Design firms are increasingly seeking opportunities internationally, expanding into foreign countries through a local client or a U.S. client with business abroad. Tapping new markets makes sense but before delving into a new arena, design firms should educate themselves to properly understand the laws, standards, and local industry practices that govern the projects on which they will be working. This education process allows design professionals to understand the new sources of risk that will allow them to develop a risk management plan tailored to the international project arena.
Before starting on international projects, firms must first develop a comprehensive international business plan. This helps the firm outline the firm’s goal and objectives for its overseas operations, and develop a game plan for achieving those goals. Such an exercise will help the firm identify what the existing capabilities of the firm are and what areas need to be expanded so that the required resources for such an exercise can be carried out in a planned and thoughtful manner. It is also important to examine the impact on the firm’s other projects and domestic marketing effort. The business plan will identify and outline the tax, legal and insurance implications.
It is important to obtain reliable and up-to-date information when planning your international practice. When pursuing work oversees, some of the key success factors are:
- Directed marketing efforts,
- Selecting competent business partners,
- Choosing legal representation, and
- Writing enforceable agreements with clear payment terms.
The following sources are especially useful to design professionals:
- The U.S. Export Assistance Center (EAC) can provide information and guidance on pursuing work overseas. This resource is a U.S. government funded center that is established to provide U.S. business seeking to work abroad with assistance. Go to www.export.gov
- The International Union of Architects (IUA, www.uia-architectes.org ) and the International Federation of Consulting Engineers (FIDIC, www.fidic.org ) are associations that work to make sure that there is transparency to standards, licensing, and procurement procedures in member countries.
When expanding overseas, design firms need to examine the local licensing laws and regulations that govern design services. Firms generally have two options available to them: they can either serve as a consultant to an indigenous design firm who takes full responsibility for the design or obtain the necessary permits and authorization to perform design services in the host country in their own right. It is critical that design firms identify these issues before practicing internationally; it affects the scope of their authority, their roles and responsibilities, and the scope of their potential liabilities.
Payment Terms and Procedures – and Taxes
Clear, precise payment terms tied to the scope of services is essential. Clarity in both the scope of services and the payment terms helps to avoid potential disputes. For example, payment terms have to be clear enough that the currency used for payment should be clearly identified. Payment in currencies other than the U.S. dollar may expose the design firm to fluctuations in currency, which, depending on the strength of the dollar at the time of payment, may be an advantage or disadvantage for the firm that prices its costs in U.S. dollars. Particular attention should also be paid to payment procedures, especially when payments are made in the country where the project is located. The cost of setting up foreign bank accounts and arranging for transfer of the fees to the United States should be factored in during the planning phase.
The Schinnerer and CNA professional liability policy provides worldwide coverage – which not all professional liability policies do. Some countries require that certain insurance coverage (such as decennial liability insurance) be procured exclusively through local carriers. It is therefore important that firms consult with their broker and advisors.
International travel includes risk, such as language barriers, local customs and unfamiliar laws. For most of us, perhaps the most frightening thing about traveling to a foreign country is the uncertainty of how we will replace our passport if it is lost or stolen. In addition, some of us worry about how we will pay for medical care if we are involved in an accident. When architectural firms send employees abroad, either for short or long-term assignments, they have a risk that may not be covered by their domestic insurance carriers.
While the Schinnerer/CNA Professional Liability program provides worldwide coverage, many Property & Casualty programs do not. General Liability policies may provide coverage outside the U.S., but stipulate that the suit has to be brought in the U.S. A Workers’ Compensation policy may also provide coverage outside the U.S., but probably does not cover endemic disease or repatriation. An endemic disease is a disease that is specific to a region, such as Hepatitis B in Latin America. Repatriation coverage provides assistance if an employee has to be moved to another location for medical treatment.
While some of the risks associated with travel are obvious, others may not be as apparent. We all recognize the need for auto insurance if we are renting an auto, but what would you do if a set of construction documents was stolen or lost in route to a client meeting? What if a local citizen is hired to perform services and is injured on the job? During contract administration, an architect tips over materials that injure workers of the construction firm, what policy provides coverage?
With foresight and planning, a firm can transfer at least part of the risk to an insurance company. International insurance can provide the difference in conditions coverage needed to protect your firm when you provide services outside the U.S. Most International package policies include General Liability, Employers Responsibility with Repatriation (the foreign version of Workers’ Compensation), Contingent Auto Liability, Property, Accidental Death & Dismemberment, Medical and Kidnap & Extortion coverage.
In summary, design firms should at a minimum check that they have addressed the following major areas before working in the international arena:
- Qualifications to practice
- Business licenses and visas
- Applicable design codes and regulations
- Payment terms and procedures
- Legal system
- Insurance policies
Victor O. Schinnerer & Company, Inc. and CNA work with the AIA Trust to offer AIA members quality risk management coverage through the AIA Trust Professional Liability Insurance Program and Business Owners Program to address the challenges that architects face today and in the future. Detailed information about both these programs may be found on the AIA Trust website, www.TheAIATrust.com.