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5 Ways to Protect Your Architecture, Engineering, or Design Business

Perhaps you've just opened your architecture, engineering, or design business. Or maybe your boutique firm has been around for generations. Either way, lawsuits are a constant threat to the financial health of your company. So how do you protect your firm from costly litigation trials?

The answer is a solid risk-management policy paired with a business insurance plan tailored to the unique risks and needs of your architecture, engineering, or design business. In other words, prevention is key.

Read on to learn how you can manage the risks of startup or boutique design firm.

Risk Management Tips for Architects, Engineers, & Design Professionals

In this business, your success in the marketplace depends on your ability to effectively mitigate risk almost as much as the services you provide. And in a burgeoning or boutique firm like yours, you may be the only one in charge of avoiding these claims.

The best way to avoid a claim is to prevent it from happening. Here are some ways business owners can protect their architectural, engineering, and design firms businesses and prevent certain losses before they occur.

1. Educate Yourself and Your Employees.

1. Educate Yourself and Your Employees.

The first step in any successful risk-management plan is to make sure everyone is on the same page. It might be a good idea to write up protocol and train your employees to recognize how common business procedures — and not just technical errors — affect their company's exposure to risks such as…

  • Client selection.
  • Contracts.
  • Employee collaboration.
  • Communication breakdowns.

It's vital that everyone you hire understands the company's pledge to quality and how to address these risk-management issues.

2. Be Picky When It Comes to Clients.

2. Be Picky When It Comes to Clients.

In architecture, engineering, and design fields, it's smart to be very selective when it comes to choosing clients and projects for your firm. Here are some situations that should send up red flags:

  • The gold-digging client. These are clients who come into the project looking for a lawsuit, perhaps to fund their losses from another venture. Sometimes the first sign of a gold-digging client comes when the contracts are made. If your client refuses certain liability-limiting clauses or disagrees with large portions of your terms, you might want to walk — if he's unreasonable now, he'll probably be unreasonable later. It also might be a good idea to do a little research on each of your clients to see if they have a history rife with ligation on projects.
  • The inexperienced client. Everyone has to start somewhere, but an inexperienced client may be more trouble than he's worth. You'll know him by the kinds of questions he asks (or doesn't ask). In addition, the budget may be way off, or he may express unrealistic expectations. If you do decide to take on this type of client, be prepared to put in the extra hours it will take to manage his expectations and educate him on proper procedures.
  • The cheapskate. If a client refuses to offer you adequate compensation for your services, do not take the project. You may have to restrict your services below a level that you're comfortable with. In fact, one of the best ways to finish a claim-free project is to offer the most comprehensive service package you can — the more involved you are, the more risk you can control. It may also be a good idea to make note of the services you offer the client that she refuses — it may come in handy later, should a lawsuit arise.

Lastly, some clients, such as real estate developers, are inherently riskier to work with than other professionals, just as some projects are a bit chancier than others. For example, if you are an architect, designing condominiums is one of the riskier projects you could work on.

3. Manage Your Risk With Contracts.

3. Manage Your Risk With Contracts.

A precise, strongly worded written contract is a great way to nip a lot of potential risk in the bud. In addition to staving off misunderstandings and discouraging clients from dishonest claims, if a lawsuit does arise, a clearly-stated contract will be easily understood by a jury or judge in court, strengthening your defense.

You can also try to add clauses in your contracts that lower your liability. One such clause is called a "limitation of liability" clause, which makes your liability proportionate to your ability to control the risks of the project.

You can also try to include dispute resolution provisions in your written contracts. These are agreements that when conflicts arise, you will be given the chance to resolve them before they turn into lawsuits.

4. Avoid Client Disappointment.

4. Avoid Client Disappointment.

If a client feels lied to or cheated, a costly lawsuit might be imminent. One good way to avoid misunderstandings is to first set realistic expectations for the project. Don't make promises you can't keep or set too-lofty goals. It might also be a good idea — for both your employees and your clients — to write up a schedule and stick to it. And of course, communication is always key. The more involved you are throughout the length of the project, the less chance there will be for miscommunication and misunderstanding. And if communication starts to dissolve and your client gives you the cold shoulder, do everything in your power to set a face-to-face meeting with your client. Find out what's going on — but don't overreact! It may just be a small problem that's easily resolved.

5. Recognize the Warning Signs of Lawsuits.

5. Recognize the Warning Signs of Lawsuits.

Often, clients will start behaving strangely when they are about to sue your business. Learn to recognize the warning signs and try to react accordingly (and respectfully) if…

  • Communication starts to break down.
  • Your client starts making accusations.
  • Work stops.
  • Your client takes important meetings without you.

Owning a startup or small business is inherently risky, and owning a design business is, in some ways, even riskier. But with a solid, well-crafted business insurance plan and a good handle on risk-mitigation techniques, you can give your firm its best possible odds for success.

More Business Insurance Tips

More Business Insurance Tips for Architects, Engineers, and Design Professionals

For more tips and tricks on how to protect your architectural, engineering, or design business, check out "Six Costly Business Protection Myths" and "Four Things To Know Before Buying Insurance." And when you're ready to buy or revise your business insurance plan, contact an insureon agent who is an expert in the risks and needs of design firms.

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