Negotiating Errors and Omissions

Omissions and Errors and the Client 

Inexperience accounts for the conviction there shouldn’t be any mistakes in the architect’s construction documents. Experienced owners, construction managers, and general contractors know the cost of error-free construction documents would far outstrip the financial benefit of allowing for a reasonable number of document mistakes costing 3 to 5-percent of the budget and more if it is a fast track or remodeling project. To acquaint the inexperienced owner with the facts the design professional should have a discussion with them before signing the contract. The strategic time to have this discussion is during contract negotiations when decision makers are still at the table. It is unlikely the owner would withdraw from the negotiation over a practical discussion of document mistakes. Waiting until lower-level managers are in charge to have this discussion is inviting conflict. 

The Initial Decision Maker 

If a contractor is asked to correct a designer’s mistakes, they will make a claim to recover their costs. Although the procedure is rarely fully apparent, the process for making claims in these circumstances requires the contractor to present their claim to the Initial Decision Maker, a role assigned by default to the architect-engineer in Section 15 of the general conditions and Article 3 of the owner-architect agreement. The initial decision maker has a duty to review the basis for the claim and render a fair and impartial decision on the merits of the claim. They must be honest and fair when reviewing contractor’s claims—not showing favor to one or the other party including their own masters. They must be a strict constructionist in this regard, carefully researching and documenting the contract documents to determine if the claim is valid and documenting their decision. 

The role of Initial Decision Maker (IDM) is conflicted, to say the least. The initial decision maker must be able to research the documents, study the site and produce an understandable written decision stating ordinary facts. The IDM could find the claim is legitimate in which case they will be finding against their employer and their client. If they deny the claim, the contractor can proceed to the next level in the claims process and demand mediation and later binding dispute resolution. 

In accordance with AIA owner-architect agreements and general conditions, the architect is the initial decision maker by default, but AIA documents allow for a third party to be appointed. While it may seem unfair for the architect to be making the decision when their own interests are involved it is, in fact, a good choice. The architect is fully acquainted with the documents and the progress of the project; a third party would have to cover all this ground again and parties to the claim would have to share this cost. The claimant/contractor can always reject the architect’s decision and ask for mediation.  

How Do Mistakes Differ 

Omission 

Once the initial decision maker has determined the designer is responsible for the mistake, the designer must be prepared to discuss responsibility and its cost with the owner. Knowledge will impress the owner and help calm them down if they become expressive.  

Knowing the difference between an omission and an error is important because an error is more egregious in the eyes of the owner than an omission. An omission is materials or work that was mistakenly omitted from the plans at bid time but is required to complete the project. For example, a required sidewalk from a building was not shown, even though it had been talked about during programming. This is an omission; the contractor is entitled to a change order to place it, but the owner will have to pay for the sidewalk only once, but it is unlikely they will get it for the same price they would have gotten it on bid day.  A change order for an omission can, in good conscience, be referred to as a betterment or value-added cost. 

Design Errors 

A design error, on the other hand, is a mistake in the documents that require replacement of already-built construction or equipment, with the original materials most likely being thrown away. In this case, the owner already paid for the work once and now must pay for it again as well as for any related demolition. 

For example, the architect did not schedule a fire rated ceiling assembly in the music room of a high school auditorium where the space above ceiling was used as a return air plenum. This is a violation of the Life Safety Code®: According to NFPA 101® the ceiling should have been a fire rated assembly. The mistake was discovered by the fire marshal and the ceiling had to be demolished and replaced. The contractor was given a change order for the work.   

It’s best if the architect has a strategy to minimize conflict with the owner before the first error/omission change order is presented. Knowing how the owner’s representative feels about change orders is generally part of that strategy. Otherwise, they may be bringing a match to a tinder box. 

Code Compliance Change Orders 

Code compliance change orders are in a category by themselves, because there is considerable latitude for code inspectors to make interpretations that can’t be easily anticipated by the architect-engineer at the design stage. If the architect attempts to anticipate the inspector’s every judgment, they may unnecessarily increase the costs of construction. If they try to be lean, there are likely to be violations that will have to be corrected by change order.  

Negotiations with the Claiming Contractor 

Contractors Have the Upper Hand 

For any work change issued after the contract is signed, the contractor has considerable leverage in negotiating the price. They are already mobilized on the site making it very difficult to seek competitive pricing. It is difficult to see how a new, competitively priced contractor could be mobilized to do the work without resulting in conflict and litigation. Under these circumstances, the owner, the architect and the construction manager are caught in a situation where the contractor who quotes an inflated price for labor can justify it by saying “that’s the way I see it.”  Prices for materials are easily confirmed, but the price for labor is in the eye of the beholder. The contractor can simply refuse to do the work for less.  

The construction manager and the general contractor have more power and leverage to stare down the contractor than the owner or the architect if they are willing to use it. They also have staff that can take off material and labor to provide comparison pricing. One strategy is to challenge the contractor to do the work on a time and material basis. This is not a simple process without the assistance of the construction manager unless the architect’s rep wants to spend a lot of time at the site.  

Agency Plan Review 

Plan Review Is Not a Guarantee 

Government agency plan review is a service not a guarantee that everything is in accordance with zoning ordinances and building codes. The building permit is a permit to start construction not a license to ignore the building codes or ordinances. If there is an infraction that is overlooked by the plan reviewer, the building inspector can still tag it as a violation and order it corrected. Fortunately, some things that are not in compliance with the code are discovered by the contractor. For example, the electrician advised the architect that each piece of major equipment required an electrical disconnect in line of sight with the equipment and none were shown on the drawings. This kind of collaboration calls for reciprocity. 

Plan reviewers and building inspectors for government authorities with jurisdiction are immune to claims for financial recovery if major code violations costing thousands of dollars to correct are discovered in construction after it was built in accordance with government-approved plans and specifications. 

For example, the Plan Department in The Village of Pomona, New York issued a building permit based on reviewed plans and specifications for the construction of an accessory building on residential property that exceeded the size permitted by the village zoning ordinance.  After construction was well underway a “Stop Work Order” was issued by the building inspector, because the building exceeded the size restriction. Contrary to the owner’s contention in court, the village was not restrained in its power to stop work even though the village plan reviewer made a mistake in issuing the building permit. The village was in its lawful right to order the work stopped until the building was redesigned and rebuilt in accordance with the zoning ordinance. 

Reviewing Change Orders with the Owner 

Before meeting with the owner to discuss an error or omission, the architect’s representative should become thoroughly acquainted with the facts of the mistake. If the conversation becomes conflicted, remind the owner of the contingency budget, some of it is there for situations just like this. If there has been an agreement made during contract negotiations regarding some percentage of the contingency budget being set aside for errors and omissions bring that up to bolster your negotiating position.  

Conclusion 

Every responsible construction budget has a 5 to 10 percent line item for contingencies that provides for hidden conditions, code compliance issues, owner’s requested changes and design errors and omissions it may just not be broken out like that. It should be enough to include 2 or more percent for errors and omissions depending on the type of project. On some projects depending on the complexity and the contracting method (whether it is design-bid-build or design-build) and whether it is a fast track or remodeling project, that percentage could be much higher.  

The strategic time to discuss costs of errors and omissions is during contract negotiations when decision makers are still at the table. Waiting until lower level owner’s representatives are in the charge will make for a worse outcome. Lower level functionaries do not like making decisions and may be unfamiliar with the standard of care required of architects and engineers or openly hostile to the idea that the architect should not have to pay for their mistakes.   

This article represents the research and opinions of the author and is intended for general information purposes only and does not constitute legal advice. Because the interpretation of common law varies from state to state the reader should consult with legal counsel familiar with the laws in their state 

Paul Potts is a freelance writer published in design and construction magazines. He has worked as owner’s representative, specification writer and construction administrator for architects, engineers and owners. Potts can be contacted via e-mail at paulpotts1@comcast.net or visit his website at www.pauljpotts.com or at LinkedIn https://www.linkedin.com/in/pauljpotts/ 

Words: Paul Potts