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Re: Fees and Insurance for Structural Observations

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I cannot comment on fees in South Carolina, but some other comments in general:
The builder / developer is trying to pass a large portion of the construction defect liability on to you and your insurance carrier.  This is the basis for the 10 year coverage (latent period).  Since you list Inspection in your company name but refer to observation in the post there is some ambiguity here.  Observation is supposed to be performed by the Engineer of record or his representative.  As a third party I would think your services would be viewed as independent inspection and verification, not simple observation.
Your insurance carrier will most likely cringe at the exposure.  I would figure what ten years of insurance costs attributable to this project are and see if the proposed fee structure comes close to covering your costs with an adequate profit margin.  Also factor in your deductible and other indirect costs to excuse yourself from the inevitable lawsuits.  The very nature of your proposed services places you squarely on the front line of litigation.
How many individual associations will be involved?  Figure one lawsuit per association.  Most insurance is 1,000,000 / 1,000,000, a million per claim and a million aggregate per claim period (year).  What happens when there are six associations and all of them sue you within a two year period based on the ten year latent period?
If this were in CA I could place good money odds on your probability of being named in a suit at 90% per association.  We have lawyer services that record all association projects and send reminders to the attorney subscribers to remember to place their suits before the latent period expires.  If the association doesn't want to sue, the lawyers threaten to sue the association for not protecting the owners rights.   If there is one area we need serious Tort reform it is multi-family housing.
I would almost suggest you think of the contract as a mortgage loan.  You get the money today, but will have to pay all of it back plus interest over the next 10 years. But then, I tend to be a little cynical where multi-family residential is concerned.  Maybe things are different in other parts of the country.
----- Original Message -----
Sent: Saturday, July 10, 2004 12:47 PM
Subject: Fees and Insurance for Structural Observations



I have an opportunity to provide structural observation services for new residences and town homes for a national home builder. The scope of work would involve two site visits per dwelling. The first would be a foundation observation prior to placement of concrete. The second would be a framing observation prior to installation of insulation and drywall. A field report would be issued for each and followed up with a formal stamped site visit report. I have estimated the time requirements including travel and overhead, and have considered providing the Client with a twenty-five percent discount due to the anticipated volume of homes. Proposed foundation observation fee may be around three hundred dollars. Proposed framing observation fees may be around four hundred dollars. The fees must be a fixed cost per the Client. Anybody near South Carolina who could comment on proposed fees?


One potential problem is that the Client’s consulting agreement requires me to provide ten years of E & O coverage with one million dollars coverage beyond final payment for the observations. I estimate that there may be two years worth of observations. Therefore twelve years of E & O per contract. This contractual duration of time concerns me since I am a sole proprietor.


What are typical time requirements to contractually provide E & O coverage for structural observations? Same question but for structural design of the following: residential, commercial, industrial?


Since I am currently in digest mode, feel free to contact me directly.




Jonathan D. Smith, P.E., Owner

Summit Engineering & Inspection

236 Lorraine Drive

Travelers Rest, SC 29690


Phone: (864) 834-3385

Fax: (864) 834-3261


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