Source: Berkley Design Professional, https://www.berkleydp.com/

Defective Administration

A small architectural firm provided design and construction contract administration (CCA) services for a two-story addition to a library that was several hours from their office. The contractor was terminated by the owner after numerous construction defects were identified during construction. The owner demanded that the contractor’s bonding company complete the project, but the bonding company refused. The owner then instituted arbitration against the architectural firm, contractor and bonding company for numerous construction defects. The owner alleged that the policyholder did not perform adequate CCA services including proper field observation and reporting. In addition, the policyholder improperly certified contractor payment requests for work not completed or performed incorrectly. The entire addition had to be demolished. Berkley Design Professional paid $275,000 on behalf of the policyholder plus almost $80,000 in legal expenses.

Lessons learned:

Construction contract administration services must be performed diligently and in accordance with the professional standard of care. In this case, there may have been lack of diligence in identifying defects in construction during its field observation and negligence in over-certifying amounts due to the contractor in the monthly payment certification review process.