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When Engineering Design Fails: The Impact of Faulty Design and Collapses

Safety

By Mitch Cohen, Construction Executive

The resurgence remains strong with ConstructConnect predicting a 12.4 percent increase in 2018 commercial building starts.

However, despite the introduction of enhanced electronic data processes and increasingly stringent regulations, faulty material choices and fast-tracked construction practices continue to combine with workmanship, design and engineering issues to produce an increasing number of design and building errors.

In 2017, the Standish Group reported that less than a third of all projects were successfully completed on time and on budget over the past year. The Occupational Safety and Health Administration (OSHA) has even reported that one in 10 construction workers are injured every year with 20 percent of all on the job deaths occurring on construction sites.

These alarming statistics do not even take into account the catastrophic failures that occasionally plague the industry. While design processes are far more formalized due to the latest design software advances, even seemingly simple changes to plans and specifications in the field can have tragic results. This is because almost all design failures do not show up until the construction phase begins. Consequently, it’s imperative that the proper risk management tools are in place from the start of the first designs. Unfortunately, the fault of any challenge can be linked to any number of errors and even the incidental actions of those involved.

Since most contractors are seldom directly involved in upfront design, the real exposure is related to “inherent” construction management errors. This can include the failure to properly oversee subcontractor work; receive engineering approvals for suggested field changes to plans and specifications; adequately perform value engineering (through the services of a hired consultant); and/or stay within schedules or budgets.

With an increasing concentration on these concerns, even the most conscientious companies are preparing against the litigation, penalties and financial consequences surrounding unforeseen disasters and accidents. Among the risk management strategies increasingly being enacted by construction professionals is the purchase of Contractor’s Professional Liability (CPrL) insurance, which covers the damages arising out of the contractor’s negligent acts, errors and omissions in professional services performed by or on behalf of any construction firm, be it a general contractor, design/builder, construction manager (at-risk or agency) or specialty subcontractor. Again, the biggest exposure for a contractor is their inherent construction management wrongful acts.

Little more than a professional liability coverage part a short time ago, CPrL programs have also broadened significantly to include various first party coverage parts – contractor’s protective indemnity and rectification/mitigation (R/M) insurance to be specific. Today, the CPrL coverage commonly consists of:

Professional Liability (third party) protection for liability arising out of negligent acts, errors or omissions in the performance of professional services performed by or on behalf in the insured. Some of these professional services for a contractor include: construction management, project management, technical opinions and use of building information modeling (BIM).

Protective Indemnity (first party) protection for damages incurred by the insured (contractor) that the insured is legally entitled to recover from errors created by design professionals. Protective, however, is an excess coverage. This means it pays for the delta between the total damages and the damages paid by the professional liability limits available to the insured from the design professional.

Rectification/Mitigation (first party) pays for the expenses reasonably incurred during the mitigation or rectification of a negligent act, error or omission arising from professional services (performed by or on behalf of the insured) that would otherwise lead to a professional liability claim. Rectification/Mitigation coverage is a primary coverage.

As an example, the 1981 Hyatt Regency walkway collapse in Kansas City, Missouri, was the deadliest structural collapse in U.S. history until the collapse of the World Trade Center in 2001. The walkway tragedy, which killed 114 and injured 216, resulted from the follow through of seriously flawed design plans. Under such circumstances, a CPrL policy would have defended the contractor and the faulty construction management of their work, while paying claims related to the negligent and professional wrongful acts deemed to cause the collapse.

In 2003, six floors of the parking garage at the Tropicana Casino and Resort in Atlantic City, NJ collapsed, killing four and hurting nearly 20 other workers. An example of the failure to properly oversee design changes, the garage’s columns failed either at or below the floor being poured. In this case, if a design professional had been hired to redesign the original plans and the buckling supports identified, then rectification coverage would have allowed a new design and repair, which might have prevented the failure.

Unfortunately, construction failures are a fact of everyday life with contractors continually being asked to do more in less time. Design-build practices have also offered another layer of liability as design plans increasingly become moving documents with on-the-cuff changes administered during various construction phases.

As a result, strategic risk management must be a mainstay of any business plan. It is the only way to insure against the unforeseen no matter the amount of due diligence, oversight and expertise.

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