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AIA Risk Management Overview

Abridgment of an Article by Ava J. Abramowitz, Esq., Hon. AIA
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DEFINITION

Risk management is activity which focuses on exposure to the probability of a loss or injury. Architects must be able to identify risks and determine who is in the best position to handle them. They must therefore understand four important concepts: exposure, capability, responsibility, and power.

  • Exposure. Exposure relates to the probability, not just the possibility, of loss and injury.
  • Capability. Architects must recognize the capabilities and limitations of each project participant.
  • Responsibility. Architects acquire specific responsibilities by contract (and by their willing assumption of responsibilities), and certain responsibilities are imposed on them by virtue of their licenses.
  • Power. Power is the authority to supervise or control. For example, architects may have the capability but not the power to control the actions of a zoning board.

ASSIGNMENT OF RISK
Based on this analysis, duties should be assigned so that the capability, responsibility, and power for each duty are lodged in one participant. The assessment of each duty should be made with the following criteria:

  • What is the exposure inherent in this duty?
  • Who is most capable of handling that exposure?
  • Who has responsibility for that exposure?
  • Who has the power to make sure that responsibility is carried out?

RISK MANAGEMENT
There are five basic ways to manage risk:

  • Retain it. Take responsibility for the risk’s costs and its benefits.
  • Abate it. Minimize risk with planning or special skills.
  • Allocate it. Select the parties to the construction process and allocate risks among them.
  • Transfer it. Transfer risk through indemnification agreements or through the purchase of professional liability (errors and omissions) insurance.
  • Avoid it. Some risks are either so unpredictable or so potentially costly that no amount of compensation would make them worthwhile to undertake.

RISK PLANNING
There are six steps in risk planning.

  • Know yourself. Inexperience is no defense to an allegation that a firm acted below the standard of care.
  • Select your clients. Over half of the claims against architects are filed by owners.
  • Select your projects. Subject the project to the same intense scrutiny given the client.
  • Decide on consultants. Consultants should share the same standards of performance the architecture firm sets for itself.
  • Form your own scope. The architect should identify what services are necessary for the project’s success and who can best deliver those services.
  • Determine your compensation needs. The architect should enter negotiations understanding the fee it needs both to perform the project and to survive it.

CONSIDERATIONS FOR EFFECTIVE RISK MANAGEMENT

  • Client Involvement: The better a client understands the design and how it responds to the client’s needs, the more likely the architecture firm can avoid misunderstandings.
  • The Contract: AIA contract documents are clear statements of planned actions and designated responsibilities that are forged in the industry and tested in the courts.
  • Quality Control: Quality-driven procedures provide the firm with a basis for confidence that its employees and agents are acting reasonably, given the facts and circumstances facing them.
  • Insurance: Professional Liability Insurance, within the limitations of the policy, provides for defense of professional liability claims and covers costs of defense and settlement.
 

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