Design professionals and the Y2K problem.

In the last two years, the term "Y2K," also known as the "millennium bug," has become a ubiquitous buzzword reported almost daily in the media. While an enlightened minority have been aware of this unique problem for a number of years, the media explosion on the subject has at least educated the public to its existence. Witness the results of a recent Gallup poll showing that 80 percent of Americans are familiar with the term Y2K. However, public awareness of the scope of the problem, possible ramifications and remediation options available varies to a great degree.

Similar to the general public, the reaction of the design professional community to this problem has varied greatly. This article represents an analysis of the possible effect of the Y2K problem upon the design professional community.

The genesis of the Y2K problem arose during the formative years of computer development when storage space for data was at a premium. In order to minimize memory demands, computer programmers utilized only two digits for entries relating to a specific year.

Most early computer developers believed that future innovations in computers would resolve the recognition problem that would ultimately occur at the beginning of the new millennium. Unfortunately, while there were dramatic advancements in computer memory, power and speed, the industry retained the two digit system of designating years. The resulting Y2K problem will manifest itself in the year 2000 when, among other things, computers fail to recognize that year 2000 is greater than years 1999 and before.

As the new millennium approaches, the computer industry (in fact, all industries using computers) has belatedly recognized the potential catastrophe that may occur from retention of the two digit system. Currently, businesses throughout the nation (and the world, to a lesser extent) are busily seeking to perform corrective action to avert potential disaster. In order to effectively avoid Y2K problems, these remediation efforts are directed to internal office systems, as well as external computer systems that interface with the particular entity's computers.

The common approach to tackling Y2K problems involves a multi-tier strategy. First, an entity must inventory and assess its existing computer systems to determine whether they are Y2K complaint. Second, the entity must develop a comprehensive plan for implementing remediation. Such a plan may require the retention of outside consultants expert in this area. Third, and simultaneous with the second step, careful investigation must be made as to the Y2K compliance of the computer systems of outside companies (i.e. vendors, material men, manufacturers, etc.) essential to the entity's business. Fourth, the remediation plan must be extensively tested to ensure that it functions properly, both internally and externally.

Assessment and Remediation

While at first glance, many architects, engineers and other design professionals may believe that they are somewhat immune to the Y2K problem, nothing could be further from the truth. As an initial step, all design professionals must determine whether their orifice computer systems are Y2K compliant. Most computer hardware recently manufactured, particularly after May 1997, is Y2K compliant. However, some software programs require remediation, or a "patch," to make them Y2K compliant. This will have particular importance for project scheduling and management software, spread sheet programs and cost estimating software. Inquiry should be made of the software manufacturer as to whether a necessary "patch" is available. While most CAD systems are not vulnerable to the Y2K bug, careful designers will first verify this fact.

In order to properly analyze all potential Y2K problems that can effect internal office systems, design professionals must complete an inventory of all office systems, not just the computer system. In particular, all systems that utilize computer chips must be examined (especially embedded, or BIOS computer chips). Such vulnerable systems include telephones, security and lighting, as well as HVAC systems. Once the inventory is complete, the remediation plan must be implemented as quickly as possible.

Simultaneous with the internal analysis of their computer systems, design professionals must assess the external threat to their business. First, to the extent that the design professional is dependent upon an important supplier of goods or services, prompt inquiry must be made to ascertain that supplier's efforts at Y2K compliance. Appropriate notices must be immediately sent demanding disclosure of these efforts. To the extent that an important supplier is not Y2K compliant, alternative (but Y2K compliant) sources must be immediately procured.

Inasmuch as design professionals are part of a service industry dependent upon clients' timely payment of invoices, inquiry should also be made of clients' Y2K compliance efforts. While such an inquiry must be appropriately (and delicately) addressed to the respective clients, this information is vitally important. If an important client's computer system is vulnerable to the Y2K bug, design professionals may encounter delayed payment for their services. Depending on the respective client's overall importance to the designer's business, the resulting cash-flow problems could cause havoc or even financial ruin.

Liability

The predominant Y2K issue for design professionals, as well as many other businesses, is the possible liability arising from non-compliance. Unfortunately, for design professionals such liability can arise from construction projects, past, present and future. Thus, the need for a retroactive and prospective analysis of projects provides a further hurdle to design professionals seeking security in this uncertain arena.

The primary area of liability will concern the specification of building systems that have a non-Y2K compliant computer chip embedded within the component. Such a computer chip will affect any system that has an internal clock. In regard to building systems, some of the most vulnerable areas include HVAC systems, security systems, elevators, electrical supply, sprinkler and fire control systems, telephone and other communication systems, and emergency lighting, to name a few. The failure of any of these systems could cause untold financial damage, as well as physical injury to the occupants of the affected building.

Inasmuch as the Y2K problem has become so pervasive and recognized in the last year or two, design professionals will be courting liability for present and future projects if they specify any system that is not Y2K compliant and eventually fails. Since a designer's conduct is measured by the prevailing standard of care in the design professional community - which community is now certainly aware of the Y2K problem - current design requires specification of Y2K compliant components. To the extent that a non-compliant system is specified, the designer will be responsible for the damages arising from the failure of such system. While the terms of the parties' contract can effect the specific type of damages recoverable, the spectrum of damages can include the remedial costs incurred in repairing the non-compliant system, and loss of business resulting from the failure of the component system, as well as any damages suffered by individuals personally injured by the component failure.

While liability for specification of noncompliant Y2K systems in present and future projects is fairly clear for design professionals, completed projects represent a gray area that will be a fertile ground for litigation. Since recognition of the Y2K problem has been an evolving phenomenon, the analysis for potential negligence arising from the specification of non-compliant Y2K components in completed projects will, again, hinge upon what was the then prevailing standard of care in the design professional community. For projects substantially completed before 1990, the specification of non-compliant Y2K component systems will, in all likelihood, not be deemed negligent because of the community's ignorance of the issue.

The analysis of liability for projects completed in the early to mid-1990's may be different, as recognition of the Y2K problem slowly increased. Additionally, designers that were involved with the design and specification of "smart" buildings or medical or computer facilities may face a higher standard of care. In such a situation, it may be determined that a design professional

specializing in such design should have known of the Y2K problem and specified compliant systems. In any event, such projects will constitute difficult factual scenarios that will require a trial and a determination by the trier of fact as to whether the design professional was negligent.

Another important liability issue for completed projects concerns the scope of the design professional's current obligation to mitigate the potential damages that could occur from specified and installed component systems that are at risk of not being Y2K compliant. If a design professional is certain that such a failure will ultimately occur, it should promptly provide the client will all relevant information concerning the component system in question, as well as any information or technical data relating to remediation of the problem. At the same time, the design professional should also provide notice to its insurance carrier of the potential claim for damages that may result from this completed design project. As set forth further below, such a claim would be covered by most errors and omissions insurance policies.

Unfortunately, most design professional will not be able to ascertain with any degree of certainty as to whether a particular component system will fail because of a potential Y2K problem. In such a circumstance, the design professional runs the risk of causing an owner/client to incur remedial costs for a problem that may never materialize. Of course, the owner/client will seek recovery of such costs from the design professional. While most professional malpractice policies will provide a defense and indemnity for such claims, the design professional's premature attempts at remediation will simply result in potential claims and lengthy litigation. Therefore, at this time prudent design professionals should limit their remediation efforts on completed projects to those situations where component systems' failure is a certainty.

Insurance

As insurance companies face the prospect of billions of dollars worth of claims and litigation costs, efforts are being make to limit possible coverage and litigation costs. For example comprehensive general liability (CGL) carriers may seek to limit liability by claiming that the loss is not covered. Inasmuch as CGL policies are designed to cover accidental or otherwise unforeseeable losses, the carriers may claim that losses arising from Y2K problems were clearly foreseeable and avoidable. Ultimately, such coverage disputes will be decided by the courts through extensive litigation.

The good news for design professionals is that, as of now, most malpractice insurance policies cover claims of negligence relating to Y2K issues. While some insurance carriers in other fields have recently issued policies with specific Y2K exclusions, it does not appear that this trend will extend to design professionals. Further, to the extent that design professionals have malpractice insurance policies for multiple years, such coverage will extend a few years into the new millennium, past the time when all Y2K problems should have already been discovered. Thus, to the extent that a design professional's malpractice policy is up for renewal, it would be a prudent business practice to obtain a renewal for three years.

In this way the design professional would obtain insurance coverage for this important issue through year 2002.

An additional insurance factor which should comfort design professionals is that most errors and omissions policies provide coverage on a "claims-made" basis, i.e., all negligence claims made during the term of the policy are covered. As a result, a designer's current malpractice policy will be applicable and provide coverage to projects completed years ago. To the extent Y2K liability arises from past projects, coverage will be provided through current insurance policies which do not have Y2K exclusions. Thus, even if a design professional's diligent efforts at Y2K compliance are unavailing, insurance coverage will be provided. An ancillary issue for design professionals is that policy limits be sufficient to cover the possible exposure. Since the Y2K issue is fraught with many uncertainties, design professionals should promptly contact their insurance agents to obtain advice on the appropriate policy limits for their malpractice policies.

Finally, some insurance carriers have stepped into the void and have offered a new product which specifically covers claims and damages arising from the Y2K problem. The downside to this coverage is that the policies are prohibitively expensive, essentially making the policyholder self-insured. Since the typical design professional's malpractice policy covers the Y2K problem, this additional insurance is not necessary.

Conclusion

The Y2K problem will manifest itself within one year whether or not design professionals take necessary remedial action to prevent liability. The prudent designers have already instituted the corrective action listed above and have attempted to mitigate their exposure. For the recalcitrant designer, it is not too late. However, immediate steps must be taken or else valuable clients will be lost, and crippling liability may result.