Mitigating Professional Liability Risks In The Construction Industry

Engineers and design firms in the construction industry need professional liability insurance to protect them when disputes arise.


Operating a business in the commercial design and engineering sector involves dealing with a host of risks. These threats to a design or engineering firm stem from a variety of factors and can potentially cause the disruption of normal business operations, a decline in revenue or even an expensive and resource-consuming lawsuit.

According to ACEGroup, contractors have expanded their role in the construction process and now routinely provide engineering and architectural services in addition to building the structure. With many firms now extending their reach beyond what might have been their original comfort zones, it’s important that insurance brokers and agents working in this field help their clients understand the full range of risks and how to mitigate exposure to them.

Build great teams

The construction sector was one of industries hit worse by the Great Recession. There was considerable more market supply than demand, and those who did want to buy were unable to find funding due to the credit crunch. During this time, many workers left the industry and moved to greener pastures in other fields.

“Engineer, design and construction firms must be sure they remain diligent in their screening and hiring processes.”

Now that the construction industry has climbed up from the nadir of the recession and building has picked up, many engineering and design firms are finding it difficult to locate and attract the most skilled workers for the job. The latest data from the Associated General Contractors of America showed that hourly pay and longer weekend hours for workers suggested contractors would prefer to hire more skilled workers if they were available. Further, officials from the AGC noted that the employment growth in the construction field was being held back by a worrisome lack of skilled labor.

When contractors have such extremely limited options in the labor market, it raises the chances of firms hiring less-than-ideal candidates for positions that require highly skilled individuals. This can lead to shoddy work performance and the construction of subpar structures, and ultimately it increases a company’s exposure to potential professional liability risks. Although the pool of highly skilled laborers is relatively narrow, engineering, design and construction firms must be sure they remain diligent in their screening and hiring processes.

Be clear on contract wording

Contracts are the foundation for every construction project – so much so, it forms the basis for for the word “contractors.” Since these documents play such a major role in the industry, from outlining the scope of a project to delegating responsibility when a problem arises, it’s crucial that the language used and the conditions specified in the contract do not leave a design or engineering firm at an unfair disadvantage. Further, as noted by Construction Today, the rise of design/build contract vehicles have altered the relationship between the design team, contractors and project owners.

As noted in Insurance Journal, design firms and other subcontractors should refuse to sign a contract with language that leaves them on the hook for defending owners in claims. Not only will you not have the insurance coverage to protect against this, but you might be required to defend a matter in which you had no involvement or responsibility. When dealing with any type of contractual issue and choosing specific language to include or exclude, it’s always a wise idea to consult with an attorney experienced in the construction industry.

Use the right tools

As every individual who works at an engineering, design and construction firm understands full well, tools are the most important part of a project. Without them, nothing would or even could get done. In addition, these workers also know that the highest quality tools ultimately help make a superior end product. One new tool that construction firms have been benefiting from is the implementation of cloud-based enterprise management solutions.

“Construction firms have been benefiting from the implementation of cloud-based enterprise management solutions.”

Having real-time access to all communications, project specs, change orders and other important information is essential in the modern construction industry. Losing pertinent documents or having an RFI fall through the cracks can ultimately lead to a breach of contract and professional liability problems. Cloud-based construction enterprise management solutions alleviate the exposure to these risks by collecting all crucial information related to a particular construction project all in a single, easily accessible digital repository.

Find the right partners

Engineering and design firms need to know they have the coverages in place to protect them against a wide range of potential risks, from allegations of negligent acts, errors or omissions. Losses to the owners and third parties stemming from the failure of structural components, nonfulfillment of contractual obligations, property damages or bodily injuries can spell disaster for engineering and design firms in the construction industry. Brokers and agents who partner with McGowan Risk Specialists gain access to our unique line of professional liability insurance for designers, engineers and contractors operating in the construction sector.

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