every employer faces unique challenges associated with decisions about how to respond, balancing their need to continue generating income against public directives or private consideration about the well-being of their employees. Businesses which depend immediately on public interaction, such as retail, hospitality, and entertainment, are particularly hard-hit.
The impact to the design and construction industry varies from state-to-state. As of the date of this article, design firms in Maryland and Virginia have been exempted from orders to close non-essential businesses, whereas design firms in the District of Columbia have been ordered to close their doors and work remotely (subject to limited exceptions). Regardless, all prudent design firms should evaluate and understand the risks they face related to the pandemic under each of their contracts.
How does COVID-19 affect a design firm’s rights and obligations under a design contract?
Design firms should be reviewing and analyzing their contracts to understand their rights and obligations related to the impacts created by COVID-19, including review of the following types of clauses:
- Right to Suspend Work: There are a variety of provisions in a design contract which may entitle the Owner and/or the Design Professional to suspend and/or terminate their services.
- Right to Additional Compensation and/or Contract Time: Most contracts identify the circumstances under which a design professional is entitled to additional compensation and/or additional time in which to perform its services.
- Notice Provisions: Many contracts require notice of claims to be issued within a specific timeframe, in a specific format, and/or to a specific And many contracts include provisions providing that failure to strictly comply with notice provisions constitutes a waiver of claims.
- The “Contract Documents:” Many contracts incorporate by reference RFPs, proposals, other contracts, and/or terms and conditions, each of which may affect a design firm’s rights and obligations under a design contract.
Most design professionals are problem solvers, and may find the idea of reflexively providing notice of a potential claim to their client antithetical to their approach to business. By understanding their rights and obligations under their contract, a design firm may assess the most appropriate way to protect themselves related to the on-going pandemic.
How will COVID-19 affect potential claims against a design firm?
The current pandemic is likely to impact all parties’ productivity on a project. Depending on how the Owner- Contractor contract allocates risk and responsibility for the consequences of the pandemic, it is possible that the party bearing the brunt of the pandemic’s impact may seek to pursue claims (meritorious or not) to recoup that loss. Design firms may receive the fallout of such claims, either in the form of an Owner taking an aggressive posture related to increased costs associated with the inevitable imperfections in a set of plans and specifications or in the form of a Contractor issuing dozens-upon-dozens of change orders, some of which may implicate the design team’s services. By proactively communicating and documenting throughout the completion of a project, some of this risk might be averted by the design professional.
Additionally, we anticipate that there may be claims related to the effects of shifting from designing in a studio setting to telework. Design is a collaborative process, whether in-house, with sub-consultants, or among an Owner-Architect-Contractor group. Telework technology provides the opportunity to maintain productivity, but may present communication challenges. It is harder to “read the room” on a telephone conference to identify the subtleties of non-verbal communication, and cross-talk or technical glitches can cause miscommunication. Designers should be assertive to achieve needed clarity, take careful notes, and publish meeting minutes to the participants to document the events and invite after-the-fact clarification.
Is the project being adversely impacted by the Owner?
Design firms must be attentive to how their client is responding to the COVID-19 pandemic. The client may formally elect to terminate or suspend the project or may fail to give the needed attention to a project while addressing employment problems or making strategic decisions about resource allocation. Either approach by your client has consequences under your design contract, but a more “informal” client reaction will create greater uncertainty, both with respect to a designer’s right to compensation and the client’s responsibility for delay. Proactive communication with the client may help to minimize the risks faced by the design firm in the long run, and strengthen the parties’ relationship moving forward on the current project (and on future projects).
There are a variety of new risks presented to design firms as a result of the COVID-19 pandemic. The prudent design firm will adopt a proactive approach to understanding those new risks, and develop strategies targeted to address those risks.
Victor will be hosting a webinar featuring Jonathan Shoemaker, of Lee/Shoemaker. He will address the impacts of the pandemic on design professionals while using industry standard documents as a foundation.
- Don’t Just Flatten – Get Ahead of the Curve in Risk Management
Wednesday, May 27, 2020
1:00 – 2:30 pm EDT