Summary:
Consultants are often required to accept contractual risk that is beyond the scope of their services to an assignment and hence beyond their professional liability insurance coverage and regulatory responsibilities. It is ACEC-Ontario’s position that project risk should be allocated to appropriate parties to the assignment, recognizing regulatory requirements and insurance realities.
Issue Details:
All parties to a project should be required to bear an appropriate degree of risk over the duration of that project. ACEC-Ontario member firms hold this belief and carry necessary insurance to underwrite these risks inherent to the practice of their profession. However, a long-standing challenge for the consulting engineering sector is clients requiring Consultants to accept contractual risk that is beyond the scope of their services to an assignment and hence professional liability insurance requirements and regulatory responsibilities. It is ACEC-Ontario’s position that project risk should be allocated to appropriate parties to the assignment recognizing and respecting Consultant’s regulatory and insurance requirements.
Public sector procurement practices have evolved to shift all project risks onto their proponents, including Consultants. Consultants are not typically in a position to bear a high or disproportionate degree of risk, especially considering that professional services represent a small portion of the overall lifecycle cost of a project. There appears to be a fundamental misunderstanding in the marketplace about the nature of project risk that once it has been transferred to another party, it cannot return. However, the wholesale shifting of risk to Consultants as a way to reduce a client’s risk profile creates a false sense of security. What may appear on the surface to be a straightforward and efficient risk management approach, can result in significant uninsured risk that may ultimately remain the responsibility of the client in the event of a significant claim.
Appropriate project risk allocation for Consultants is not an unreasonable expectation. The erroneous view held by some Clients that Consultant insurance policies can be viewed as sources of revenue to be “grabbed” to off-set against project risk costs is unacceptable and ultimately an unsustainable practice. This approach, coupled with consistent pressure to reduce professional services fees, is contributing to shrinking pools of qualified professional proponents as Consultants become increasingly selective in their pursuit of potential assignments. With the province’s $16.8 billion dollar infrastructure backlog, it is critical for public sector clients to develop and implement best practices to “de-risk” infrastructure projects, re-establish a sense of balance in the market, stabilize insurance rates and coverage and facilitate effective economic recovery.