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

A large multi-discipline engineering firm working on a design-build project was retained by a general contractor to review payment applications for certification of the project to the owner and lender. Correspondence between the contractor and policyholder indicated that those reviews were to be “desktop reviews” only without a requirement for the engineer to visit the project site. The contractor was having financial difficulties and did not pay its subcontractors in full, abandoned the project and ultimately declared bankruptcy. There were insufficient funds remaining for the owner to complete the project. The owner filed a lawsuit alleging the engineer should have visited the site prior to certifying the contractor’s payment applications. Berkley Design Professional paid more than $277,000 on behalf of the policyholder plus $182,000 in legal expenses. The policy holder contributed/paid a $200,000 deductible.

Lessons learned:

Construction contract administration services must be performed diligently and in accordance with the professional standard of care. If the scope of services is modified by mutual agreement of the engineer and owner, a design services change form should be authorized and agreed to in writing. In this case, there was no substantial documentation nor written agreement of the “desktop review” of construction progress being acceptable. Absent a written agreed-upon design change authorization, the engineer was deemed to be negligent in not providing in-person site observation and in over-certifying amounts due the contractor in the monthly payment certification review process.