Walking Away Without Walking Into a Claim

Several weeks ago, we hosted a webinar addressing a topic that resonated with many design professionals: When is it appropriate to walk away from a project? While most design professionals understandably focus on how to solve project challenges, there are occasions when continuing the engagement may create greater risk than ending it.

Whether driven by chronic nonpayment, unrealistic client demands, expanding scope or increasingly adversarial project dynamics, troubled projects often present difficult business and risk management decisions. As recent claims have demonstrated, some of the most significant exposures arise not from terminating a project but from staying involved after clear warning signs have appeared.

This article builds on several key themes discussed during the webinar and offers practical guidance for evaluating project distress, protecting the firm's interests and managing the risks associated with a potential withdrawal.

Recognizing the Warning Signs

Projects rarely unravel overnight. More often, they follow a familiar pattern of accumulating challenges that place increasing pressure on the design team.

Common warning signs include:

While any one of these issues may be manageable, multiple warning signs often indicate a project relationship that is beginning to break down.

The Hidden Risk of Staying

Many firms view project termination as the greatest risk. In reality, remaining on a troubled project can create substantial professional liability exposure.

As projects encounter delays, budget overruns or construction disputes, owners often look for explanations and, in some cases, parties to blame. Design professionals who continue working under increasingly difficult circumstances may find themselves drawn into disputes involving contractor performance, scheduling conflicts, cost overruns or other issues that fall outside their contractual responsibilities.

In addition, firms that continue providing services despite nonpayment or unresolved disagreements frequently accumulate significant uncompensated work while increasing their risk exposure. What begins as an effort to preserve a client relationship can ultimately result in greater exposure and more expensive litigation.

Claim Scenario

An architectural firm was retained to provide design and construction administration services for a mixed-use development. During construction, the owner repeatedly requested design revisions, additional meetings and expanded coordination services without executing contract amendments or approving additional fees.

As the project fell behind schedule, disputes between the owner and contractor intensified. Although unpaid invoices exceeded six figures, the firm continued providing services in an effort to keep the project moving and preserve the client relationship.

Over the following year, project correspondence became increasingly contentious. The owner frequently sought the architect's involvement in construction means and methods disputes, and the firm's services expanded far beyond the original agreement.

When the project ultimately experienced substantial delays and cost overruns, the owner asserted claims against multiple project participants, including the architect. The allegations included negligent project coordination, failure to identify construction issues and responsibility for delay-related damages.

Although many of the allegations lacked merit, the firm incurred several hundred thousand dollars in defense costs before the matter was resolved. A post-claim review revealed multiple opportunities to formally address scope expansion, document concerns, pursue collection efforts or evaluate whether continued participation remained in the firm's best interests.

Before Exercising a Termination Right

Terminating a project should be a deliberate business decision, not an emotional response to a difficult situation.

Before taking action, firms should speak with their agent or carrier and review the applicable contract to consider:

• Whether the contract contains termination or suspension provisions.
• Any applicable notice and cure requirements.
• Outstanding payment issues.
• The status of project deliverables.
• Potential impacts on public health, safety and welfare.
• Licensing or regulatory obligations.
• The need to consult legal counsel or the firm's professional liability carrier.

Careful planning can help reduce the risk of allegations that the firm abandoned the project or failed to satisfy professional obligations.

Documentation Matters

As with nearly every professional liability claim, documentation can significantly influence the outcome of a dispute.

Throughout the life of a project, firms should maintain clear records regarding:

• Scope changes and additional services.
• Payment disputes.
• Schedule concerns.
• Client directives and requests.
• Project risks and recommendations.
• Efforts to resolve disagreements before termination.

The goal is not to build a case against the client. Rather, it is to establish a factual record demonstrating that decisions were made thoughtfully, professionally and consistently with contractual obligations.

Managing the Transition

If termination becomes necessary, how a firm exits the project can be almost as important as the decision itself.

Communications should remain professional, objective and focused on contractual obligations. Termination notices should comply with the agreement and clearly explain the basis for the firm's decision. Firms should also consider what project information and documents must be transferred to facilitate an orderly transition.

A poorly handled departure can create unnecessary conflict and increase the likelihood of future allegations. A professional and well-documented transition, on the other hand, can help reduce tension and limit exposure.

Bottom Line

Project termination should not necessarily be viewed as a failure. In some circumstances, it may be the most prudent risk management decision available. The greater risk may be remaining on a project after clear warning signs indicate that the relationship has become untenable.

Successful firms monitor project health as carefully as they monitor design quality. By identifying project distress early, documenting concerns, managing scope and payment issues and evaluating contractual rights before problems escalate, design professionals can make informed decisions that protect both the project and the practice.