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Should an Engineer Guarantee Cost Estimates?

Judy Mendoza officeA contract that I was recently asked to review required the engineer to guarantee engineering cost estimates to be within a 10% accuracy range. It further required that for every 5% outside of the accuracy range, the engineer would forfeit 2% of the engineering fee. The engineer wanted to know if this exposure is covered by professional liability insurance. The requirements of this contract created several issues of insurability.

Professional liability insurance provides coverage for damages caused by the insured’s negligence. Express warranties and guarantees establish liability even though no proof of negligence is required. Under U. S. common law, design professionals have the responsibility of using due care in providing their services. The courts have not extended the duty to provide a guarantee to design professionals because they provide services based on judgment and expertise; a design professional is applying its professional skills and reasoning on a unique set of facts for each project.

Professional liability insurance policies exclude coverage for claims arising out of express warranties or guarantees. Because coverage is for professional services provided, and not assumed contractual obligations, professional liability insurance does not “stretch” to provide coverage for a warranty of services beyond meeting the standard of care. There is also an exclusion in the policy for claims resulting from a failure or refusal of a client to pay money due to the insured or for the return of fees paid to an insured.

Design professionals should qualify their opinions or estimates of cost as being based on experience and qualifications that represent the design professional’s best judgment, not a guarantee. Here is sample language that we provided to the engineer:

Sample provision: When included in Consultant’s scope of services, opinions or estimates of probable construction cost are prepared on the basis of Consultant’s experience and qualifications and represent Consultant’s judgment as a professional generally familiar with the industry. However, since Consultant has no control over the cost of labor, materials, equipment or services furnished by others, over contractor’s methods of determining prices, or over competitive bidding or market conditions, Consultant cannot and does not guarantee that proposals, bids, or actual construction cost will not vary from Consultant’s opinions or estimates of probable construction cost.

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