CONTRACTS: CASE SCENARIOS
EXPRESS WARRANTY A client retained a mechanical engineer to design an HVAC system to correct humidity problems at an existing public school. The engineer’s design was constrained by the school’s cost-driven directive to use as much of the existing system as possible. When the school district later sued the architect for roofing problems, the architect cross-complained against the engineer, claiming that the roof problems were the result of high humidity. Because the engineer’s contract contained what amounted to a warranty that humidity levels of 60% would be maintained, a level that was not achievable given the constraints, the engineer paid $300,000. MANDATORY ARBITRATOR A state department of transportation (DOT) made an $800,000 claim against a civil engineer, alleging unsafe guardrail design. The claim was impossible to settle because the engineer’s contract with the DOT required that the DOT manager act as the arbitrator on any claim. Despite appeals to the court, the court upheld the requirement, stating that the engineer knew the provision was there when he signed the contract. The claim settled for the engineer’s policy limits despite the engineer’s defense that the DOT assumed full responsibility when it changed the engineer’s design to a less expensive one. AMBIGUOUS CONTRACT TERMS A city retained a landscape architect to design a park. Although it was clear that the landscape architect’s specifications were ignored during construction, a dispute arose regarding her on-site responsibilities. The city argued that she was to be on site on a daily basis. The landscape architect understood her responsibility to be on site only during actual planting. The ambiguous contract language made the claim difficult to defend and resulted in a claim settlement by the landscape architect of $625,000 plus $82,500 in expenses. CLEAR SCOPE OF SERVICES A structural engineer was paid a nominal fee to inspect a retaining wall. His scope of services merely stated, “provide all necessary structural engineering services.” Several years later, the property owner, getting ready to sell the property, discovered seismic issues with an existing building. His attorney, in reviewing the property owner’s records, found the structural engineering agreement that promised to “provide all necessary structural engineering services.” The attorney sent a letter accusing the engineer of failing to detect the seismic issues. Although this claim was eventually closed without a payment, the engineer would have benefited from an agreement that related to the specific services he was going to provide regarding only the retaining wall.
40 • From Risk to Profit - Benchmarking and Claims Studies
Victor
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