Risky Business: Turn compliance into profit

November 2004 » Business
Regulations, environmental and otherwise, are so much more complex than they used to be. But that’s not even the half of it!
John P. Bachner

Checking over the bill for a recent car repair, I noticed a charge of $15 for "disposal of contaminated materials." I asked the repair shop to describe to me the kind of contaminated materials for which I was being charged. "That's for the proper disposal of rags that have been contaminated with oil," the cashier said.

"Oh," I replied. "Well, I'm glad to support an organization that supports the environment." And I paid, in the name of, if not for, a good cause.

Which brings me to the subject of this column: Get smart. As the saying goes, when life hands you lemons, make lemonade. In other words, if your firm has a harsh, new environmental regulation to deal with, get smart.

It's not a new element of overhead; it's an opportunity to turn compliance into profit.

You're not running an auto repair shop, of course, so what does this have to do with you? Plenty, if you've been around long enough to hear the civil engineer's lament that "Things are so much more complex than they used to be." As it so happens, "used to be" ended in 1957. That's when a New York appellate court decided Inman v Binghamton Housing Authority, ruling that, thenceforth, design professionals owed a duty of care not only to their clients, but to third parties as well, an outlook now common in most states.

What does it mean? Among other things, that you need to consider how a client's decisions could affect others because "My client made me do it" is not a valid excuse should you damage a third party.

"Because you're the professional," a judge likely would rule, "you should have told the client, 'I can't do that.'" Are your clients aware of this? Do they understand that your first allegiance is to the public? Do they know that your responsibility may require extra study or simulation to help preserve and protect pubic health, safety, and welfare, thereby making problems—for you and your client—less likely? Owing a duty of care to third parties largely was responsible for design professionals' need to acquire a means for compensating those they injured. Professional liability insurance (PLI) companies were quick to offer a solution.

But PLI is limited. Do your clients understand this too? Do they recognize that the claims-made nature of PLI makes it almost impossible for you to guarantee that you will have the same coverage or even any worthwhile coverage should a claim be made two or three years from now? Do they understand the cost of the coverage, or do you just lump it in with overhead and let it go at that? One engineer I know pays about 5 percent of fee income for PLI and routinely charges clients 5 percent of his fee as a direct project cost. He explains the reasoning to his clients (dirty rags, more or less), and almost all pay without hesitation. His clients know and understand.

And what about such complexities as the economic loss doctrine? This policy holds that, to recover purely economic losses (delay damages, for example) from a professional, a plaintiff can sue only on the theory of breach of contact, meaning that only a client can sue to recover purely economic damages.

Most states used to abide by the economic loss doctrine. Today, however, fewer do, making the relationship between the design professional and contractors particularly critical. An owner/client can do much to make that particular situation better, and many would do so if only they were informed. Have you informed them? Do you even know what to tell them? What about the vast array of other regulations by which you must abide, such as those imposed by the various agencies that fund or otherwise affect your project from a technical viewpoint? And what about the assortment of regulations that affect your practice, from human resources (EEOC, FMLA, ADA, et al.) to financial reporting, accounting, and taxation? And don't forget the impact of information technology, which already has changed your practice profoundly, and continues to do so.

Regulations, environmental and otherwise, are so much more complex than they used to be. But that's not even the half of it! Still, you have to deal with them, a fact clients could understand and appreciate readily if only you would take the time to explain it to them. And if you do, chances are they would have few qualms about paying whatever reasonable sum you impose to make a risky business far less troublesome to live with.

They're your rags. Deal with them! Wisely.

John P. Bachner is the executive vice president of ASFE, a not-for-profit trade association that provides programs, services, and materials to help geoprofessional, environmental, and civil engineering firms prosper through professionalism. Visit ASFE's website at www.asfe.org


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