When Good Engineers Make Bad Business Decisions: A Risk Management Solution

The swing stage crashed onto the street below on a Saturday afternoon, killing several people. The structural engineer who designed the attachment points hadn't made a single calculation error—but his firm was now facing bankruptcy. How could this happen?

This tragedy, along with another devastating $2 million claim, nearly destroyed a five-partner structural engineering firm where all the partners were superb engineers. The problem wasn't technical incompetence—it was business naivety. One partner's inability to recognize project risks had put the entire firm in jeopardy.

Over my 27 years specializing in architects’ and engineers’ professional liability insurance, I've seen this pattern repeatedly. Technical excellence means nothing if you can't identify which projects are likely to generate losses rather than profits. That's why I developed what I call the Four Cornerstones of Risk Management:

This article focuses on the first cornerstone—the one that could have saved that engineering firm from catastrophe.

The trouble began when the firm's largest contractor client asked for what seemed like a simple favor. They were building a sports arena and needed an Illinois engineer to stamp plans for bleachers prepared by an out-of-state designer. Since Illinois separately licenses structural engineers, this was perfectly legal—provided the engineer performed all necessary calculations and documented the work.

Racing against deadline pressure, the engineer stamped first and reviewed later—a fatal sequence.

The design builder had hired different engineers for various components without coordinating between subconsultants. The result was an unstable structure with pinned connections stacked on top of pinned connections. When repairs exceeded $2 million, the engineer learned a harsh lesson: when you seal plans, you buy all the problems associated with those plans.

As if one catastrophic claim wasn't enough, the same engineer agreed to design attachment points for a 100-foot aluminum swing stage suspended from a high-rise building during facade restoration. The work plans clearly specified that the stage should be lowered or tied off if winds exceeded 35 mph.

But plans don't control Saturday weather.

High winds struck when no one was monitoring the site. The swing stage detached and crashed to the street below, killing several people and leaving the firm facing another multi-million-dollar lawsuit.

Suddenly, the firm confronted two devastating claims with no engineering errors involved. Their professional liability insurer non-renewed their policy, and without insurance, they would be disqualified from most projects. The five partners—all excellent engineers—faced the prospect of closing their doors.

The frustration was overwhelming. Perfect technical work had been undone by poor project selection.

Recognizing that client and project selection was the root cause of their problems, the firm developed a systematic approach: the Project Evaluator, which grades prospective clients and projects on a 100-point scale.

The evaluation begins with contract terms. Contracts including limitation of liability provisions earn the maximum 20 points. Standard contracts reflecting generally accepted care standards with consequential damages waivers (like AIA contracts) receive 10 points. Client-prepared contracts typically unfavorable to design professionals earn just 5 points. Verbal agreements score zero and are generally avoided.

Fee size receives appropriate weighting: small fees earn 1-5 points, medium fees get 6-10 points, and large fees receive 11-15 points. For a medium-sized firm, $200,000 might constitute a large fee threshold.

Projects with 20% profit potential earn maximum points (10). Profits between 10-20% receive 7 points, while margins under 10% get 5 points. Hourly projects, typically profitable due to their structure, automatically receive 7 points.

This category carries significant weight due to its predictive value:

First-time clients cannot score above 5 points due to relationship uncertainty—a crucial safeguard the original firm had ignored.

Reasonable schedules allowing adequate time for checking and coordination earn 10 points. Projects with sufficient available staff to execute without overtime pressure receive an additional 10 points—recognizing that rushed work creates unnecessary risks.

Points reflect familiarity with building types and project territories. Unfamiliar work increases risk and reduces scores accordingly.

The final step subtracts points for high-risk project types:

Projects scoring 60 or above proceed without partner consultation. Lower-scoring projects require majority partner approval—crucially, this creates a "pause" rather than an automatic rejection. The system never results in a hard "no," but it forces deliberate consideration of high-risk situations.

Once projects pass initial grading, verification begins:

This process has revealed numerous red flags that pure scoring might miss—from companies facing bankruptcy to clients with patterns of suing design professionals.

Since implementing this systematic approach over two decades ago, the firm has experienced zero significant E&O claims. They now qualify for the lowest available professional liability insurance rates—a dramatic transformation from facing policy non-renewal.

The numbers tell the story: hundreds of projects evaluated, dozens of high-risk situations avoided, and millions in potential claims prevented through systematic risk assessment rather than intuitive decision-making.

More importantly, the five partners can focus on what they do best—excellent engineering—knowing their business decisions are equally sound.

The engineering profession attracts individuals who excel at solving complex technical problems. However, business risk assessment requires different skills—ones that aren't taught in engineering school but are equally critical for long-term success.

The Project Evaluator system transforms subjective "gut feelings" into objective, repeatable assessments. It creates firm-wide consistency in decision-making and provides clear documentation for difficult conversations with potential clients.

Most importantly, it recognizes that in professional services, the client you don't take can be more valuable than the one you do.

This systematic approach to risk identification and client selection represents just one of the Four Cornerstones of Risk Management. When combined with strong contract negotiation, quality assurance protocols, and construction administration practices, it creates a comprehensive framework for protecting design firms from preventable disasters.

The five partners learned this lesson the hard way. Your firm doesn't have to. ■

WTW hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).

About the Author

Mark Blankenship is Director Risk Management for WTW A&E.  WTW A&E is the Center of Excellence for WTW that is exclusively dedicated to providing insurance and risk management solution to architects and engineers in North America.  More information on WTW A&E can be found at http://www.wtwae.com/