Anticipating Agency Inspection Requirements When You Make Your Contract

"It is easier to stay out than get out."
Mark Twain — Pudd'nhead Wilson

Every design profession is well aware of the differences between observation and inspection when it comes to pricing and estimating a contract. Construction observation is merely a quantitative evaluation of the project to determine whether the project is on schedule, and to certify progress payments for the owner. Inspection, on the other hand, is a qualitative inspection of the work being done. With inspection comes responsibility for stopping the work if it is not in conformance and the implicit agreement that silence of the inspector amounts to a statement the work is acceptable.

In addition to the liability exposure, inspection creates additional administrative costs, i.e., field inspection, field reports, and personnel, which are additional cost items many design professionals would rather avoid. For this reason, many engineers simply omit construction management, inspection, or administration from the contract and restrict their work to design and observation. The contracts are usually priced accordingly.

Increasingly, however, jurisdictions are requiring Engineers Certificates of Compliance or Engineering Certificates of Inspection, which must be signed by both the owner and the engineers before permitting will be issued by the agency. The effect of these certificates is to require the design professional to assume responsibility and liability when the original contract specifically sought to avoid it.

The engineer who refuses to sign the certificate incurs the wrath of the agency, as well as running the risk of substantially delaying the project.

In addition to the legal problems they create, the certificates of inspection present practical problems and questions which are frequently unresolved throughout the project:

1. Who covers the added administrative costs?
2. Who has responsibility for stopping the work if it is not in compliance?
3. What does the contract with the owner look like after the certificate is signed?

If there is no discussion with the owner after the certificate, arguably the engineer simply bears the cost of the inspection, rendering the contract, in effect, worthless. The contract can be re-negotiated with the owner to account for the "unforeseen" costs associated with the certificate. However, most owners will argue it should have been contemplated, and will resist adding the additional administrative costs as a change order.

Probably the best solution is to identify those jurisdictions which have inspection certificates as part of the permitting process, and negotiate it into the contract at the start. Because, as Mark Twain so pointedly observed, "It is easier to stay out than get out."

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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