Managing Risk When Returning to the Jobsite with Lockton’s Karen Erger

Host:

Welcome to ACEC’s Engineering Influence podcast brought to you by the ACEC Life Health Trust – www.aceclifehealthtrust.com. I’m pleased today to be joined by Karen Erger. She is the Director of Practice Risk Management at Lockton Companies, the world’s largest privately held insurance brokerage firm. And today we’re going to be talking about all things risk management, especially in the age of COVID-19 and what engineering firm leaders need to think about when returning to the office, not just the office, but the job site and dealing with clients, with paused work, and contracts and all these things that six months ago, we didn’t have to think about. And now we are living in a time of complete and utter economic shutdown that starting to restart, and that’s posing a lot of, a lot of questions. So Karen, thank you for coming on the show, number one, and number two, tell us a little bit about what you do at Lockton and how you would approach this massive issue.

Karen Erger:

Thanks, Jeff. It’s a pleasure to be with you today. Appreciate being on the program. So my job at Lockton is providing education risk management, education, resources, to Lockton’s clients, and specifically our group of clients are architects and engineers. I have the privilege of working with about 40 professionals at Lockton whose sole focus is architects and engineers all sit on the eighth floor of a building in Kansas city. And so my job is to prepare risk management, education, resources, and programs and advice for our clients, but also for my internal clients, for the people who serve our architecture and engineering clients. My background is being an attorney representing architects and engineers in malpractice suits. So I’m a good, witch not, not a bad witch. And so I did that and for all the rest of my career, I’ve been a broker pretty much exclusively working with architects, engineers, and contractors.

Host:

So you know, the industry, you know the ins and outs and the challenges that firms have to deal with on a regular basis. But of course the COVID-19 is anything but regular. Have you ever really approached something… I mean, have you ever dealt with something of this magnitude because it’s just been so widespread and also just from your position both as a broker and as an attorney, how do you get your arms around this whole issue? And, and, and the fact that there has been such a disruption and that firms are not only dealing with questions about keeping their businesses afloat at any given time, but then also dealing with reopening the offices, how you doing with employees, but then also with their clients. And then a lot of what we’re going to be talking about today is on the client side, which is getting back to that worksite, getting back to that paused work in a changed environment and world after this pandemic or, you know, as it still happens, like, how do you get your arms around this whole subject?

Karen Erger:

Well, Jeff tough and unprecedented times, for sure. And you’re right, that firms have really, they have to fight this battle if you want to call it that on so many fronts dealing with what’s going to happen internally with employees and how they will work and externally with clients on projects and how we handle those, how we get those started, how we manage them at cetera. My specific focus is on practice risk management. So the thing that I’m usually looking at is how can engineers and architects run their practice so that they no other way to say it, get in less trouble and are able to have better relationships with clients, which is kind of the foundation of having fewer problems and also do better projects. So one of the things I’ve noticed is though this is a very unprecedented time as you point out, I’m always amazed in the 30 years I’ve been doing this, how we’re usually going back to the toolbox of risk management and deploying some of the same tools, despite the fact that this is a very difficult and unique situation.

Karen Erger:

So communication and documentation. I mean, I I can just, I can feel your audience groaning. Like here comes the lawyer talking about communication and documentation again, but it’s really one of the things that I think is going to be critical in restarting projects and dealing with clients and probably on the home front too, although that’s not my specific focus in what I do. So I think whenever there’s a situation like this, whenever there’s some big moving event, we’re, we’re, we’re all pulling together to try and make things better. I think it’s very tempting to skip and skimp on communication and documentation because we just want to get the project moving. We’re all in this together. And we all, we’re all people who are of good intent and we all understand each other, which can be absolutely true. Even people of good intent though, can misunderstand each others actions after the fact.

Karen Erger:

And that’s why it’s so important to communicate with clients about, okay, so COVID-19 presents certain problems to us, whether that be in actually accomplishing the project or doing site visits. Now that now that our ability to do that can be compromised by the need to follow safety procedures by the fact that people are at home by the fact that people can take mass travel communication with clients about those issues is key. It’s always tempting to assume that we know what’s in the other, other fellow or gal’s head, but we need to have those conversations and we need to document those conversations. We need to give our clients the information that they need to make good decisions. So the pros and cons of for example, here’s how we’re going to do site visits. And here’s, here are the ways we can do it. And here are the pros and cons of those agree on that. And then commemorate that in writing, whether it’s, you know, just, just a piece of paper, but ideally an amendment to the contract, if that is what is needed here. So that later we all understand what’s going on, but also forget about the covering your butt aspect of this for a minute also, so that we’re sure that we’re on the same page. There’s something about writing things down that can be very helpful and no, no, no, that’s not what I meant or I didn’t hear you when you said that. That’s not what I wanted here.

Host:

Yeah. So that’s a really good point. I mean, for firms that a lot of this is kind of hindsight because it’s hard to really, you can’t go back in time and start that communication process now because we’re so late into the process, but looking ahead, God willing for the next shoe to drop the next big challenge. It’s a good point that starting that communication early are there any recommended processes or, or best practices in that communication that firms should really adopt in, let’s say future contracts with clients. Is there any addendum, is there any language or instruments that affirm a general counsel should say, okay, we’re going to add this now into our, you know, our contracts moving forward because the situation that we find ourselves in?

Karen Erger:

Yeah. Well, that’s, that’s a great question. And I love that you’ve struck on contracts. That’s a good way to get a lawyer wound up and talking. So thank you for that, Jeff. Yeah, let’s, let’s talk about contracts going forward. And actually this is also a contracts looking backwards because one of the things that I recommend to our clients is that this is the time to pull out the contracts for your existing project and see where you stand with respect to your rights and duties to the client. So some of the things that I would expect people to be more thoughtful about now that we’ve, we’ve had this very momentous experience of COVID-19 are things like understanding what your rights are when the project is suspended by the client, which of course, lots of them are. Do you have the right to additional compensation and additional time?

Karen Erger:

Does the contract spell that out? So we know that the AIA and the EJDC documents do that. They’re very clear about this, but we also know that not all documents are AIA and EJCDC, and lots of times our engineer and architect clients are not in a position where they can dictate what the contract form will be. So what I would expect, or what I would hope for is that firms will start to think about what are our non-negotiables here, what is very important and what have we learned from COVID-19 that needs to be incorporated in our contracts going forward. You mentioned kind of what, what can we do now that we’ve, we’ve had this experience. Another thing that there’s going to be a lot of focus on, I think is what are what are, what is the damages delay situation? If there’s, if there’s a delay that is beyond our reasonable control, do we have responsibility for that?

Karen Erger:

Or does the contract expressly say that we do not? So I’ve heard a lot of talk about, perhaps we need a, force majeure or clause, which is just law, French for superior force, and contractors typically have them in their contracts, but often design professionals do not. I’ve seen some insurance carriers proposed different, different different provisions that actually talk about a pandemic virus that might be wise. There’s also language in the AIA and EJDC, excusing delays, if they are, I think AIA is due to reasonable cause and EJDC is delays through through no fault of the engineer. So we’ll want to look at things like that. And finally, one last thing. So that’s two, the third would be additional services. So what does the contract say about your ability to claim additional services? Because as I’m sure we’re going to discuss today, some of what’s happening here is going to, I think really mandate looking back at the project and perhaps making some changes in it.

Karen Erger:

Can we be compensated for those changes? And that’s something that additional services will be valuable for. And I guess this is a sub point. I said, there were only going to be three. So this is a sub point to that one. Being very aware of what the notice requirements of your contract are. If the contract says you’ve got to get five days, notice to the client or confer with the client before providing additional services, know that and do it contracts, aren’t just something to be sitting in a dusty drawer someplace. They can really help you, but only if you know what they say and you’re aware of where you stand contractually.

Host:

And that’s a really good point. And the thing that popped in my mind was I guess, two questions. The first is that that nature of force majeure not really being part of design contracts, is that, why is that, is that more of a, the perspective from the design side of things saying that, well, you know, our work is kind of controlled. We don’t we don’t need that force majeure in there because when are we going to actually have to exercise it? Has it been just a kind of a generational thing where, you know as contracts with developed over time and as the legal cannon developed over time that it’s just been left out because it’s not like, wow, you know, it’s design work. We’re not, we’re not on the site. We don’t have to worry about that. And, and, and is that a perception that needs to change now that everybody’s kind of been tossed into the whole situation together? No matter what you’re doing, if you’re at home working on, on a computer or, you know, in an office, you know, doing the work?

Karen Erger:

Oh, that’s a, that’s a good question on a really timely one. I just want to make it clear just because something isn’t labeled force meajeure doesn’t that it doesn’t accomplish that intent, that language that I mentioned in AIA and EJDC which is that delay beyond your reasonable control is something that you won’t be penalized for that really is force majeure it. So just kind of practice pointer pro tip. When you’re looking at your contract, don’t just look for force majeure, look at something like time for performance, because that’s where I would expect to see those, those provisions you asked about how did we get here? Why is that the contractors typically have force majeure clauses, and we don’t have such expansive and explicit provisions in our contract as design professionals. I think part of the reason that something that you touched on, which is we don’t go to the site, we’re not affected by kind of the physical forces of it’s raining, and we can’t make concrete in the rain. We work at our desks. And so

Karen Erger:

Maybe there’s less emphasis on what will we do if it’s raining or what will we do if there’s wildfires nearby and we can’t go to the site. And to a certain extent, it’s still true that we can work from our desks, that we are a little less impacted by it than we think we are. But, you know, this is a bigger question than this podcast probably admits of, but I think one of the things that’s going to be terribly interesting is it seems like people are able to be productive from afar. It seems like remote work and work from home is, is working. That people are being productive and, and whatever like that. So two things, one, can we do this forever? Is there going to be a point where we’re kind of grant kind of grind our gears? Cause we can’t all sit around a table looking at things and shoving stuff around and, and I guess too, are we really being productive at home? I think so. I hope so. But kind of the proof of the pudding, isn’t going to be evident for a little while.

Host:

A little while. Yeah. and the only followup to that is kind of the position between prime and sub. So if you are, you know, if you’re a prime, if you’re a prime on the contract you know, I can imagine that you’re, you’re maybe more inclined to have that language in there or, or to consider what do we, what maneuverability do we have should something happened like this disruption, if you’re, if you’re a subcontractor you’re, I would imagine your hands are a little bit more tied or, or is it something where if you’re a subcontractor coming into, to a project and you’re going to be, you know signing on the line to start that work, is it, should that perspective change, should you be more aggressive in creating room to maneuver in that contract?

Karen Erger:

Right. So the sub-consultant is usually stuck with whatever the prime negotiates be that for good or ill, or at least I guess from a risk manager standpoint, I kind of hope so we’re, we’re always preaching to the prime to flow down what you’ve taken on and not, not give better than, than you got. So if you’ve taken on some higher than normal standard of care that isn’t perhaps entirely insurable, unfortunately you’ve kind of got to share that with the sub consultant and that is kind of the sub consultants burden, but I think it’s important that sub-consultants be aware of what is being flowed down to them so that they’re aware of their contractual obligations, I guess, ideally I do know of primes and subs who work together time and again, and who have a course of dealing with each other, joining forces and negotiating or talking in advance about what we’re going to negotiate would be a wise move here. And, and let me let me just speak from the about the sub-consultant issue for a second, because one of the things that, and this is not just pandemic related, one of the things that always concerns us about our clients big and small is sub-consultant risk. So when a prime takes on when a prime seed’s part of the scope to a sub,

Karen Erger:

The prime is still stuck with the liability for that. And they know that I know they know that, but the sub really holds some of their liability wellbeing in their hands. So two things that are always important that are never going to go away and maybe are more important now are choosing subs who are well qualified and that’s not just the firm is well qualified, but the team is well qualified and also making sure that the subs have good and sufficient insurance. I’m not saying that insurance is the solution to everything, and that should not be the risk management plan, but making sure that the subs are adequately insured is, is terribly important because as the prime, you don’t want to be holding the bag for the, for the whole thing, if there is a problem.

Host:

Yeah. That’s probably more important now than ever to really look at who you’re doing business with.

Karen Erger:

Absolutely. And if I can just expand on that, I’ve seen it happen where, you know, let’s say our firm is in Kansas city and there’s a sub locally that they really like, and they work together all the time. Well, now they have a job in Portland and fortunately the sub has an office in Portland, but a]is the office in Portland, the A team, like the Kansas city sub, or is it the Z team that we don’t really want to be working with and qualifying your team is important too.

Host:

Let’s, let’s talk about that additive design work that we kind of talked about a little bit earlier, because one of the things that is a hallmark of, of our industry is that, you know, engineers should be trusted advisors to their clients, which means they should be able to provide solutions. They should not just do the work, but identify challenges, potential solutions to improve the project, to be that expert, to get the best result from the design through the construction, really from start to finish. And in this world that we’re living in now know, we, you know, we had a recent round table with our Research Institute, which is kind of an adjunct to ACEC. And one of the things that was brought up during a panel discussion on the buildings that we live in work in, and what they’re going to look like after COVID are really the challenges of designing buildings that have now different humidification systems, different air flow systems, air exchanges, what’s the code now?

Host:

Well, should we do more than code? You know, all these challenges, you know, that are now there, if you have a project that you’re working on either, you know, and as a design stage right now, and you’re looking at it and saying, you know what, this isn’t going to work the way that the offices have are set up in this design, the way that the mechanical, the, all that stuff is, is, is, is placed right now that, that, that works six months ago. But now not, you know, not now so much, you know, how, how should engineering firms approach these issues and, and, you know, how could, how should they broach that with the clients to say that, you know, the project was great when we started, but we have to look at what we now need to do to make this a workable solution.

Karen Erger:

Yeah, Jeff, this is this is in a way this isn’t a new problem. This kind of goes back to what I was saying before, because even pre COVID-19 that we had periods where the economy was slow and clients mothballed a project, maybe mid design, and then when they want to get going on it again, the design firm really needs to take a hard look at everything that’s been designed in light of what the circumstances are now. And those are things like scope, schedule, and budget, but also have laws and code change. What about the owner’s objectives? And the design criteria are those different? Do we still have the people necessary to, to do this project? What about our sub-consultants, et cetera, et cetera, going to a client and saying, we need to spend time doing that may not be met with, you know, clapping of hands.

Karen Erger:

They feel like they’ve paid for this design and they should be, they should be done. We should just be able to re animate this thing, but that’s not, that’s not the way that design works. And I guess my hope is that in the face of covert, it’s going to be really plain that no, we cannot just pick up. And especially with the, with the built environment, sort of things that you’re talking about, things like, like an office structure, I’m thinking that to a sophisticated owner, it’s going to be pretty clear that no, we need, we need to rethink a lot of things here. And maybe fortunately there is, there’s no way somebody could have anticipated that this would happen. Right. I think that’s the one thing that we all I hope agree on is that there’s no design professional out there who, who last July could have been, like there could be a pandemic.

Karen Erger:

So we’re going to have to put the workstation six feet apart. And in fact, no owner would wear that, right? Because they, they want to have those people closer together. Cause real estate is expensive. So when projects restart a lot of these factors that I was talking about before are going to have special relevance. And you touched on this one, the initiatives to try and control viral, spread through HVAC design in a, in a way it’s a pretty exciting time to be mechanical engineer, because that does seem like it’s going to be an important part of the solution set to a lot of these problems. I was just re a design firm, just released a very interesting paper about indoor relative humidity. And it turns out that having indoor relative humidity of 40% does a lot to control viral spread. It can substantially suppressed, all means of COVID-19 spread.

Karen Erger:

But most most buildings in cold climates or mixed climates have a relative humidity that’s 20% or lower, but you can’t just stuff humidifiers in there. I mean, I’m a lawyer. That’s what I would do like, Oh, Hey, let’s get a humidifier and stuff it right in the room. And then that will fix everything up, except that’s going to impair other systems, walls, ceilings, floors those will buckle. Those will have problems and it will create other health problems too, like mold. So that’s where that’s where design professionals and their special knowledge come in. This is a problem that they can solve. I mean, nobody would wish this problem on anyone, but it’s, it’s a great time to be a mechanical engineer. This really is an opportunity to do something significantly important.

Host:

Yeah. That’s where it comes to like the challenge and opportunity. It’s it’s, you know, the one thing that was the takeaway from a lot of the the engineers and experts on the panel was it’s actually a great time because we have the ability to improve on designs, offer new solutions, create new areas of focus and business that we didn’t have before. And now, you know, we can start talking about these other issues and, and expand our, you know, it’s an opportunity for expansion and, and, and really not just expansion of existing businesses, but, you know, new disciplines to come out. So it, it, you know, it’s, it’s the double edged sword it’s having to go back and saying, okay, well, you know, and you’re right. The client on the client side should have that interest of saying, well, at the end of the day, does your end consumer I E the person who’s going to be signing the lease for an office building, or for, for, for a couple of floors, do they want to sign a lease for an office that isn’t going to be the best for their employees?

Host:

And, you know, so hopefully it is that give and take and understanding that the end result has to be beneficial for everyone. But it’s going to be interesting to see how this does impact, especially the private vertical market because, you know, a road is a road you’re not really going to be changing anything related to, to do the pandemic when it comes to, you know, surface infrastructure or a bridge or a rail line, but yeah. And the development of a train car and the development of of the office building that will change. Well, let’s talk about the job site itself and getting employees back onto that job site. Cause you can do as much as you can to make sure that the office environment is a security bubble and that you’re doing everything you should to minimize the spread of COVID within the office environment. But the minute an employee leaves the office and goes to a job site they’re out of that security bubble. And how does affirm do the most it can to protect their employees? Because then they’re interacting with contractors, with the builders, with a number of other people in other companies that probably all have different levels of response, right? Risk nightmare.

Karen Erger:

Yeah. Well, you know, when, whenever, whenever we’re interacting with other people who are partially responsible for the outcome, that can be tricky not to fall back on my good friends communication and documentation, but I think that’s where this begins is thinking about, okay, so now that we are facing this pandemic, what, what are our challenges going to be as far as doing what we need to do on site and having that discussion with the owner, having that discussion with the contractor, again, going through here, here’s our plan, given what we know from the CDC and other credible sources about how we might be able to do this, talk about the pros and cons and document what that go forward plan is including contract amendments. If that’s, if, if our, our scope is changing, which it may be, and then, you know, you, you touched on the contractor’s control and that’s, this is tricky because the contractor does, should have plenary control over job site safety and the design professional doesn’t want to be in a situation where they’re starting to call the shots on job site safety. On the other hand, we need to keep our employees safe when they go to the job site and you, ACEC, have put together a lovely new resource guide to returning to the office and the job site that is incredibly detailed and even includes a checklist, which when I site checklist, I see my clients smile. Cause they like those. I think that will be very useful.

Host:

Yeah. That’s new ACEC, New York Jay Simson. I’ll give him a shout out for putting that together, but it’s nice. But yeah, that, that, and Charles, our GC was very, very engaged in getting this thing together. And as you know him, you know, his work, he’s very detail oriented I tuned in. But yeah, that’s, that’s a really good point because one of the things that we always talk about is duty of care and, and that, you know, engineering, shouldn’t broach that line into, you know, extending beyond it’s core responsibility for the design, because at the end of the day, the, the construction firm should have that responsibility of, of actually producing the design to specification.

Karen Erger:

So, so you I won’t read the entire guide to cause cause people listening to this podcast can go find it, but just touch on a couple high level things just to think about obviously things I would think about are don’t don’t force employees to go to the job site, obviously sick people shouldn’t go, but no one should be forced to go. If they’re, if they’re not comfortable doing this, do the education that you need to do so that they understand social distancing and other COVID-19 safety guidelines, give them the PPE that they need to be safe on the job site. And I think this is terribly important to empower them to suspend site visits. If when they get there, the situation is not per the COVID-19 plan, or if other concerns exist, they should stay that they’re leaving the site state. The reason document that in the email to the project manager and perhaps the client.

Karen Erger:

Yeah. Nobody should feel forced to do that. And I think it’s important to impress that on staff who go to the site because some of them tend to be less experienced staff. They might feel like they have to do it no matter what, it’s their job, take one for the team. No, this is about their safety what’s best for the firm is that all of their employees, their most precious resources stay safe. And that really needs to be impressed upon them because they want to do their job. They want to do the right thing, but it’s important that they know that that’s an important part of it. If it’s not safe, it’s okay to leave.

Host:

Yeah. And of course, I think I should be imparted at the top down. Right. So the project manager, even, even, you know, leadership at the firm, you know, has to be, yeah, that has to be a kind of a charge given from the top so that the people at the bottom know that they have air cover to make that decision when they have it. And they’re empowered to make that choice.

Karen Erger:

Yeah. You mentioned something earlier. If I can, if I can tell them to this kind of, you didn’t, you didn’t say stay in your lane, but, but that was kind of what you were saying about, about the contractor is don’t, don’t mess around in job site safety, do what your, what you’re skilled at doing, stay within your skillset. And just going back to what we were talking about about design. I think it’s important that design professionals do that too, because there may be aspects of this that are not within a particular design professionals, competence, maybe they will need to retain or recommend that the owner rate retain, for example, an industrial hygienist or whatever like that. It’s important to know where your competence stops and were additional help is needed. And I say that mostly because after working with A/E’s for 30 years, they want to help the client. And it’s important not to let that, that really wonderful desire lead you into taking responsibility for things that you don’t have within your professional competence.

Host:

That’s a really good point because you don’t want to overextend yourself and again, expose yourself to risk.

Karen Erger:

Exactly.

Host:

And the positive on that, it provides the opportunity for firms to enter into strategic partnerships with other disciplines that they otherwise wouldn’t do work with. So instead of coming up with an answer on the fly, find somebody who’s good at what that, you know, industrial hygiene or something else and, and bring them into the fold.

Karen Erger:

I definitely see evidence of that happening and would also remind folks that insurance is still important. If a contract is going to flow through us, it’s that’s time to talk to your broker about, will we be covered for this? If we are sued on a primary basis, is something better to be assigned to the owner and also what insurance does their sub-consultant have. In fact, it might even be important to ask what insurance could our sub-consultant ask. Since we’re not talking about the kinds of disciplines that we’re used to engaging with this, isn’t a matter of a structural engineer, engaging someone else to do a report that they would normally do. This is something a little different and a great time to call on your broker for help.

Host:

Yeah. I really appreciate you bringing up the the guide. That’s you can find that up on the ACEC website -the Coronavirus Resource Page right there in the home, on the home site, you’ll see a link to it and a guide version one, because things are changing. So we’re going to be updating that a lot. And you brought up a good point, I think is a good way to round everything out is, is really kind of figuring out what you may or may not need. And talking to an expert experts such as yourself, where can people find you? If you are in the A/E industry and you’re have these questions and you need some, some counsel on some risk management you know, we’re, what’s the best way of getting in touch with you or, or your colleagues at Lockton?

Karen Erger:

Yup. I will answer, anybody’s email that at Kerger@lockton.com. That is definitely the best way to get in touch with me these days now that we all duck unfamiliar calls on our phone because they’re afraid someone’s trying to sell us a used car warranty, but I’d be happy to hear from anyone. One of the best ways that I learn is through our clients and other architects and engineers questions.

Host:

Well, Karen, I really appreciate you coming on the show. This is where there’s a lot to talk about here. And I don’t think this is going to be the only conversation we’ll have. And you know, as things develop and, and as new information comes out or, or, you know, if there’s something that peaks your interest, let us know and we’ll have you back on. But for now, we’ve, we’ve kind of covered the top line of, of, of kind of risk management in the age of COVID-19. Hopefully it’s food for thought for a lot of our member firms and check out the guide that we have, the ACEC Guide to Returning to the Office and the Jobsite. And Karen, you have a great rest of the week happy belated, 4th of July.

Karen Erger:

And it’s been a pleasure. I hope I can come back and talk to you again.

Host:

Wonderful. We’ll have loved to have you back on. And again, this has been ACEC’s Engineering Influence podcast brought to you by the ACEC Life Health Trust. We’ll see you next time.