TZL 1558 (web)

October 21, 2024, Issue 1558 WWW.ZWEIGGROUP.COM

TRENDLINES

Determining PTO accrual

By years of service

By title/ status

Same for all employees

Organizational optimization isn’t just a cost-saving measure – it’s a strategic imperative. The elegance of optimization

Other

0% 50% 100%

FIRM INDEX 180 Degrees Design + Build..........................9 Bowman Consulting Group Ltd.................9 DLR Group.................................................................6 IMEG................................................................................3 Montrose Environmental Group.................3 NV5...................................................................................3 Salas O’Brien.............................................................3 Verdantas....................................................................3 MORE ARTICLES n ALEC RUSSELL: M&A trends and insights Page 3 n MARK ZWEIG: Too many processors Page 5 n JUSTIN STEPHENSON: Strategies for securing earned media Page 8 n LAUREN MARTIN: Risks of deviating from standard contracts Page 10 According to Zweig Group’s 2024 Recruitment & Retention Report , 86 percent of AEC firms determine paid time off accrual based on years of service, making it the most common approach. Other methods include basing PTO on title or status (20 percent) or offering the same rate for all employees (9 percent). Participate in a survey and save 50 percent on the final or pre- publication price of any Zweig Group research publication.

E legance is often defined as the quality of being pleasingly simple and effective. It’s not just about appearance – it’s about the seamless, effortless way something works. When I think of elegance in business, I think of exactly that: achieving simplicity through smart, strategic refinement. I like to use the example of a well-engineered car – every part works in perfect harmony, designed not for excess but for efficiency. There’s no wasted motion, no unnecessary complexity – just smooth performance. In the AEC world, this kind of elegance appears when firms consolidate and streamline, creating an operation that runs like a finely tuned engine, delivering results with precision and minimal friction. In my opinion, there is beauty in a well-honed structure that delivers laser-focused results without wasted effort. However, the reality is that organizational optimization is often viewed as something to put on the backburner – a nice-to-have when there’s enough time to tackle it, but not necessarily a priority. Yet, the benefits of refining and optimizing organizational structure, especially in today’s ever-evolving AEC landscape, are too significant to ignore. This isn’t just about reducing costs, though that’s certainly part of the equation. It’s about simplifying your firm to make it more nimble, more streamlined, more focused, more synergistic, more relevant, more successful, and more... beautiful. As Coco Chanel once said, “Simplicity is the keynote of all true elegance.” Zweig Group recently took a page from Coco’s playbook (who would have thought?!). We just completed a consolidation of our consulting services into four core areas: Talent, Transition, Growth, and Performance. At first glance, this might seem like a mere internal restructuring to streamline our own operations – and that’s not untrue. But our greatest inspiration came from wanting to send a clear message that we see the needs of AEC firms shifting, and we intend to ensure that our clients get the most efficient, impactful, and elegant solutions possible. Our mission at Zweig Group is to “Elevate the Industry,” and in the spirit of that mission, we want to lead the narrative on the importance of simplicity, agility, and focus. Does your firm have a framework that allows for maximum efficiency and effectiveness? Or are you bogged down by internal silos, legacy systems, or processes that no longer serve the best interests of your clients or your bottom line? Here’s the thing: refining your organizational structure doesn’t have to be a massive, overwhelming overhaul. In fact,

Jeremy Clarke

See JEREMY CLARKE, page 2

THE VOICE OF REASON FOR THE AEC INDUSTRY

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environment that feels cohesive and efficient, where they understand their role within the larger framework and can see the impact of their efforts, job satisfaction increases. People want to be part of an organization that’s going somewhere, and they’re much more likely to stay if they feel like they’re contributing to something meaningful rather than navigating a convoluted or inefficient system. So, where do you start? This article wasn’t intended to give you a step-by-step guide, a blueprint, or a manual. Instead, it’s an invitation to start thinking critically about your own firm’s structure. The key is to start small and think strategically. Ask yourself: Which areas of the business are causing the most friction? Where are the inefficiencies that are slowing down project delivery or driving up costs? Are there areas where teams are duplicating efforts? Once you’ve identified the pain points, you can begin to refine and consolidate your services in a way that makes sense for your firm. Optimization is about subtracting the obvious and adding the meaningful. If there’s anything to take from Zweig Group’s recent strategic consolidation, it’s that simplicity and focus are the keys to agility and long-term success. By consolidating our consulting services into four core areas, we want to make a clear statement that even in the world of consulting, less can be more. Focusing on the areas that truly make a difference – Talent, Transition, Growth, and Performance – ensures that our clients get the best, most targeted support possible. In a sense, that’s exactly what every AEC firm should be striving for: a structure that not only works efficiently but also delivers the highest possible value to clients. Ultimately, organizational optimization isn’t just a cost-saving measure – it’s a strategic imperative. It’s about creating elegance in how your firm operates. Your clients expect more than just expertise; they expect your expertise to be delivered efficiently and effectively. By optimizing and refining your firm’s structure where necessary, you position yourself not just as a service provider but as a partner who can deliver projects with the precision and speed that clients are looking for. And in an industry as competitive as ours, that might just be the “elegance” you need. Jeremy Clarke is COO and managing director of Talent consulting at Zweig Group. Contact him at jclarke@zweiggroup. com.

JEREMY CLARKE, from page 1

the idea isn’t to throw everything out and start from scratch. It’s about taking a clear-eyed look at how your firm operates – where the inefficiencies are, where you’re duplicating effort, and how you can better streamline your services to provide clients with faster, more efficient project delivery. Firms in our industry often have numerous specializations all working on different aspects of a project, sometimes in isolation from one another. Each group has its own expertise, which is crucial, but it can also lead to inefficiencies. When information is siloed, collaboration becomes more difficult, and the flow of a project can be interrupted. By refining the way your teams work together, and perhaps consolidating overlapping functions, you can create a more unified front. This not only cuts down on unnecessary delays but also makes the client experience more seamless. After all, the last thing a client wants is to be shuffled between departments because no one is clear on who’s responsible for what. “By refining the way your teams work together, and perhaps consolidating overlapping functions, you can create a more unified front. This not only cuts down on unnecessary delays but also makes the client experience more seamless.” The cost benefits of optimization are obvious. With less time wasted on redundant work and a more streamlined approach to project management, you can reduce overhead and ultimately offer clients better value. But there’s another benefit worth considering: how this shift can make your firm more competitive. In an industry where margins are often thin and competition is fierce, the ability to deliver high-quality work quickly and efficiently can set you apart from your competitors. Clients notice when a firm has its act together, and they’re more likely to return for future projects when they’ve had a smooth, efficient, “elegant” experience. It’s also worth noting that a more optimized structure can help attract and retain top talent. When people work in an

BLUEPRINT FOR AEC SUCCESS Join us at this dynamic webinar as our top consultants share latest insights, and guide you through pragmatic ways to plan for success. Approach 2025 through the lenses of operational excellence, sustainable and profitable growth, effective recruitment and retention of top talent, and holistic transition management. Our industry is changing at a rapid pace and at increasing magnitude, our consultants are committed to bring firm leaders not only relevant and efficient, but elegant, solutions so they can optimize their businesses and stay ahead of the curve. Join us 2 p.m. ET on October 30. Click here to learn more!

THE ZWEIG LETTER OCTOBER 21, 2024, ISSUE 1558

OPINION

M&A trends and insights

M&A activity in the AEC industry surged in 2024, driven by private equity, regulatory investments, and strategic acquisitions.

A s we enter the last quarter of 2024, it’s clear that mergers and acquisitions activity in the architecture, engineering, and construction industry is gaining significant momentum. After a slow finish to 2023, the sector has seen a resurgence in deal-making, with notable increases in transaction volumes and continued interest from private equity firms. In this article, we’ll explore the key factors driving this surge, including the impact of regulatory initiatives, geographic trends, and the role of private equity. We’ll also look ahead to what AEC firms should expect in the final quarter of the year and beyond.

Alec Russell, MBA

M&A DEAL ACTIVITY IN 2024: A STRONG RECOVERY. At the close of Q3, the AEC industry has experienced a remarkable 33 percent increase in deal activity compared to the same period last year. This uptick follows a modest dip in Q2 2024, which aligned with typical cyclical trends. To date, the industry has seen 172 deals close in Q3 alone, a significant jump from the 129 deals in Q3 2023. The first half of 2024 mirrored prior years in deal activity, with 172 closings in Q1 2024 and 171 in Q1 2023, but the surge in Q3 signals that the industry is on solid ground as we head into the final months of the year. Driving this resurgence is the continued interest from serial buyers and large AEC firms backed by

private equity. Leading the charge is Verdantas, which has completed eight deals so far this year. Other active acquirers include Salas O’Brien, IMEG, SLR, Bowman Consulting Group, and Celnor Group, each closing seven transactions, while firms like Montrose Environmental Group and NV5 are right behind with six deals each. This level of activity from serial buyers is a clear sign of confidence in the industry’s long-term prospects. Larger firms are increasingly leveraging acquisitions to expand their geographic reach, diversify service offerings, and enhance specialized capabilities. This

See ALEC RUSSELL, page 4

THE ZWEIG LETTER OCTOBER 21, 2024, ISSUE 1558

GEOGRAPHIC TRENDS AND CROSS-BORDER DEALS. Geography continues to play a critical role in M&A activity, with certain regions standing out as hotbeds of deal-making. Texas, California, and Florida are the most active markets, accounting for nearly 20 percent of all M&A transactions in 2024. Other states seeing significant activity include New York, Pennsylvania, Colorado, and New Jersey, each of which has recorded 15 or more acquisitions this year. Internationally, cross-border deals have also seen a resurgence. As of Q3 2024, 35 percent of all M&A transactions have involved international firms, with 175 deals closed so far. This is just shy of the total number of international deals in 2023, indicating that global expansion is once again a priority for AEC firms. “Whether through geographic expansion, diversification of services, or strategic partnerships, the firms that take decisive action and maintain a clear vision for growth will be best positioned to thrive in the evolving landscape.” OUTLOOK FOR 2025 AND BEYOND. Looking ahead, several factors could shape the M&A landscape in the coming year. Interest rates, which have been a major driver of deal activity, could continue to fluctuate as the Federal Reserve adjusts its policies in response to economic conditions. The Fed’s decision to cut rates by 50 basis points in September 2024 has already made capital more accessible, and additional rate cuts could further stimulate M&A activity in 2025. However, there are also uncertainties to watch, including the upcoming U.S. presidential election and ongoing geopolitical tensions. These factors could introduce volatility into the market, making it even more important for AEC firms to remain agile and responsive to changing conditions. For firms looking to capitalize on M&A opportunities, the key will be aligning acquisition strategies with long-term business goals. Whether through geographic expansion, diversification of services, or strategic partnerships, the firms that take decisive action and maintain a clear vision for growth will be best positioned to thrive in the evolving landscape. Alec Russell, MBA is a senior mergers and acquisitions analyst with Zweig Group’s Transition consulting group. Contact him at arussell@zweiggroup.com.

ALEC RUSSELL, from page 3

not only boosts growth potential but also provides smaller firms with unique opportunities to strengthen their market positions through strategic partnerships or acquisitions. THE ROLE OF REGULATORY AND INFRASTRUCTURE INVESTMENTS. One of the most significant factors behind the surge in M&A activity is the influx of federal spending, driven by key legislation like the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. These laws are expected to inject more than $580 billion into the AEC industry from 2022 to 2026, with the bulk of that funding (78 percent) going to surface transportation projects. Other sectors benefiting from this investment include energy, water/wastewater, and airports. The IIJA, in particular, has been a game-changer for the industry. Not only has it added new projects to the backlogs of engineering firms, but it has also spurred job growth, especially in the civil engineering sector. Since the passage of the IIJA, job creation in highway, street, and bridge construction has averaged around 2,800 new positions per month – nearly four times the pre-IIJA rate. This surge in demand for engineering services has also had a ripple effect on M&A activity. Firms specializing in civil and environmental engineering have become particularly attractive acquisition targets as private equity firms and larger A/E players look to capitalize on the increased workload. PRIVATE EQUITY’S EXPANDING ROLE IN AEC. Private equity (PE) continues to play a critical role in shaping the AEC industry. So far in 2024, PE-backed firms or direct investments by PE funds have accounted for 40 percent of all closed transactions. This is a slight increase from 2023, when private equity was involved in 39 percent of deals. The growing involvement of PE in the industry is largely driven by a strategy of consolidation. By acquiring smaller firms, PE-backed companies can rapidly expand their service offerings, enter new geographic markets, and create long- term value. This trend is expected to continue as the AEC sector remains an attractive target for private equity due to its stable growth prospects and increasing demand for infrastructure improvements. Another key trend is the rise in the size of firms involved in M&A activity. In 2024, the median size of sellers is 32 full-time employees, up from 25 in 2023. Acquirers have also grown larger, with the median acquirer size increasing from 605 FTEs in 2023 to 837 FTEs so far in 2024. This shift reflects the growing participation of larger firms in the M&A market, driven in part by the influx of private equity capital.

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THE ZWEIG LETTER OCTOBER 21, 2024, ISSUE 1558

FROM THE FOUNDER

Too many processors

These employees go through the motions without adding value, negatively impacting growth and performance across organizations.

R esults-generator or processor? The longer I have been in business, the more it has become apparent to me that we all have too many “processors.” These are people who show up every day – they ostensibly do the job they are responsible for – they go through all the motions – but take no responsibility for getting results that actually impact the business in a positive way.

Mark Zweig

These processors are parked in every level of our companies – from the bottom to the top. They are the CFO who accepts whatever credit and terms the bank gives them without finding a better deal there or elsewhere. They are the project manager who completes the job but doesn’t maximize the financial performance that should have been possible with the budget they started out with. They are the marketing person who puts out proposals and qualification documents that win 15 percent of the time, and that has been the win ratio for 10 years. They hurt us at every level – certainly the higher up they go, the worse their impact is on growth, profitability, morale, and more. I have personally seen and worked with processors of all brands and stripes and they all have certain common characteristics.

Those common qualities are that they put in the time, show up, do all the tasks they are supposed to do, and seem like loyal servants dedicated to the company and their jobs. The problem is they don’t add any value. So they are too hard to fire because everyone thinks they are great and there is no easy rationale for letting them go, especially when the company is doing well overall. But the issue is, it (the company) could be doing so much better! On top of it, if they were to be let go someone else would have to do their job on top of all the other jobs they are currently doing and that is always a big hurdle to cross because the company has no one better to replace them with.

See MARK ZWEIG, page 6

THE ZWEIG LETTER OCTOBER 21, 2024, ISSUE 1558

ON THE MOVE DLR GROUP EMPLOYEE-OWNERSHIP GROWS WITH 200+ LEADERSHIP APPOINTMENTS Two managing principals, four senior principals, and 28 principals, as well as 174 senior associates and associates were recently appointed at DLR Group, a 100 percent employee- owned global integrated design firm. “Through appointments, we recognize employee-owners who are driving transformative change in our business and embodying our brand promise to enhance the human experience through design,” said Steven McKay, RIBA, LEED AP, managing principal and CEO at DLR Group. “These visionary leaders exemplify our core values, and their design innovation will ensure our ability to meet the evolving needs of clients worldwide.” As part of a planned leadership transition initiated over the past two years, Pamela Touschner, FAIA, and Peter Rutti, AIA, have each been appointed a DLR Group managing principal. Both are also members of the executive team. Touschner joined DLR Group in 1993. Based in Los Angeles, she leads 290 employee-owners as the California Region Leader, managing operations for six California offices representing more than $75 million of revenue. She has held leadership positions in numerous arms of AIA and NOMA. Rutti joined DLR Group in 2012. As the firm’s chief design officer, he directs all aspects of the integrated design process to achieve DLR Group’s commitment to elevate the human experience through

design. He is a recognized performing arts and cultural institution designer and a faculty associate and visiting critic at design schools across the U.S. DLR Group senior principals are established, visible, respected leaders and mentors who play a key role in establishing and realizing the firm’s strategic goals. Less than 2 percent of the firm’s more than 1,600 staff hold this critical leadership title.

View High School. As an advisory board member, she effectively champions the value of employee ownership. DLR Group principals demonstrate the firm’s core values while proactively, positively, and ethically leading the firm to new levels. The class of 2024 principals includes 28 individuals representing architecture, engineering, interior design, planning, and specialty services. DLR Group also welcomed 79 new senior associates and 95 new associates. Senior associates inspire and mentor others while exhibiting leadership by taking on new challenges and influencing design outcomes. Associates consistently excel in their role while proactively sharing their design voice and contributing to culture. Since the previous year’s appointments, strong organic growth as well as merger and acquisition activity brought 71 additional leaders into the firm with appointments on-hire. This cohort included three executive teammates, Chief Growth Officer Beth Miller and Chief Development Officer Ignacio Reyes, FAIA, LEED AP, both senior principals, and Principal and Global Leader of Equity Diversity and Belonging, Jessica Bantom. Twenty additional principals, 16 senior associates, and 32 associates round out this cohort. DLR Group is an integrated design firm delivering architecture, engineering, interiors, planning, and building optimization for new construction, renovation, and adaptive reuse.

Molly Johnson leads a robust human resources function within the firm, having introduced benefits, compensation, learning and development, performance management, and talent acquisition specialties. She also gives employee-owners critical feedback toward improving DLR Group’s culture with an annual Culture Index. Audrey Koehn, NCIDQ, LEED AP leads the firm’s interior design discipline. She leads a team of more than 175 designers across all of the firm’s client sectors. Adam St. Cyr, AIA, the firm’s Texas region leader, is responsible for growing the business and culture across three offices in one of DLR Group’s fastest-growing regions. He is also an accomplished architect and experienced K-12 education client leader. Carmen Wyckoff, AIA, LEED AP is a project manager and architect specializing in innovative K-12 education facilities such as the MacConnell award-winning Canyon

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every role instead of “good people” who are just going through the motions. So the bottom line is this – if you have too many processors working for you, isn’t it time to take some real action so you are more of a results-generator yourself? I think so. Mark Zweig is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com. “They put in the time, show up, do all the tasks they are supposed to do, and seem like loyal servants dedicated to the company and their jobs. The problem is they don’t add any value.”

MARK ZWEIG, from page 5

Sometimes, people who start out as results-generators metamorphose into processors. What causes people to become processors? A number of things. Loss of belief in the real purpose of the organization so they get turned off. Achieving personal financial or career goals so motivation wanes. Personal problems that become more important than the job. Fear of change and resulting aversion to all risk in trying something new. There are many factors – some within the control of the company, and some not. Obviously, you need to be concerned with the things you can control about the company that would demotivate a good person and turn them into a processor. But it’s not all within your control. And ultimately, all that matters is the individuals and how they are doing their jobs in spite of issues in the firm or outside of it. YOUR mandate is to have results-generators in

THE ZWEIG LETTER OCTOBER 21, 2024, ISSUE 1558

OPINION

Utilize these strategies to secure wide-reaching media coverage and build credibility, boost visibility, and attract new clients. Strategies for securing earned media

A s a marketing director for a design-build firm in a top 10 U.S. metro area, I’ve experienced the powerful role earned media can play in providing opportunities to increase industry exposure. Unlike paid advertisements, earned media is the publicity a brand organically receives from third-party sources without paying a fee. This form of media can serve as a testament to the firm’s reputation, quality of work, and industry relevance. In recent years, we’ve secured wide-reaching earned media coverage by implementing select strategies.

Justin Stephenson

Here’s how we did it, and how your firm’s marketing team can too: ■ Market research. The first step is to develop an extensive list of potential earned media sources that are aligned with your firm’s work. It’s important to include a full array of opportunities such as national publications, social media channels, awards, television, and local publications and news sources.

pages (SERPs); for relevant, high-value keyword searches like “[city name] architecture firms.” Through easily accessible software options, your marketing team can analyze keyword data such as national and local monthly search volumes and estimated cost-per-click for the top of the page of the SERPs. The data will help your team determine which keywords provide the most potential opportunity, as well as commercial value. For example, the higher the estimated cost-per-click equates to a higher value keyword search as it has a commercial or transactional intent. By securing placements on these pages, three impactful benefits are achieved:

Prioritize high-ranking search engine optimization opportunities. I would recommend initially focusing on publications that rank well on the first page of search engine results

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THE ZWEIG LETTER OCTOBER 21, 2024, ISSUE 1558

BUSINESS NEWS BOWMAN CONTRACTED BY ILLINOIS DEPARTMENT OF TRANSPORTATION FOR I-55 CORRIDOR REHABILITATION PROJECT Bowman Consulting Group Ltd., a national engineering services firm delivering infrastructure design solutions and project management services to customers who own, develop, and maintain the built environment, has been contracted by the Illinois Department of Transportation to provide corridor management and design services for a 15.6-mile corridor of I-55. “We are excited to start working on the highly impactful and innovative I-55 corridor assignment,” said Gary Bowman, chairman and CEO of Bowman. “This is one of several awards where we’ve been anticipating and planning for a

final contract and notice to proceed for several months. We had the necessary resources for the assignment in place, so we were able to mobilize quickly and immediately commence work on the project. Our transportation practice has unparalleled experience with the complexities of large-scale infrastructure projects in Illinois, and we appreciate this opportunity to help IDOT improve and modernize one of the most heavily traveled expressways in the state for its constituents.” Corridor management is an innovative approach to transportation system management whereby public agencies and private contractors commit to working together to manage a transportation corridor holistically rather

than the more traditional approach of managing individual assets discretely. This contract is a key component of the state’s $45 billion Rebuild Illinois infrastructure investment strategy. Under this engagement, Bowman will manage all projects within the highly trafficked stretch of I-55, which connects Chicago to its southwest suburbs, a corridor that transits more than 100,000 vehicles daily. Additionally, Bowman will prepare bridge repair plans for 16 bridges within the corridor, as well as develop roadway improvement plans of the expressway. These enhancements have been identified as key to improving safety, reducing congestion and extending the lifespan of Illinois’ transportation infrastructure.

Visibility. Your firm gains greater online visibility for high-value keyword searches, attracting potential clients who are actively searching for the services you offer. Consistent lead generation. Currently, more than 80 percent of our firm’s potential client inquiries are from online searches. By securing strong brand positioning among relevant search results, your firm can build digital reach that can over time become a steady source of new leads over extended periods. Backlinks. High-authority sites linking back to your firm’s website can significantly improve its visibility and performance on high-value SERPs. Link building is arguably the most important component of ranking well. Gaining backlinks or links back to your site from other relevant and trusted sites sends signals to search engines that the linked website content is valuable, credible, and useful. Interestingly, backlinks formed the foundation of Google’s original algorithm published in 1998, known as “PageRank.” ■ Direct outreach to decision-makers, editors, and journalists. All earned media we have secured started with cold outreach, whether through a call or email. Identify key contacts. Locate the names of editors and journalists who author relevant articles. While these contacts are not always openly displayed, a variety of software platforms assist in locating direct contacts, such as a professional email address. Craft a compelling pitch. To craft an effective pitch, start with an engaging subject line. Make sure the content is highly relevant to the targeted audience. Remember that less is more, so keep the email body succinct. Highlight the most noteworthy points of interest and perceived connections to the audience in the first few lines, ensuring the message is

customized rather than generic. Finally, close with a question to elicit a response. Go directly to the top. We have experienced success in securing earned media is considerably higher when contacting high-level editors and journalists directly, rather than through general inquiry channels. For example, through an email to an editor-in-chief, we secured an eight-page feature spread in an industry- relevant national publication that prints more than 1 million copies of each issue. Leverage social media. Social media platforms like LinkedIn have massive audience reach potential in your target markets. Sending direct messages on platforms can be an effective way to connect with decision-makers at scale. Local opportunities. Don’t overlook local earned media opportunities. Local television segments, podcasts, and publications can be valuable platforms to showcase your firm’s work and services. Depending on your firm’s location, these “local” channels could reach millions of people who reside in your firm’s target markets. continued earned media coverage that can strengthen your firm’s presence in the industry. By maintaining regular and strategic outreach efforts, your firm’s marketing team can develop connections with decision-makers, editors, and other gatekeepers, creating accelerated pathways to publication and unlocking the doors to industry-relevant connections and opportunities. Justin Stephenson is the marketing director at 180 Degrees Design + Build. He specializes in implementing growth strategies through strategic search engine optimization, paid advertising, earned media, and business development. Contact him at jstephenson@180degreesinc.com. ■ Consistency wins. Consistency is key to securing

THE ZWEIG LETTER OCTOBER 21, 2024, ISSUE 1558

OPINION

Imprecise, incorrect contract language may leave AEC firms uninsured for professional liability exposures. Risks of deviating from standard contracts

A ny AEC firms familiar with the popular saying, “You don’t know what you’ve got ‘til it’s gone” might not realize its potential application to standard design contracts. As owners’ attorneys look for ways to transfer more risk to design firms and other project participants, many have moved away from standard contracts provided by the AIA, SBIA and other organizations, either by making significant modifications to the language or by crafting their own agreements. Unfortunately, the consequences of these for design firms can be disastrous, potentially leading to the assumption of excessive and uninsured exposures.

Lauren Martin

While the standard contracts provided by various professional organizations tend to be long, they have stood the test of time and are fully accurate with respect to terminology, roles, and responsibilities. The AIA Design Contract is about 25 pages unedited as is the DBIA contract. EJCDC contracts are about 50 pages, as are the consensus documents contracts. All these contracts have been negotiated over time with lawyers and professionals representing the various parties involved in construction. Their descriptions and references to various construction project participants have been negotiated extensively. Furthermore, there’s widespread agreement that they provide clear, accurate, and balanced representations of each participant’s roles and responsibilities.

Unedited, the contracts have been proven to be largely insurable for design professionals as a result of this negotiation. In addition, the parties involved understand that it is better to have a contract that does not jeopardize the professional liability insurance coverage to respond on the behalf of design professionals should they be negligent in their performance. This is why professional liability carriers uniformly recommend the use of standard contracts. Many insurance advisors are relieved to see an unedited standard contract, or even a lightly edited one. Nowadays, however, it has become more typical for AEC firms to receive an extensively edited contract, which doesn’t resemble the original standard version, or a contract completely drafted by the client’s lawyers.

THE ZWEIG LETTER OCTOBER 21, 2024, ISSUE 1558

BUSINESS NEWS BLACK CONSTRUCTION-TUTOR PERINI JOINT VENTURE AWARDED $38.3 MILLION P-324 9TH ENGINEERING SUPPORT BATTALION HEADQUARTERS PROJECT IN GUAM Tutor Perini Corporation, a leading civil, building and specialty construction company, announced that it, in a joint venture with its subsidiary, Black Construction Corporation, has been awarded a contract by the Naval Facilities

Engineering Systems Command, Pacific District, for the P-324 9th Engineering Support Battalion Headquarters Project at Marine Corps Base Guam. The scope of work includes constructing low- rise facilities to support the 3rd Marine Expeditionary Force, 9th Engineering Support Battalion. Buildings will feature reinforced concrete structural frame walls, floor, roof and a concrete shallow foundation system. The administration

building will include the battalion/ squadron headquarters and company/ battery headquarters, and will provide private and open offices, meeting rooms and miscellaneous support spaces. Work is expected to begin in the first quarter of 2025 with substantial completion anticipated in November 2026. The contract value will be added to the Company’s backlog in the third quarter of 2024.

A COMMON ERROR: MISTAKEN IDENTITIES. Frequently, these contracts misname the parties or reflect a complete lack of understanding of the construction process and the roles of those involved. For example, one recent contract between an engineer and owner, correctly described the engineer one time in the contract. Yet, afterward incorrectly referred to them as “architect.” In many cases, both architects and engineers are referred to as “contractors” and their professional services as “work.” Although lawyers have been educated to use precise language, the mischaracterization of the parties on the project can be particularly harmful – and costly – should a claim arise. Fact finders have a difficult enough time figuring out the roles and responsibilities on a project without having to navigate imprecise contract language. One trial involving delays and extras on a project that centered on a misunderstanding about an alternate paving detail resulted in a hung jury. Afterward, one of the jurors commented that they “thought the engineer could have paved earlier.” Construction is complex; it’s important to avoid making it even more difficult for someone outside the industry to understand by agreeing to ambiguous contractual language. What’s even more frustrating is when a prime design professional has already agreed to a bad contract and chooses to pass along all the unreasonable terms to a consultant. The design community should stand together to make sure their roles are understood and appreciated, which is why timely and precise communication with everyone involved in a project is critical to avoid any misunderstanding. Of course, it’s easy to blame the lawyers who draft and modify these contracts with onerous terms, misidentified parties, warranties, uninsurable standard of care definitions, liquidated damages, time is of the essence clauses, and prevailing party clauses. Certainly, they are the ones drafting the contracts and telling their clients the terms are “reasonable.” So, much of the responsibility for this situation rests with them. While it may be their job to try to shift as much of the responsibility as possible away from their client to others, the fact is without insurance coverage to back up that transfer or exposure they truly are not doing their clients a service. STARTING OFF ON THE RIGHT FOOT. It’s important to begin any new relationship based on mutual understanding, honesty,

and fairness. It may be helpful to get clients and their lawyers in a room together during the negotiation process to have civil discourse about the contracts. That can help get all parties started on the right foot. Designers can take a lesson from other professionals. Lawyers, medical doctors, accountants, and various other professionals also provide professional services. And they do so without telling their clients they are better than others, will advise or treat you perfectly, and without providing any guarantees. Indeed, professionals in all disciplines are expected to meet the standard of care for their industry, in other words not to practice their profession negligently. Under no circumstances would a lawyer guarantee a win in court, or any other type of outcome for that matter because they understand their professional liability coverage would not respond. Similarly, a lawyer would not agree to be referred to as a medical doctor or an accountant. Thus, in negotiating with current or prospective clients, try to appeal to fairness; appeal to coverage being in place should there be a problem on the project; appeal to whatever you can to make sure you are treated appropriately. If design firms communicate with each other, as well as with their clients, perhaps as an industry we can move back toward standard contracts. These contracts have been previously negotiated and agreed upon as being fair. Without a doubt, this approach is safer and far better for your business than being bullied into contracts that don’t reflect either the designer’s role or appropriate risk and responsibility. Although lawyers may represent an initial obstacle to fair dealing in these matters, the design community exacerbates the problem by agreeing to unreasonable contracts without objection. One of the more common arguments used to pressure designers during negotiation is that other firms will agree to the terms. Let’s try to make that argument more difficult by pushing back against confusing, unfair, and uninsurable terms. Lauren Martin is a risk manager and claims specialist at Ames & Gough. She can be reached at lmartin@amesgough.com.

THE ZWEIG LETTER OCTOBER 21, 2024, ISSUE 1558

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