Case History 41
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[00:00:00] Liz: Welcome to the GBA case history series brought to you by the GBA podcast. My name is Elizabeth Brown and I am the principal Geotechical engineer at JLT Consultants.

[00:00:10] Abi: And I am Abby Corbett, a project consultant at SME. Today we're gonna explore a fascinating and costly story from GBA case history number 41. It's a case that shows how small projects create big risks and my attention to detail is everything in geotechnical engineering.

[00:00:30] Liz: Sounds great.

[00:00:32] Abi: Sounds about right. All right, let's start with some basics.

[00:00:36] The case revolves around a housing development company that wanted to build 10 identical two story condominium buildings on a four acre site.

[00:00:47] Liz: So the development company hired a GBA member firm to conduct a geo tactical engineering study and observe the grading before construction. The initial agreement was for $3,500. [00:01:00] So really not a big amount here. But here's the first twist. The client gave oral authorization to proceed, but never actually signed the proposal, and the project manager didn't document that oral go ahead. So there's our first red flag to start us off.

[00:01:21] Abi: Just feels really common, especially with those like smaller fees that people are, it's almost like they're just like a little looser. Like, it's fine. We had a handshake. It's fine.

[00:01:32] Liz: Right.

[00:01:35] Abi: Well, and if that's our first red flag, it's definitely not the last. So the member firm drilled seven borings and encountered old fill. They ended up making some assumptions about the underlying soil, specifically that terrace deposits were present in the southern portion of the parcel because one of the exploratory borings encountered refusal from cobble at [00:02:00] two and a half feet. The project manager concluded that wouldn't be a problem because no construction was actually planned for that area. But you know what we say about assumptions in engineering dangerous territory.

[00:02:14] Liz: Right and only two and a half feet. I mean, I'm surprised that they didn't just move over, and try and advance another boring to make sure that there wasn't just something there causing the refusal. 'cause two and a half feet, really not very deep, which definitely puts us into some dangerous territory there.

[00:02:34] Now the member firm ends up getting hired by the client's small civil engineering firm to observe the grading operations. And during those operations, the constructor placed four feet of fill in that area with the assumed terrace deposits. The member firm had a less experienced field representative on the project, who observed the natural ground [00:03:00] before the fill was placed over the top.

[00:03:02] Abi: And I want to pause here, because I know that we're pretty good at blaming things on inexperience, but in this case, we can't fully blame it on the inexperience. That field rep and the project manager never had a conversation about the PM's findings and the assumptions they made.

[00:03:20] Liz: So really the inexperienced person was kind of a setup for failure, it sounds like.

[00:03:25] Abi: Absolutely. I think the project manager was just really leaning into, there's no construction there, so it doesn't really matter.

[00:03:31] Liz: Right, so the plot thickens and we're gonna fast forward six years. The development company decides that they are ready to build two more buildings in the southern quarter. You know, that area previously assumed to be safe. So they asked for an updated soils report from the member firm, and the project manager quickly confirmed that, Hey, nothing's changed.

[00:03:58] We're all good to go. [00:04:00] So another proposal is sent for the grading operations observation. This time noted for $5,000, but again, no formal agreement is signed.

[00:04:15] Abi: We love a double red flag.

[00:04:17] Liz: Right.

[00:04:20] Abi: So the project manager also doesn't hear from the client for six months, and then bam, the supervisor called and said the grading's going to start the next day. Six months of hearing nothing. And then you get a call. You need to be outside tomorrow.

[00:04:38] Liz: A little follow up could have, helped here too.

[00:04:41] Abi: Well, maybe just a quick call, shoot an email over. I don't know. Our member firm obviously couldn't send a field representative on just really short notice, and so they were able to refer the client to another geotechnical engineering firm, which is great news. Right. Well,

[00:04:59] Liz: Uh, [00:05:00] maybe.

[00:05:00] Abi: That firm unfortunately didn't review the original reports before they tested and observed the developer placing four to five feet of fill in that area.

[00:05:10] Liz: Ooh, another problem there if the new firm didn't even review the original reports, you know, come up to speed on the project and what's been going on.

[00:05:17] Abi: You know, just a little background info.

[00:05:20] Liz: It goes a long way sometimes.

[00:05:22] Abi: Yeah.

[00:05:22] Liz: That's really where things really start to unravel here. Four years after the new buildings are completed, they begin to experience differential settlement. So one of the buildings has settled by four inches, another building by three inches. Not a good thing.

[00:05:43] Usually in the industry, you know, depending on structure, an inch or less is acceptable. So four inches or three inches, it's kind of a lot. So the client ends up filing an insurance claim, but it was denied. Well, that means [00:06:00] lawsuits are happening.

[00:06:02] Abi: Everyone's favorite part of a case history.

[00:06:05] So let's get into the legal storm. The member firm is really finding itself in a tough spot at this point. Not only did they fail to get professional liability insurance, but they're indemnification provision in the contract is unenforceable. It violates public policy. But the court did consider that unsigned proposal valid since both the parties were acting as if it's was signed. But knowing the indemnification provision is basically unenforceable, it's a cold comfort.

[00:06:41] Liz: Right. Both sides bring in experts who actually agreed the problem was in the underlying soil, not the fill. However, the client's expert categorized that soil as old fill while the member firm's [00:07:00] expert said it's loose alluvium or flood debris, as well as cobble in random places. So either way. The findings result in the client dropping the claims against the civil engineering firm and the grading contractor, leaving the member firm and the second geotechnical firm as defendants.

[00:07:24] Abi: Oh, everyone loves when the finger gets pointed solely towards you,

[00:07:30] Liz: Not a good thing.

[00:07:32] Abi: not a good thing. And really, the GBA member firm, they tried to settle. They were offering like. Big, big settlements even to fully repair the buildings, guarantee them for 10 years, pay cash up front for repairs. Like they were throwing a lot at the development company.

[00:07:52] Liz: Sounds like it.

[00:07:53] Abi: yeah, the development company, CEO didn't wanna settle though and kept rejecting [00:08:00] those offers because they wanted to take their chances at trial. They thought for sure they'd get way more out of it that way.

[00:08:06] Liz: Uh, and it just takes so much time, more time and effort and money when the things end up going to trial,

[00:08:13] Abi: Yes. Like you're getting more money because it took more time and energy.

[00:08:18] Liz: right? And it just drags it out for everybody involved.

[00:08:21] Abi: Absolutely,

[00:08:22] Liz: So eventually, after two years of this failed mediation, two years of mediation, that's a long time. The case finally goes to a jury trial, and the member firm's attorney actually presents a new settlement offer there, and the development company finally accepts the total cost.

[00:08:47] Well, it's about $895,000 for repairs, experts and lawyers, plus nearly a hundred thousand dollars in lost billable time.

[00:08:59] Abi: And not only [00:09:00] that, this case was in 2018 dollars, so that's a pretty big hurt nowadays.

[00:09:06] Liz: Ooh, it is.

[00:09:09] Abi: So the case is packed with lessons. I mean, the really upfront, easy one is small projects create big risks. The member firms like casual approach with no signed agreement, all their site assumptions and not preparing the field techs, it leads to major consequences.

[00:09:28] Liz: Absolutely. So here's some other maybe key takeaways. I would say always get it in writing. Oral agreements are risky and if it isn't documented, it didn't happen.

[00:09:40] Abi: Yes. Even just shooting an email over like, Hey, you just wanna note, we agreed that we're gonna move forward. Like at least that's something right.

[00:09:50] Liz: Right? It's something, and then saving that email, right? Like save it to your project file or somewhere so that it's accessible later on if something [00:10:00] does happen.

[00:10:01] Abi: absolutely.

[00:10:03] Liz: I think another thing here is don't make assumptions. Encountering something unusual on site. They really should have investigated that thoroughly.

[00:10:14] Don't trust what you haven't verified and ensure all parties understand the objectives. At the beginning when they had the refusal at two and a half feet, if they would've just, you know, scooted over and tried to advance another boring, or even, you know, reach out to the client, Hey, you know, we have some anomalies we need to do some further investigation. It, it really could have saved a lot of time and money.

[00:10:38] Abi: And even the other companies that got brought in later, they just assumed everything was good to go. And they didn't even read those reports. That's a lot of stacked up assumptions.

[00:10:48] Liz: Right, because if they could were to read those original reports, they potentially could have seen, hey, there could be a potential problem in this area.

[00:10:56] Abi: Absolutely.

[00:10:58] Liz: So another item is [00:11:00] professional liability insurance is a must. Operating without. It is, I dunno, it's just foolish.

[00:11:09] Abi: Uh, yes, I, when I was reading that portion of the case, was honestly so surprised that they had none, like zero professional liability.

[00:11:19] Liz: Yeah, it's just risky. You're just asking for something to go wrong.

[00:11:23] Abi: Yeah, it makes sense why a lot of clients are just straight up requiring it.

[00:11:26] Liz: Yes, that is true. So another lesson learned here is to use qualified attorneys for contracts. So geoprofessionals shouldn't act as their own lawyers. They really should engage somebody that you know is schooled and trained in contracts review 'cause really, it's going to protect them in the long run.

[00:11:50] Abi: That's such a good note because I feel like an experienced professional would let them know that the verbal agreement really isn't in their best [00:12:00] interest, and they a hundred percent would've pointed out that clause that couldn't even be enforced.

[00:12:05] Liz: Right. Really, another item that I think is a key takeaway for us here is to prepare and guide your team. Experienced professionals really need to make sure that they are reviewing the work done by less experienced staff and, providing maybe a little bit more oversight, with that inexperienced staff to teach them and train them.

[00:12:27] Abi: Yes. Not everything has to be a learn by fire. I think really preparing somebody to head out to the field basically on your behalf is super important.

[00:12:36] Liz: I agree.

[00:12:39] Abi: There's also that gentle warning about working with housing developers. They can sometimes be problem clients and design professionals often end up as the party personally liable when things go sideways.

[00:12:51] Liz: Oh, and don't forget, project risk is inversely proportional to project size and complexity. So really we need to make sure that [00:13:00] we treat every project as if it could become a major one.

[00:13:05] Abi: Absolutely. So what would you say stood out to you the most from the case?

[00:13:10] Liz: Hmm. I think for me it's the importance of process and documentation. Even experienced firms can fall into, the trap of casualness, like especially on smaller projects, right? But as we can see here, those small projects really can have outsized consequences.

[00:13:30] Abi: Completely agree. It's also a reminder that technical expertise isn't enough. You've gotta have the solid contracts, the insurance, the basic communication between parties, and then when things go wrong. Having that competent legal counsel already on your team is so essential.

[00:13:48] Liz: You've already built that relationship with your legal team as well, right? So that they have a better handle on what you're doing in your day to day so that they can help guide you.

[00:13:59] Abi: Yeah, it just makes it [00:14:00] easier for them to spot the red flags.

[00:14:02] Liz: And really the member firm here learned some expensive lessons. Their $3,500 fee ended up costing nearly a million dollars. That's about $10 million in sales, assuming a 10% profit margin. So, ouch.

[00:14:20] Abi: That's where it definitely starts hurting. If you are a geoprofessional or really work in any field where risk is part of the job, you should take these lessons to heart. Remember to document everything, question those assumptions, and protect yourself and your clients.

[00:14:36] Liz: Really remember every project, big or small, it really deserves your full attention and respect. And this concludes this episode of the Case History Series brought to you by the GBA podcast. I hope you're able to take away some useful information that will help you and others at your firm make good risk-based decisions in the future.