Thursday, January 22, 2009

Liability Issues Related to IPD Addressed

Liability Concerns… and some answers

Introduction to IPD in 3D™

Sophisticated consumers of construction and design services are demanding increased efficiency and productivity from the array of professionals that deliver such services. One of the most effective tools for achieving such increases is so-called Integrated Project Delivery (IPD). However, few stakeholders in the building industry have mastered the knowledge base and skill set required to perform effectively in an IPD environment.

This article briefly describes the foundation upon which an effective IPD program must be built and then tackles liability concerns raised by many stakeholders.

To understand the importance of a solid foundation for an effective IPD program it helps to envision an arch, made of Building Information Model (BIM) and other virtual construction and design tools as blocks on one side, and lean construction techniques and methods (Lean Construction) as blocks on the other side, supported by a keystone represented by the new generation of collaborative and integrated agreements (Collaborative Agreements) holding the BIM and Lean Construction blocks that form the arch in place.

More and more, professionals seeking to achieve IPD are interested in learning how to utilize BIM and Lean Construction effectively and how to draft, negotiate and implement Collaborative Agreements that work. Collaborative Construction Resources, LLC is one of the few consulting firms in the country that understands how the pieces of the IPD puzzle fit together.

In this essay we explore some of the vexing legal issues associated with the use of BIM in an IPD environment and provide some general insights into how best to deal with those issues. Anyone interested in more detailed solutions should contact us directly.

Collaborative Agreements, BIM and Lean Construction Reduce Risks

The specter of liability rears its head whenever IPD and BIM are discussed, but too often those discussions ignore the risk reduction mechanisms in quality Collaborative Agreements and the risks mitigated by the effective use of BIM and Lean Construction techniques.

There are three powerful mechanisms in a quality Collaborative Agreement that substantially reduce the risk of litigation and empower the parties to resolve disputes - which are inevitable - in a collaborative and efficient manner. The first mechanism actually consists of two waiver provisions in such agreements, one via which the parties waive claims for decisions made by consensus and a second whereby the parties waive claims for consequential damages. While not particularly novel, these two provisions effectively eliminate an entire swath of potential claims among the parties to the agreement. When subcontractors and consultants sign joining agreements, binding themselves to those same provisions, even more claims are eliminated.

The second mechanism it the malleable laddered alternative dispute resolution clause (Laddered ADR Clause) found in most Collaborative Agreements. Laddered ADR Clauses contractually mandate parties to disputes actively engage in open and honest communications to resolve disputes and do so at the field level, manager level, supervisor level and executive level, in succession. If those efforts fail, then the third risk mitigation feature of a Collaborative Agreement comes into play.

The third prominent risk mitigation feature built into a Collaborative Agreement is the pre-contract selection and mandatory use of a Project Neutral, or on bigger projects, a Dispute Review Board. Disputes that cannot be resolved through the process detailed in the Laddered ADR Clause must be mediated, and ultimately arbitrated before a Project Neutral or a Dispute Review Board. By waiving the right to litigate disputes, and agreeing instead to submit irreconcilable disputes to mediation/arbitration, the parties can ensure resolution of almost all project related claims within the four corners of the Collaborative Agreement.

In addition to the risk mitigation features built into a quality Collaborative Agreement, BIM and Lean Construction methods themselves empower stakeholders in an IPD environment to actively mitigate risks. A quality BIM strategy, implemented from the outset under the experienced eye of a professional BIM consultant will eliminate countless delays and mistakes. Likewise, a quality Lean Construction program – one that taps the timely and accurate design data generated through the quality BIM Strategy and utilizes a quality Lean Supply Chain manager - will empower the parties to surface and resolve design and constructability issues of all kinds in advance. These tools will wring an amazing amount of inefficiency out of the design and construction processes and the supply chain. These tools and processes reduce risks by obligating the party in the best position to mitigate a particular risk at a particular moment in time with the duty of doing so.

In an IPD environment, project risks - like project costs - can be reduced substantially through effective use of BIM and Lean Construction techniques, and the Collaborative Agreements that support them. Further, the more collaborative tools you deploy in an IPD environment, the more risks you mitigate and the more costs you save. Keep that fact in mind when the specter of increased liability is raised as barrier to IPD and BIM.

While the specter of increased liability pales significantly in the perfect IPD environment, it is rare indeed that a project is completed in such an environment. The more common scenario involves a piecemeal implementation of the collaborative tools described above under a series of traditional construction contracts that pit the economic interests of stakeholders one against another, spawning disputes, distrust and – too often – litigation. In such an environment, the specter of litigation and ensuing liability is very real, and worthy of analysis.

Liability Issues Associated with the use of IPD and BIM

The broad availability of BIM data on projects of all kinds is altering the role design professionals play on construction projects and impacting the scope and quality of the professional services they provide. When BIM and other virtual design tools – in real time - are rendering and updating multi-dimensional images of butterfly-joints, cross-beams, footers and mechanical systems, all of which impact project schedules, cost estimates and supply chain logistics and virtual renderings – which may also be updated in real time - who is responsible for the specifications that drive those changes? In other words, who ensures the accuracy of the specifications incorporated into a facility designed and built utilizing BIM and Lean Construction techniques where the design professionals and the constructors engage in unprecedented collaboration? Is the answer the same if the data initially provided by the design professional is supplemented by data from the contractors, vendors and the owner that result in the selection of different elements than those originally specified by the design professional?

Some argue there is a heightened risk of liability for design professionals if information input into the BIM is inaccurate or the software processes it incorrectly. Others predict catastrophic failures where no human judgment is applied to the elemental construction components selected by BIM programs, but in accordance with the design professionals’ specifications. Still others contend design professionals from Generation X and Y will rely too heavily on computer generated BIM because they lack field experience gained through the school of hard knocks. They argue blind reliance will lead to the use of construction materials and systems that Old School design professionals would reject out of hand as unsound.

A plethora of additional legal issues will emerge as courts assess responsibility for design errors committed by collaborative teams that include constructors, owners and design professionals. Liability for such design-decisions may depend on what information is included in the BIM, who had the ability to add or change data, and the reasonableness of a contractor’s decision to rely on the BIM. With the lines of responsibility blurring for design-decisions in a collaborative environment some lawyers argue professional liability risks may reach contractors, subcontractors and even building owners that alter BIM data.

There are also questions as to who maintains the BIM and provides warnings of possible problems revealed by statistical analysis of BIM data over time. For example, if a particular suspension system is proven more likely to fail than similar systems, who is responsible for tracking performance of such systems and providing warnings to owners that may be unaware of the potential for early failure? Are owners in possession of data showing the possibility of early failure liable? Is the design professional free from liability for future damage or the failure to warn of future damage? Is the answer the same if the design professional retains possession of the BIM? Does the answer change if the owner takes possession of the BIM at the conclusion of the project?

There is also a risk that BIM software may contain flaws that will result in unanticipated design defects. Some also question whether current professional liability policies will cover claims arising from the improper selection of building components by BIM software. In other words, do the design professionals have an obligation to double check the computers prior to incorporating such components into a structure? Stated differently, some suggest we are driving human judgment to ground and eliminating the ability to identify obvious structural problems.
Data theft from BIM systems is another risk to consider. Sensitive information related to the design, construction and operation of certain facilities needs to be properly secured. Questions raised by the theft of BIM data include the following. Who is responsible for the loss of that data or its subsequent illicit use? Who is responsible for making changes to protect the data in the event that the loss of the computer is discovered but no illegal use has been made of the information? What kind of insurance policy should be purchased to mitigate this risk?

As interesting as the foregoing questions may be, the most important question is whether BIM will alter the standard of care to which design professionals are held when developing building concepts and specifications. Ultimately, that question will be answered with a resounding “Yes” and the biggest risk to design professionals will actually be the failure to embrace BIM and the advanced design tools that accompany its use. Design professionals will inevitably make errors that lead to change orders or future structural problems. Identifying and resolving those issues as early in the design process as possible is the best way to mitigate the risks associated such mistakes and the collaborative tools that enable effective delivery of IPD are the best way to do so.

In short, BIM is the standard by which a design firm’s competence will be judged and design professionals who fail to learn BIM will be at the greatest risk. The “reasonable” design professional will be the one that embraces BIM, while the actions of those that do not will be deemed to have fallen below the standard of care given the widespread availability of BIM.
Traditional Contractual Protection

In a traditional contract setting design professionals must continue to protect themselves from potential BIM related risks. If it appears that a design professional’s work might be altered by future decisions made by contractors or the owner, the design professional should be contractually absolved from liability where it no longer has control over the decision-making process. Traditional contracts with an owner should contain a third-party beneficiary clause that rejects any contractual relationship with anyone other than the owner and makes clear it is not conferring a benefit to other parties including contractors, subcontractors or vendors as a result of their involvement in the work or their use of the BIM system.

The design professional’s contract should also contain a waiver of direct or consequential damages due to the failure of BIM systems (other than the system they own and control) or errors in the BIM data over which they have incomplete control. This waiver should extend to loss of revenue, loss of profits, loss of business and loss of business opportunity as a result of the reliance of any parties on information derived from the BIM system once the data has been transferred from the design professional to any third party. There should also be a waiver of damages for theft of data beyond the control of design professional for information that is stolen by persons illegally accessing the databases of the BIM system.

The contract should also address how the databases that feed information to the BIM will be maintained and who is responsible to warn contractors and owners if future problems are identified by database updates. Design professionals should be absolved from liability for claims arising out of elements of their work that were not known to be defective at the time the design professional performed the services related to the property where a loss occurs.

IPD Oriented Thoughts on these Vexing Questions

No one can pretend to have all the answers to all the questions posed above. What BIM practitioners can do, however, is engage in proactive steps designed to mitigate the risks associated with the delivery of design and construction services in a BIM environment. What follows are general suggestions. Those interested in more detailed solutions should contact the author directly.

Deploying BIM without an intelligent BIM Protocol in place is risky, as is providing BIM dependent design or construction services under a contract without an effective BIM Addendum. Design professionals and other project stakeholders will increase their risk of incurring BIM related liability if they fail to establish a prudent BIM Protocol and fail to insist on a BIM Addendum when contracting for the delivery or receipt of design or construction services in a BIM environment.

Accordingly, the first step to protecting the BIM practitioner – or stakeholders on a project delivered in a BIM environment - is the drafting and implementation of a BIM Protocol that addresses the mitigation of BIM related risks, both internally and externally. Second, any party that contracts to provide design or construction services in a BIM environment ought to insist the parties draft, negotiate and execute an effective BIM Addendum. The scope and nature of a quality BIM Protocol and an effective BIM Addendum will vary by organization and project and the details of each are beyond the reach of this article. Suffice it to say, the prudent BIM practitioner will insists on the use of both. Use of a Collaborative Agreement by the stakeholders in an IPD and BIM environment would be ideal, but too often the parties find themselves faced with a traditional contract. In that setting, it is even more important that organizations have an internal BIM Protocol and insist that an effective BIM Addendum be negotiated.

In addition to establishing an intelligent BIM Protocol and negotiating an effective BIM Addendum, BIM practitioners should pay close attention to insurance issues. While insured services have been broadly defined in errors and omissions policies, coverage does not yet extend to situations in which parties other than the insured design professionals have the ability to modify data provided by those design professionals through the use of BIM technology. As these standards evolve, design professionals and their risk managers should remain actively engaged in discussions with their insurance agents and lawyers about the best course of action.
Ultimately underwriters must be educated regarding the use of BIM and how the use of BIM actually reduces and mitigates risks. As more claims data is generated in the IPD and BIM environment, the cost of insurance in those environments is likely to decrease. Meanwhile, many carriers remain skeptical and few have reduced rates. Stakeholders delivering or receiving design or construction services in an IPD and BIM environment should insist on affirmative coverage for claims arising out of the use of BIM. At a minimum, such stakeholders need to ensure that such claims are not excluded.


The best solution to this series of vexing legal issues is the informed use Collaborative Agreements that enable the use of BIM and Lean Construction methods in an intelligently designed IPD environment. Absent and effective and intelligently drafted Collaborative Agreement BIM Practitioners should, at a minimum, establish an internal BIM Protocol and insist on a BIM Addendum being added to any traditional agreement they sign that calls for the delivery of design or construction services in a BIM environment.

Stakeholders on many construction projects are adopting miscellaneous tools from the collaborative tool shed on an ad hoc basis with little or no professional guidance. To effectively deploy collaborative tools on a consistent basis, stakeholders must invest in new business processes that well enable them to take full advantage of the new generation of collaborative tools emerging in today’s market place. Those that do so will substantially reduce their costs on projects while significantly mitigating the risks associated with the receipt and/or delivery of design and construction services in an IPD environment.

Phone: 859-802-1118
Skype: JameswithCCR
Skype: 859-912-7747

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