Cryptome DVDs. Donate $25 for two DVDs of the Cryptome collection of 47,000 files from June 1996 to January 2009 (~6.9 GB). Click Paypal or mail check/MO made out to John Young, 251 West 89th Street, New York, NY 10024. The collection includes all files of cryptome.org, cryptome.info, jya.com, cartome.org, eyeball-series.org and iraq-kill-maim.org, and 23,100 (updated) pages of counter-intelligence dossiers declassified by the US Army Information and Security Command, dating from 1945 to 1985.The DVDs will be sent anywhere worldwide without extra cost.

15 February 1997
Source: http://www.dpic.com/wired.htm
Thanks to DN for the pointer.

DPIC Companies, Inc.
The Professional Liability
Specialist of the Orion Capital Companies
Different by Design for Twenty-Five Years (r)

by Steven G.M. Stein, Esq. and Jeffrey H. Winick, Esq.

The authors are with Stein, Ray & Conway, Chicago,
a law firm devoted to the practice of design and construction law.

The architectural and engineering (A/E) profession has adopted, with growing enthusiasm, the use of computers in generating, revising, plotting, and transmitting its work. As with all new technologies, however, the use of computers in the A/E practice raises previously unrecognized risks and liabilities.

The electronic transfer of design data creates five main liability concerns: errors arising from information transmitted to the A/E; errors introduced during transmission or during use by the client; defining deliverables and protecting compensation; control of ownership and limits on reuse; and risk shifting.

1) ERRORS IN TRANSMITTING INFORMATION TO THE DESIGN PROFESSIONAL

In most respects, liability risks arising from information transmitted to the design professional are not dissimilar from those before the advent of Computer Assisted Design (CAD.) Whether generated in print or electronically, insufficient or incorrect information provided to the design professional by others may lead to a defective design product. However, with computers, A/Es must now ask if the information provided to them electronically is identical to that which the other party intended to transmit.

New liability exposures arise first and foremost because the electronic transfer of data, particularly by way of modem or network, is likely not to be documented. Even more serious, the information can be deleted from the recipient's files so that data as well as any record of their receipt may be lost. In addition, unlike written copies that clearly reflect changes, computer data can be modified and bear no evidence of the modification.

When liability issues arise, one must trace the source of the design data used. If A/Es are unable to prove they relied on particular information provided by others, they will bear the loss. Therefore, procedures to document the receipt of information electronically, as well as a means of retaining a copy of the information "as transmitted," are critical.

2) ERRORS IN TRANSMISSION TO OR USE BY THE CLIENT

In the transmission of electronic documents to the client, a host of possible errors can occur. For the transfer of disk-stored material to proceed without error, all of the following must occur: the computer from which the material is downloaded must be fully operational and defect free; the disk onto which the material is copied must be defect free; the disk must not be subject to any physical or magnetic forces during transit that would alter the information on it; the information on the disk must be compatible with the recipient's computer software and hardware; and the recipient's computer must be fully operational and defect free. At any of these stages, critical errors that are difficult to detect can be included in the data. In addition, electronic transfer of data via modem can encounter problems with phone lines.

Once the information is utilized by the recipient, there is more possibility of error. The electronically transferred design data can be altered or damaged by the recipient. Exacerbating each of these risks is the possibility that the recipient is using the software improperly.

To reduce these problems the A/E and the client should institute procedures that address the various risks involved. In addition, the A/E should take steps to ensure that the electronic equipment is fully operational and error free and that those individuals manipulating the data are well trained.

The design professional must also be concerned with the further transmission of the material from the client to others. For example, the client may transmit the design data to other offices, contractors and consultants. The risks entailed in the transfer of this data through computer-related means are the same as those discussed above; however, the A/E has no control over the medium or the method of transmission.

Identification of the source of information and changes becomes increasingly important as the network of individuals sharing the design data widens. The very speed with which ideas can be graphically transmitted introduces the possibility that the source of a subsequent design decision will become confused or lost. For this reason, the A/E must keep track of all material that has been transmitted and maintain a copy of exactly what was transmitted.

3) DEFINING "DELIVERABLES" AND PROTECTING COMPENSATION

A/Es have traditionally defined discrete moments when information is transferred, and a right to payment is established, such as delivery of schematic drawings, design development drawings, and working drawings. Approval sets the parameters for the distinction between "basic" and "additional" services. Post approval changes entitle the design professional to increased compensation.

Now, with computers, it's possible for clients to be "on-line" throughout the design process and to have available all interim design data. Thus, delivery of the design product is made on a continuous basis. The clear lines between "schematic," "design development" and "working" drawings are easily muddied, especially when clients are technically competent and desire to work along with the A/E. With the rhythm of approval and payment disrupted, and with control over design products lost, the A/E's risk of nonpayment increases.

It is therefore imperative that these issues be specifically addressed in the contract. In particular, the contract must incorporate language both defining "deliverables" and tying payment to the "deliverables."

And what of the use of in-process design data? Assuming the client is willing to pay for the work performed to date, is the client entitled to make use of less-than-final design data in order to speed up a project without agreeing to relieve the A/E from liability for errors and omissions existing in the not-yet-finalized documents? This is an issue that needs to be addressed in the contract.

4) OWNERSHIP AND REUSE

In the architectural and engineering communities, as in other walks of life, it is often said that imitation is the highest form of flattery. However, when the imitation affects one's ability to market and profit from one's work, the feelings of flattery evaporate quickly.

In the U.S., design professionals are protected. The creators of "original work of authorship," such as engineering plans or a building design as embodied in a completed structure, are entitled to statutory protection against unlawful copying of their work. When the design product is created, modified, or transmitted with the use of computerized processes, additional issues relating to copyright protection must be addressed.

The Federal copyright laws provide protection to design professionals for their ownership rights in their design materials. As a matter of good practice and to ensure copyright protection, A/Es routinely place a copyright symbol on their plans or drawings. This leads to the obvious question of how to copyright electronically stored data or design information.

The Copyright Office in Washington has issued regulations concerning the position and method of affixing a copyright notice for different categories of protected work. For works reproduced in "machine readable copies," the design professional can provide notice of copyright in the following ways: "With or near the title or at the end of the work, on visually perceptible printouts; at the user's terminal at sign on; on continuous display at the terminal; or reproduced durably on a gummed or other label securely affixed to the copies or to a container used as a permanent receptacle for the disks." As good practice and as a means of providing additional protection to design products, one of these alternatives should be used for electronically stored materials.

In general, under the Copyright Act, the A/E's ownership right of copyrighted work in an electronic database is treated no differently than a set of plans produced on paper. In both cases, regardless of whether or not the design professional has provided the owner with a set of the plans or drawings for use on the project, the A/E retains ownership rights unless otherwise agreed in writing.

Therefore, the owner infringes on the design professional's copyright if the work product is used other than in connection with the project that is the subject of the agreement between the A/E and the client. Nevertheless, it may be wise for A/Es to consider, before entering into a contract with an owner, whether they intend to provide the owner with the computer-generated design documents and, if so, to provide protection for ownership rights of the materials in the contract.

Although the treatment of these materials will not differ from the treatment of a hard copy, the opportunity for the owner to alter, adapt or transfer the materials may be significantly greater. Thus, the need to establish the respective rights and obligations of the A/E and the client is enhanced. These concerns are often addressed by contract provisions that disallow the owner's reuse of the materials for any purpose, and a provision by which the owner agrees to indemnity the A/E for any losses or claims associated with the unauthorized reuse of the design materials.

5) RISK SHIFTING

Some errors or omissions inherent in a design process and in an electronic transfer of design data cannot be completely avoided. The issue becomes who bears such risks. Appropriately, the A/E bears the risks of internal operations -- employees' errors in conceptualization, documentation and transmission. But risks in the electronic transfer of information should be borne by others.

Clients should bear all risks associated with their provision of information, modification of design data, reuse, reformatting, retransmission and premature use of information. In addition, clients should take responsibility for their employees, consultants and contractors to the extent that the information they provide is defective or erroneous, whether in original conception, creation, formatting or transmission.

However, even the clients' acceptance of their fair share of responsibility leaves fuzzy areas. For instance, the incompatibility of software or hardware that results in failed transmission between the client and the A/E is a shared responsibility unless risk of such incompatibility is clearly accepted by one of the parties. A contract can appropriately allocate the risks of the electronic creation and transmission of design data. In addition, the client can contractually waive certain claims based on the scope of the A/E's services and the client's requirements and inputs.

The client's consultants and contractors, too, can be bound through the client's contract. Although the A/E has no way of directly negotiating appropriate risk-sharing with the client's independent contractors, clients can agree to require their contractors to share risks appropriately through indemnity provisions, waivers, and fair descriptions of scope of services. Other third parties are not bound by the client's agreement, although the scope of services will be helpful in defining the A/E's duties to the public.

Indemnities are the usual tool for shifting liability of third party claims. Accordingly, the A/E should request and obtain from the client an indemnity appropriate to the circumstances. In a world of equal bargaining power, it would be simple to define the scope of that indemnity. Logically, the party most in a position to control a loss and to minimize its impact should bear the responsibility for both parties if it fails to do so. Whether the party is appropriately compensated for the potential risk is an equal consideration. Unfortunately, equal bargaining power rarely, if ever, exists, and indemnities are usually written and made part of a contract in much the same fashion as a powder charge is introduced to a muzzle-loaded cannon.

Contracts with consultants are as important as the design professionals' contracts with clients. Risks should be shifted to the party best able to control them in light of compensation arrangements. In addition, the scope and service definitions should be carefully tailored to match the needs of the A/E from the technical standpoint and the requirements that the design professional must meet under contract with the client.

Insurance has its place in risk shifting as well. The extent to which professional liability policies apply to erroneously created and transmitted design data, however, is unclear. On the one hand, it is self-evident that the failure of the architect to properly perform design services is covered. On the other hand, if the design services are appropriately performed, but only the transmission of data is flawed due to equipment failure, it is much less clear how the professional liability policy would apply.

Valuable-papers insurance too must be reviewed. Not only is the definition of the "papers" that are subject to the insurance important, the limits of liability should be reviewed in light of the tremendous amount of information stored on disk and of the fact that some of the information may be retrievable from others after transmission.

Conclusion

Computer Assisted Design is a boon to the productivity of modern design professional offices. However, it also represents a new arena of liability concerns. Addressing the five issues covered here and using proper contractual language can go a long way to assuring that these new risks are minimized and responsibility properly allocated.

CAD PROCEDURES CHECKLIST

One means of determining whether procedures are in place to address CAD issues is to compare internal practices with the following checklist. While the list is neither exhaustive nor specifically tailored to the particular needs of any design professional, it does provide a good starting point from which to work.

Administrative Procedures

• Establish procedures for hardware/software purchasing.
• Institute security procedures that restrict to the necessary individuals access to the system.
• Review professional liability insurance policy to determine scope of coverage.
• Prepare and distribute a training and procedures manual that clearly states accepted procedures regarding computerized design data.
• Require incorporation of source identification (including author and date) into electronically transmitted design data.
• Execute technical specifications agreements with consultants, vendors and contractors
• Coordinate definition of deliverables and compensation with the designer/client contract.
• Negotiate scope of services, provisions and waivers that contemplate the use of computerized and electronically generated design data.
• Institute procedures for identification of generations and revisions of drawings and specifications.
• Create transmittal memoranda for all transfers of design data, whether electronic or by disk, and include design document identification numbers.
• Retain hard copies of all transmitted memoranda.

Designer/Client Contracts

• Negotiate clear definition of "deliverables" that makes provision for electronically generated design data.
• Tie compensation to the "deliverables" as defined in the contract. Include a technical specifications agreement.
• Negotiate scope-of-services provisions and waivers that contemplate the use of computerized and electronically generated design data.
• Negotiate indemnification provisions that allocate responsibility for errors and omissions arising from the use of computerized and electronically generated design data.

Data, Information and Document Source Identification

• Maintain a log of the dates of transmission and receipt of all electronically generated design data.
• Maintain an archive of all transmitted data, information and documents.
• Institute procedures for the creation, modification and use of copies of design data.
• Maintain copies electronically and in hard copy of changes made to drawings and specifications, including changes made by the design professional and by others.

The information in this and all other on-line articles of DPIC Companies intends to inform its readers only, not to render legal services. For legal advice, seek the services of a competent lawyer. For coverage information, refer to DPIC's policy forms.

© 1996, DPIC Companies, Inc.

Thanks to the authors, Stein, Ray & Conway and DPIC.

The Straight and Narrow Path: Ethical Issues for Design Professionals, by Steven G.M. Stein, Esq. & Jeffrey H. Winick, Esq.

Architects and engineers, like other professionals, are accorded particular status and prestige in conjunction with the title of "professional." But, in exchange for an exclusive license to practice a particular profession, society imposes the responsibility of behaving according to ethical standards. These societal obligations are enforced on some professions through laws and regulations and through the maintenance and enforcement of ethical standards. This monograph will examine the ethical issues which arise in the practice of the architectural and engineering professions and devote particular attention to everyday circumstances in which these ethical issues arise.

Bulletproof: Limitation of Liability in Design Professional Contracts, by Steven G.M. Stein, Esq. & Robert J. Harris, Esq.

In the last few years, as a result of the decline in the commercial real estate market and the economy in general, architects and engineers with an instinct for survival have sought ways in which to reduce costs and share liability risks of a project with the owner. One contractual approach to reduce liability is for the design professional to negotiate with the owner a contractual limitation on the design professional's liability.

A limitation of liability clause, unlike a disclaimer or waiver, does not release the architect or engineer from any liability to the owner, but instead apportions the potential liability between the parties. Once strongly disfavored by the courts, the recent trend is for the courts to uphold limitation of liability clauses for design professionals if the owner is of equal or greater sophistication and the limitation is bargained for between the parties.

New Frontiers: Undertaking Construction Management, by Steven G.M. Stein, Esq. and Marc E. Odier, Esq.

The ever-competing considerations of time, cost and quality in the fields of design and construction are giving rise to expanded opportunities for design professionals to serve as Construction Managers. While the genesis of construction management dates back to the mid-1960's, the 1990's will inevitably be viewed as the period when construction management emerged as a frequent alternative to the traditional owner/design professional/contractor model of project delivery. Construction management differs from the traditional process by adding another party to the historical three-pronged model and is attractive to many owners because of the increased quality it allows by placing the owner's consultant (the Construction Manager) in control of the trade contractors, purchasing and scheduling.

Out of Left Field: Subrogation Claims Against A/Es, by Steven G.M. Stein, Esq., Stephen E. Ray, Esq., & Carl L. Popovsky, Esq.

Design professionals are subject to a variety of different claims arising from their design and construction administration services. Owner's claims for alleged design errors, and claims brought by injured workers and others for personal injuries, are well known to most architects and engineers. Many design professionals, however, are unfamiliar with subrogation claims brought by insurance companies against project architects or engineers for damages resulting from the partial or complete destruction of a structure in a construction calamity.

Too Much, Too Little: Exposures From Certification of Payments, by Steven G.M. Stein, Esq. & Joel J. Rhiner, Esq.

Design professionals have become increasingly subject to claims arising out of their design and construction administration services. The obligation of the design professional to issue payment certificates has long been a tedious and dreaded task and one that often creates numerous liability problems. Although the only real purpose of issuing payment certificates is to inform the owner or lender that the contractor is entitled to payment, these certificates are often used by potential claimants as a basis for many types of legal actions. This article will explore (1) the potential liability exposures faced by design professionals from issuing payment certificates; (2) the status of case law involving design professionals and their obligation to issue payment certificates; and (3) what design professionals can do to minimize their liability exposure while participating in the payment process.

STEVEN G. M. STEIN

Steven G. M. Stein is a senior partner in the law firm of Stein, Ray & Conway in Chicago. He is Adjunct Professor at IIT Chicago-Kent College of Law, where he has taught construction law since 1982. Mr. Stein also lectured at the University of Illinois School of Architecture, Northwestern’s Kellogg School of Management, and the University of Illinois Department of Structural Engineering. He is the Director of the IIT Chicago-Kent Construction Law Institute, a former President of the Chicago Building Congress, a Board member of the American College of Construction Lawyers, and a former Board member of the Builders Association of Greater Chicago and the Construction Specifications Institute—Chicago Chapter. The American College of Real Estate Lawyers invited Mr. Stein to become a member in 1989. He writes a monthly column for the Structural Engineers Association of Illinois and has made presentations about design and construction law on over one hundred occasions coast-to-coast. Mr. Stein, who is listed in Who’s Who in American Law, received his Bachelor of Arts degree from the University of Wisconsin and his law degree from the University of Chicago.

Publications:

Construction Law (Editor-in-Chief) (Matthew Bender)

The American Institute of Architects Legal Citator (Matthew Bender)

"Injured Workman: Loss Allocation Among Director Participants in the Construction Process," St. Louis Law Review (1979) (co-author)

"Blueprint for the Liabilities of Design Professionals After Moorman," Chicago-Kent Law Review (1984)

Professional Liability Management for Design Firms (Birnberg & Assocs. 1987) (co-author)

Illinois Construction Law and Mechanics Liens (Professional Education Systems Inc., 1987) (co-author)

Illinois Private and Public Bonding (Professional Education Systems Inc., 1988) (co-author)

Manual for Revisions to AIA A201 General Conditions (Stein, Ray & Conway, 1988)

"Enforcing Arbitration," in Alternative Dispute Resolution in the Construction Industry (1991)

"Legal Issues in Design Practice," in New Dimensions in Architecture and Engineering Practice (1992)

Professional affiliations:

Member of the Chicago Bar Association and former member of its Executive Committee for the Civil Practice Section

Member of the Panel of Construction Arbitrators for the American Arbitration Association

Member of the American Society of Consulting Engineers

Member of the Construction Specifications Institute

Member of the Associated General Contractors

Member of the American Bar Association’s Section of Litigation, Committee on Construction Contracts

Member of the American Bar Association’s Forum Committee on the Construction Industry

Affiliate Member of the American Institute of Architects

Member of the Illinois and Wisconsin Bars