Risk is an inescapable part of doing business, but no two businesses have exactly the same risk exposures. Design professionals — including architects and engineers — deal with higher-stakes risks than those in other fields. That's because their work can affect the life-and-death safety of not only their clients but also thousands of people they may never meet.
And while even within a field risks vary from business to business, there are a few risks that nearly all design professionals face. Some of the most prominent are…
Even if you design something flawlessly, there's no guarantee that it will be constructed properly. It's all too common for budget and time constraints to lead to choosing cheaper versions of the materials you recommended or skipping crucial reinforcement or insulation steps. When your directions aren't followed, structures may not perform as you indicated they would, and that can lead to lawsuits against your business. In many cases, Professional Liability Insurance may protect such lawsuits.
A whopping 88 percent of architects agree that scope creep is a major source of conflict between them and their clients. Why? Maybe because clients aren't familiar enough with design work to understand what a project proposal involves when they agree to it. Maybe because of poor communication at some point during the project. Either way, disagreements about what a project should include can lead to nonpayment and other unpleasantness when a project is already underway. Luckily, Professional Liability (also called Errors and Omissions Insurance) can also help in these cases.
Inconsistent cash flow.
Inconsistent cash flow.
More than one in five architects work as sole proprietors, which is more than three times the average for all industries. This means that many architects are responsible for finding all their own clients and selling their services in addition to actually performing design work. Prospecting and selling require significant time, which is why some sole proprietors find themselves in "feast and famine" cycles as they feel out the rhythm of running their business. There is no insurance policy that protects against work shortages, but there are business management strategies that can make things run more smoothly.
Whether you're subcontracting work to another design professional or overseeing the construction of a bridge, you could be held liable for the work done by contractors executing your plans. Depending on the language in your contracts, you may be legally responsible for their mistakes and oversights just as you would for your own. To minimize this risk exposure, verify all licensure and make sure every contractor you work with has adequate business insurance. In some cases, asking to have yourself added to their policy as an Additional Insured can help you manage risk.
More than half (66 percent) of lawsuits against architects come from clients. That suggests that, at some point, wires are getting crossed: clients are expecting one thing and design professionals are expecting another. While it may be frustrating to deal with unrealistic expectations, it's important to be as clear as possible about what a project entails before it gets underway. It's also important to maintain lines of communication throughout a project to ensure that, if anything changes, everyone is on board (and unlikely to sue). Again, lawsuits over your work are covered by Professional Liability Insurance.
Managing Risks in an Architecture or Engineering Firm
While some risks are outside your control (think a lightning storm setting fire to your office), most of the risks that pose the greatest threat to design professionals can be managed and reduced with open communication, contract review, and general diligence. For the times when even the most careful architects and engineers end up facing lawsuits or losses, business insurance can cushion the financial blow and help keep your doors open.