How much more will depend on a number of factors. But to give you an example, we have two similar sized architecture firms that we work with, both with very good claims experience. One of the firms has no condo or residential exposures and is paying approximately a 0.5% rate or half a 1% of the firm's gross revenue towards Professional Liability insurance. The other firm that we work with has over 30% of their revenue in residential work and is paying a rate of 1.5% of their gross billings, or three times more than the other firm with no residential exposures.
Now, there are many factors and underwriting considerations that go into this, in addition to the percent of residential exposures that firm has as a percentage of their annual gross Billings, including the firm's scope of services. What are they doing on this project? Are they offering civil work or structural or are they prime? That's certainly going to be a factor in underwriting. The firm's claim history will certainly be looked at, especially on any past residential work. And lastly, what percent of that residential work is from condominium projects?
Carriers will vary greatly as to their appetite for residential related exposures. Some carriers won't offer to write or will heavily surcharge firms with any residential exposures. However, all PL carriers, professional liability carriers, agree that condo projects are one, if not the most, hazardous PL risks they cover. Any design firms with over 10% of their annual gross revenue in condo will typically be paying more for their PL insurance and have fewer insurance carriers interested in their business.
This, again, is especially true if they've had any claims. Firms should consult with their broker to help determine what the impact would be on their PL pricing and carrier relationship if they take on more residential and especially more condo risk. Firms also should take the time to fill out their professional liability applications. We work with our clients to break out the condo exposures to ensure they are not paying more for this exposure than absolutely necessary.
To avoid overpaying for your PL insurance, firms should break out the condo related exposures from the non-condo segments of a given mixed use project. If, for example, you make $1,000,000 in fees for mixed use condo work, and of that, half the projects were made up of parking or retail, then we would want to break this out on your application so that you're only going to be rated for and surcharge for that $500,000 of revenue, which would be rated in a higher rate.
A good carrier and broker will work with you on this to ensure that your risk is accurately considered and priced fairly. Bottom line, firms engaging in residential and especially condo work should not only be prepared to pay more for their insurance, they also need to take proactive steps in managing their residential risks in order to reduce their exposure to costly claims and client disputes. In this podcast, I will discuss why residential risk are so inherently risky, as well as what design firms can do to mitigate and manage this risk.
And to help me with this discussion, I have with me a long time friend, Mr. Jeff Coleman, fellow Minnesotan and attorney with the law firm Coleman and Erickson. Hello, Jeff. Welcome back to Talk to me.
JEFF COLEMAN: Thank you, Dan, it's great to be back.
DAN BUELOW: I can't believe, Jeff, you were one of my first guests, if you will, well over two years ago when I was just kicking around doing a couple of these podcasts, but you look the same.
JEFF COLEMAN: Appreciate that. And, again, great to be back. It's going to be an interesting discussion.
DAN BUELOW: So, Jeff, tell us a little bit about yourself. Give us some of your background.
JEFF COLEMAN: So I started my career as a structural engineer. I went to work for Ellerbe Becket, 1977. Went to law school at night from '80 to '84, so this is actually my 40th year of defending architects and engineers. And that's what I've been doing. So I've been dealing with these issues and a lot of condo cases over the years.
DAN BUELOW: Yeah, and you had experience as in-house counsel for Ellerbe Becket, a very well known Minnesota firm back in the day.
JEFF COLEMAN: That's where I started my career, was in-house. I was the first in-house counsel for Ellerbe later when we acquired Becket. Ellerbe Becket, yes.
DAN BUELOW: So, Jeff, I wanted to do a podcast on residential exposures and risk because we've seen a real uptick in residential projects recently, especially condo projects, and this has always been a cyclical project type, hasn't it? And I know that you've seen your share of cycles over your nearly 40 years or so as an attorney and in-house counsel. Have you seen an uptick in residential work yourself? And if so, what do you think is driving this?
JEFF COLEMAN: Yeah, there's a couple of interesting things going on for me. I break it down into multifamily housing. Meaning, condos, apartments, rentals and student housing rentals. Kind of three distinct categories. The last big boom in multifamily housing and condos was probably '05, '06, '07, '08 or so. It slowed down since then, but more recently, what I'm seeing with my clients, they're coming to me and saying, hey, I've got this commercial client that I've done a lot of design work for over the years, but all of a sudden they're saying, I want to do a couple levels of retail or commercial, but then I want to add condos on top of it.
So these are firms that maybe have no intention or maybe even have a policy against doing condos, but all of a sudden, their clients are driving this interest in designing some kind of rental housing or condominiums on top of their projects.
DAN BUELOW: I was thinking back that in 2008, Mark Blankenship, risk manager for our group, and I were asked to present at the AIA National Convention in Boston. I'm pretty certain that's 2008. Anyway, by the time we showed up, the condo craze was over. That was our program, managing the condo craze, but it was over by the time we showed up. And, of course, there was quite a cycle and cycles since. And another recent cycle we saw was kind of a down in condo work, but a lot of apartments.
And so there's different risks. And we'll talk about what some of the unique risks are of condos versus apartments. But some carriers-- and you have to be careful, you mentioned about, you know, what a firm's policy is. But some carriers have added condo conversion exclusions into their policies. And you really want to be careful if you have that in your policy because you may unwittingly have designed an apartment and it will be converted to a condo someday, possibly, right?
JEFF COLEMAN: No, that's right. That's a realistic exposure, particularly in this era when condos kind of fell out of favor.
DAN BUELOW: Right. So, Jeff, while all residential exposures are considered on the higher end of the risk spectrum specific to professional liability risk, condominium projects are at the top of that list. And I'd like to go through my list of the top seven reasons condo projects are considered the riskiest/scariest of all project types by most A&E professional liability carriers. Now, again, condos may make, and they do, make a lot of good business Sense And there's great opportunity in there.
We've got housing issues and sustainability and urban and so forth. But if you consider that design professional underwriters and carriers are in the business to make money, many of them have lost money in this particular niche, if you will, this segment, where the loss ratios on condo projects have been considerably higher on average than other project types. So here are my 7, and then I'm going to ask Jeff to help us through with each of the seven.
Number one, the third party exposure. Number two, emotionally charged exposure. Number three, multiple potential claimants. Number four, single purpose LLC. Number five, developer client. Number six, plaintiff attorney. And number seven, HOA, the Homeowner Association. So, Jeff, let's start with number one on this list. Which is a good reason to be number one on this list, isn't it? It's the third party exposures. Why is this unique to condos and what's the problem here?
JEFF COLEMAN: Well, if you think about it a minute, the party who will ultimately be buying and living in the condominium units doesn't exist when you negotiate your contract with the developer and you construct the project. So it's a party that you don't know, you never met. It's going to be multiple parties. My joke-- you have a couple jokes about condos, but mine is, it's the highest number of plaintiffs per square foot of any building that you can design.
Not to get ahead of ourselves, but it kind of spills over into the emotional charged exposure because most of these third parties are generally going to be young, first time homeowners or older retired homeowners, both of whom are buying this to be maintenance free, which they may or may not fully understand.
DAN BUELOW: And again, to your point, every other project type, you're going to negotiate a contract, you're going to go back and forth with your prospective client and you're going to execute a deal. But for the condo project, right after you do that, your client turns around and puts you in bed with a few hundred other folks that you never met, to your point, who are all going to be looking at their ceilings every night. And that's where you get into the emotionally charged aspect of it, right?
These are residential, often unsophisticated, but this is something very personal to these folks. And so they can bring suits, and do often bring suits. And in fact, kind of jumping ahead too, we've got this list that kind of goes around here a little bit. But one of the issues that we see unique to condo projects is the fact that claims are coming in often around the statute of limitation and repose, right? Most projects, you're going to see, most claims are going to come at around substantial completion soon at around that time.
So we've kind of got to hit, two for one there, because we get into the plaintiff attorney a little bit here too. But the emotionally charged is an issue, isn't it?
JEFF COLEMAN: It's these people's home. And I'm not suggesting that there aren't people who might own multiple condos and be more sophisticated, but generally, it tends to be either younger or older people who this is their major investment. It's very emotional for them because it's their home, it's where they live and they live with it every day. And, of course, once you see a crack in the concrete surface or you see anything at all, that's all you can think about. It's a real issue. It's a real phenomenon.
DAN BUELOW: Next on my list was the multiple potential claimants. And you touched on that too because there's often more than one problem you're going to have.
JEFF COLEMAN: Yeah, there's multiple owners. There are some states that have passed statutes that require a percentage of those owners to approve lawsuits. We've had cases where the Homeowner's Association maybe gets out ahead of the multiple owners in the building. Of course, they have to finance any lawsuit that they're going to bring against anybody. Again, the multiple potential claimants is also a real issue.
DAN BUELOW: And then next, single purpose LLC. So this is, hey, wouldn't it be great if you could just do a project as a design professional and then just, you know, fold up your tent and move off? But the reality is that that's exactly what these developers are doing, aren't they? Most of these condos are under a project of a single purpose LLC. Explain what is that?
JEFF COLEMAN: Well, a developer will create a new corporate entity, limited liability company as an LLC, and they'll use that entity for the sole purpose of developing the building and selling the condo units. And they do that to isolate themselves from the exposure of any lawsuits down the road arising out of the condos sale. It would be nice if architects and engineers could do that as well for the design of the units. The problem is we've explored this with clients before, carriers aren't going to insure those because of the heightened exposure.
So it makes it a little unwieldy, a little difficult to do. But by the time the lawsuits occur, which can be quite a ways down the road, the developer is going to have a single LLC with limited assets or no assets, which provides more exposure, basically, indirectly or directly to the design professional.
DAN BUELOW: Right. Yeah. And regarding to set up a firm as an LLC for a single purpose for-- or just to have the idea, some firms have approached us, is like, well, I'm just going to set up a separate firm and that's the firm that'll do all our condo work, and therefore, we won't bring that exposure to the mothership, if you will. The problem is that these underwriters that are going to be looking through this and are sophisticated enough to go into the equity interest around and the ownership interest of these entities, and you're going to then have an entity with a 100% of condo exposure and you're going to find it difficult.
And often, there's going to be reasons that that's just not viable. And also, unfortunately, because condo projects in particular are so hazardous, there really isn't an insurance market for single project insurance. So while we might get a project policy on other types of projects, a stadium, a hotel, a roadway, we literally went to eight different carriers. This was a big condo project. It was $600.000.000, $700,000,000 condo project in San Francisco but I would put this as you would have the same issue in almost any other state.
But they were looking for a project policy. We went to every market out there that would even think about doing this. We got one indication and the pricing on that for like $5,000,000 was $3,500,000 with a $2,000,000 SIR. Something crazy. So it's so commercially unviable that it's just it's non-starter, unfortunately. So you're going to have to address--
Until that market softens up a little bit, and who knows when that'll be, you're going to have to address your risk transfer by good contracts and some other things in here that we're going to talk about, including this condo rider idea. Let me continue with the list here, though, Jeff. The next on this list is the developer as a client. So there's a lot of different clients out there and the developer seems to be kind of on the higher end of risk. Why is that? And do you agree with that?
JEFF COLEMAN: Yeah, I do agree with that. Developer clients tend to be tougher to deal with. They're more experienced in dealing with contractors and design professionals. They've been around doing this for a long time and they can be very demanding. They know what they want in their contracts. Their contracts tend to favor them and not the design professionals. So they're just a difficult class of owner to work with. Not impossible to work with, just difficult and demanding.
DAN BUELOW: Yeah. And I would say, absolutely, every carrier is looking at, in your professional liability application, what percentage of your work is with different types of owners? And the developer, if you get a lot of work with developers, that's a red flag. The case of condos in particular, the quality of that developer is going to be significant, right? So not all developers are the same, but a lot of developers have been litigious, a lot of developers have done things on the cheap, cut in corners, whatever it might be. It's just a reality.
So choosing the right developer is certainly going to be a big part of this. The plaintiff attorney, Jeff, so you're on the good side here, but I've been saying this and I think there are a lot of attorneys out there that have the statute of limitation repose for every condo that's been developed in this country, and they're going to know exactly when it's time to contact that HOA.
JEFF COLEMAN: Well, I'll tell you a couple of true stories. You're absolutely right. The group of attorneys who have handled plaintiffs for condos, their market, of course, started to go down in 2016, '17, '18, '19 or so because we were 10 years out from when they were built. And many of those attorneys will go to the Homeowners Association with an expert, with an engineer and architect and say, listen, your statute of repose, meaning the time after substantial completion for which you can't bring a lawsuit, is going to expire.
And you have a fiduciary duty as a member of the Homeowner Association and the board to protect the association. So you should probably have this expert take a look at your building and see if there's anything that you need to sue the architect or the engineers or the contractors over, and dig through the building. The ultimate was a firm in California who actually purchased a unit and deconstructed it from the inside out so they could find any defects in the construction of the unit.
It hasn't quite gone that far through the rest of the United states, but there definitely are attorneys who are meeting with homeowners associations and highlighting this issue of statute of repose and the need to evaluate the building before that deadline passes.
DAN BUELOW: OK. So last on the list, Jeff, is the HOA. So it's the Homeowner Association. And often, not well managed. Certainly, as you described there, you've got a group of folks that can put aside their shuffleboard or pickleball or whatever they're playing at that particular facility and put together a lawsuit pretty quick, can't they?
JEFF COLEMAN: Yeah.
DAN BUELOW: So this is an issue, though, unique to condos.
JEFF COLEMAN: Yeah, it is. It's gotten better to an extent because some states like Minnesota, among others, have passed statutes that require the associations to maintain maintenance funds and repair funds. They required that they get approval of the Homeowners Association before bringing a lawsuit, before they can start assessing for legal fees to pay for litigation. There's other notice requirements for defects and opportunities to cure that helps protect some of these things.
So yeah, the Homeowners Association, again, it's managing a building by committee. But fortunately, in some states, there are some statutes that have been passed to help protect this a little bit.
DAN BUELOW: And don't give design advice often, Jeff, as you know, but I would recommend, if you are going to design a condominium, don't design it with a common meeting space.
JEFF COLEMAN: Yep.
DAN BUELOW: So they can all get together and figure out what to do.
JEFF COLEMAN: My one-liner is the highest number of plaintiffs per square foot, and yours is, don't design a space for them to meet. Yes, so we--
DAN BUELOW: It's our own two condo jokes you're going to get there.
JEFF COLEMAN: Right.
DAN BUELOW: OK.
JEFF COLEMAN: Right.
DAN BUELOW: All right. So we've just reviewed why residential and in particular condo projects are so risky. But hey, you know, again, you know, condos make a lot of sense as a building type in urban areas and so on. And so what can firms do that want to take advantage of these opportunities and to manage these business risks? And in fact, Willis A&E, we have a number of firms that do well over 10% of condo and/or residential work and have had excellent loss experience.
They have, I believe, demonstrated that they are well run businesses and they have experience in addressing the inherent risks associated with this particular project type, such as working with developers. And they have established go/no-go considerations and procedures in place and they have experience in negotiating balanced contracts. Jeff, when it comes to these go/no-go considerations, the contract is very important, isn't it?
You want a fair and insurable agreement. Like, I would say that if you look at these go/no-go considerations, if you're working with a developer on a condo project, someone you maybe never even worked with before, I would want an ironclad contract. I want all my greatest hits in there. I want an LOL. I want a contingency fund. I want to be named on the contractors policy and so forth. So I want all of these contract important provisions in there and not take on anything that's not insurable for certain.
I would be really holding a hard line for that. But also, I would want a condo rider which is going to address some of these inherent risks that we just went down, those 7 points. So I have a sample condo rider here, Jeff, but talk to us a little bit about what is a condo rider and how realistic is it to get your condo rider negotiated and executed?
JEFF COLEMAN: Keeping in mind that you're entering into a contract with a party who's not going to live in the building, and the parties who are going to live in the building are our third parties you haven't met yet and hopefully never will. You want to try to have some issues in place with your client, the developer, that will require certain things in the sales agreements and other agreements with the ultimate buyers. And that's what a condo rider tends to go through and try to cover.
Now, it used to be that we would look at these and say, yeah, here's the greatest condo rider on the face of the Earth and nobody will sign it. But more recently, because of pushback by designers and the insurance industry, I have most recently seen a couple of these actually get signed by developers because they realize it's the only way that they're going to get a design professional to work on a condo project. So take this seriously. Don't give up on it. And my advice is get a hold of a good condo rider like the one Willis has here and get as much of it included as you possibly can.
Do you want to go through these items?
DAN BUELOW: Yeah, let me take off a couple of these. Yeah. And I'm reading from a sample condo rider that we've gotten input from attorneys, probably Jeff and others over the years and we offer that for someone then they sit down with their attorney and draft something up that they can have as their own. But I'm looking at our rider right now, and top of the list there is the condominium maintenance manual, right? And then the next on there is this owner funded homeowner's maintenance fund.
And I guess I want you to tell us about what-- why is this and what exactly is it? But it certainly makes a lot of sense in that that's a real issue, isn't it? Where the HOA, when they're getting contacted by that plaintiff attorney and saying, it's your fiduciary responsibility, you know, because the statute of limitation is coming up, that they probably didn't necessarily do a great job maintaining that condominium over the last 10 years.
JEFF COLEMAN: Yeah, there's not a building on the face of the Earth that doesn't require some level of maintenance. So the maintenance manual gives the owners information on what needs to be maintained and watched after and what to do if issues come up. The maintenance fund is, of course, the funds available to pay. Your roof is going to have to be updated or replaced. Caulking has to be replaced and updated occasionally.
If there's any issues with water intrusion, leakage, condensation, those need to be addressed right away and there needs to be funds to take care of those. So the horror story, of course, is you've got a building with a whole bunch of problems and a homeowner's association with no money to pay for them. And then they have no choice but to try to sue everybody in sight.
DAN BUELOW: Yeah, I'm looking at just some of the wording here on this particular rider. You know, it says the bylaws will require periodic inspection of each component identified in the maintenance manual by qualified outside inspection service, initially selected by the owner, which will report its findings and maintenance recommendations to the Homeowner Association. And it goes on that each homeowner will receive a copy of the maintenance manual at the time of purchase and will be required to acknowledge understanding of the responsibility of the homeowner's association to have the necessary maintenance performed.
So I can see why a developer would say, I don't want to encumber this property at all. I want to just be able to sell. I don't want to have to be held to any of this. But boy, this makes a lot of sense, right?
JEFF COLEMAN: Yeah.
DAN BUELOW: I mean, you've got something here because if you fail to do what I think is very reasonable as laid out here, it's just going to come back to the design firm.
JEFF COLEMAN: Yep, and it protects the developers as well. It's in their best interest to try to get these things done.
DAN BUELOW: I would think so, yeah. So the owner funded maintenance is just kind of in there, protection by covenant. And in here, there's some bullets on this and some legal issues around this, but it goes on here. A covenant requiring a 75% majority of homeowners to authorize a homeowner association claim against the member of the owner architecture contractor team. That's one of the covenants. Give us some thoughts on that.
JEFF COLEMAN: This comes out of cases where the homeowner's association has gotten out ahead of everybody and started a lawsuit against the design team or the construction team. And a majority of the homeowners say, I didn't know anything about it. And a lot of cases, these bullet items you put in here, the 75% of homeowners, the mediation, Right to Cure--
DAN BUELOW: Right.
JEFF COLEMAN: Maintenance manual, those are actually statutory now in a lot of states. So this condo law has evolved in a positive way to that extent. Yes.
DAN BUELOW: That's good. Yeah. I've heard that too. In some states, it's been a big, big benefit. So that's another good point is, definitely check with local counsel and the laws and what's going on in your state around what covenants are out there that will protect you, that you certainly want to take advantage of and maybe even articulate in your agreements, right?
JEFF COLEMAN: Yep, exactly. Right to Cure is another one where the parties have to be notified, given an opportunity to observe the conditions and then offer to provide any repairs up front before starting a lawsuit, yes.
DAN BUELOW: And here they have full-time independent construction inspection. There's probably a cost associated with that. I don't know how realistic. It probably depends on the project type and the size and everything. But--
JEFF COLEMAN: Yeah, I agree with that. The other thing, from a designer standpoint, I highly recommend on two fronts is building envelope consultant. One, to review the plans of the design professional. Two, to work for the owner during construction to observe the building envelope. You'll find a very common and repetitive theme in a lot of these condo cases which relate to an inconsistent building envelope allowing water intrusion and other issues.
DAN BUELOW: And also, you'll see in number 6 and 7 on here, we're looking for some indemnification wording of our own now, right?
JEFF COLEMAN: Right.
DAN BUELOW: In this. Yeah, talk to us about that.
JEFF COLEMAN: Well, if the design documents are not followed, the owner or developer would agree to hold us harmless for that. It's trying to protect us as designers against a situation where we do a good job of designing a set of plans and a good set of specifications, and then they aren't followed in the field. And of course, we only have periodic observation. We don't have full-time inspection of these buildings as they're going on.
DAN BUELOW: And we have LOL and changes in betterment and responsibility for product suitability. Any final comments on these last ones here on this list?
JEFF COLEMAN: Well, when I first drafted a limitation of liability clause in our contracts years ago in the '80s at Ellerbe, I had one project manager referred to it as the "laughter clause" because that's the response you got from the owner. But if you think about it a minute, the amount of fees you get to design one of these projects compared to the amount of profit the developer is going to make selling them, it's pretty small, and it's fair to ask that your liability be limited. It's a fair request and these are getting signed.
DAN BUELOW: OK, Jeff, so we've talked about why these projects are so inherently risky and some of the things we would benefit in getting a good terms and conditions in your agreement, including a condo rider. What are some of the other things that a design professional should be thinking about if they were going to take on condo work to mitigate this risk, to manage this risk as effectively as possible?
JEFF COLEMAN: I do have a client or two who've been designing condos for many, many years. And that doesn't mean they don't get involved with lawsuits, but we're able to navigate them through those pretty successfully. I think it's important that you don't wander into multifamily housing design, particularly condo design, for the first time without some help and without some guidance, particularly of, like I said, a building envelope consultant.
You need a really good technical team. You need good coordination with your consultants. You need good coordinated specifications. I always say that the three C's of specifications are clear, concise and coordinated. Your free advice today is to make sure that your specifications, specifically the flashing specification, contain some statement to the effect that you should install all flashing so that water is directed outside the building envelope, and so that a watertight building envelope is maintained.
Now, why would I say something so obvious? Because the easiest way to attack a set of plans or specifications for an architect is to say, well, your specs don't show how to flash this detail over here or over there. And you're right, you're never going to show how to flash every single detail of a building. But as long as you've got this broader language in your specifications, it's clear that your intent is that all the flashing be installed continuous. And so that it creates a watertight barrier.
And again, it's remarkable how many of these cases involve similar issues with reverse-lap flashing, flashing of end dams, through wall flashing end dams not sealed, inappropriate, flashing around windows and doors, inappropriate installation of Windows and doors, waterproofing at balconies and so on. Parapet seals. It's a good general comment to add. There are other issues as well. Building envelope consultant, I can't emphasize that enough.
Don't send your junior construction administration personnel out on the site. Have good, seasoned, experienced construction administration personnel who can observe issues in the field that are critical. So those are some of the issues. I like to see-- and this is-- I know this has been one of your issues over the years, Dan, is to make sure in the supplementary general conditions, the 0800 section, that you be a named insured on the contractor's general liability policy.
DAN BUELOW: Right.
JEFF COLEMAN: I've seen that help in personal injury cases. I've also seen it help in condo cases. Look at that as an issue to add to your insurance requirements in the 0800 supplementary conditions, the contract with the contractor.
DAN BUELOW: Yeah, great point. I would want my greatest hits, as I said earlier, and getting named on the contractor's GL policy is certainly one of them. Water infiltration, as you say, in most, the claims that we've seen have had some element of water infiltration issues.
JEFF COLEMAN: I can't emphasize enough the need to have a highly qualified contractor. The good news of working with the developer is you don't have to take the low bidder. And a smart developer will work with a good qualified contractor. During the boom of construction in '03, '04, '05, there were a lot of people running around with a pickup truck and two shovels and five hammers and were subcontractors. There's a big difference between highly qualified contractors building condos and people that are stretched too thin.
So it's really important to get a good construction team in place early.
DAN BUELOW: Excellent points, Jeff. This is great. So recap. Let me recap a few things here that we talked about. So, client selection, right? Again, how important it is to have the right client, the right developer client, in this case, that's based on experience, financial strength and commitment to quality and design, as well as the quality of that contractor relationship as well. Select projects that have a realistic budget and schedule. In light of the complexity of these projects, quality based selection of the contractor is noted.
Allocate risk fairly by contract. Select subconsultants who are experienced and adequately insured. If you're a prime and you've got a significant project and there's a big structural or MEP element, we've had-- some of our clients have had success in having the owner contract with those major subs directly. They'll be responsible for coordinating, but they're not going to take on that vicarious liability. They're going to minimize that. Don't take on the geotech exposure, as we've talked about in the past on a project like this.
Again, the developer will often want to, you know, hey, you just take care of everything. So be wary of that. So allocating those risks fairly is very important. As we mentioned, maintenance is a big issue. Address that. How are we going to manage the maintenance aspects to this? That comes in with this condo rider where there is a lot of points in that? And again, if anybody's interested that listens to this and wants to reach out to Jeff and I for a sample condo rider, we'd be happy to share that.
Jeff, any final words of wisdom?
JEFF COLEMAN: I'm going to end with a story. I've had two or three scenarios like this. Where the project gets started, it's too expensive. Go into value engineering mode, which is always dangerous. Part of the value engineering is, we'll split the mechanical out, it'll be done design build by the subcontractor for mechanical. Then we go through value engineering on the windows and we end up with cheaper windows that have a lower condensation resistance factor.
And then the mechanical engineer goes through value engineering and reduces the systems to package systems for each unit. All of a sudden, you've got an inconsistency with your control of humidification and your condensation resistance factor on the windows. So you got frost condensation on the windows. And, of course, the architect says, I gave you what you wanted. And the mechanical engineer says, I gave you what you wanted because we wanted to cheapen the building.
So the coordination between those issues is key. The other key is a knowing consent by the owner. It's one thing to say, yeah, I want to save money on the windows, but it's another thing to say, I've advised you that by saving money on those windows, you're going to have a lower condensation resistance factor, higher potential for condensation on the windows, and you're accepting that risk.
DAN BUELOW: Informed consent.
JEFF COLEMAN: Yeah, an informed consent. And when you've got that in the file, then we've got something to work with you on to help protect you when the problem comes down the road.
DAN BUELOW: That is a excellent point. Well, Jeff, thank you very much. Great to connect with you again. Enjoy the Great North Woods. Hope to see you out there soon.
JEFF COLEMAN: Thank you. Thanks for the opportunity. Appreciate it, Dan. Always good to work with you. Thank you.
DAN BUELOW: Well, that's Jeff Coleman from the law firm Coleman and Erickson. Great to have Jeff back. And so I'm Dan Buelow, Managing Director, again, with Willis A & E. For more information on these podcasts and our webinars and technical briefs and so forth, check out our education center and our website at www.wtwae.com. There's an education center in there, check it out.
I want to thank you for joining us for another episode of Talk to Me About A&E. I'm Dan Buelow, and I'll talk to you soon.
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