21 legal takeaways for the automation industry
Legalities: Automation projects are like construction projects, know your project delivery method, and standard contracts don’t work are the first three of 21 points of advice.
Apologies to the International Society of Automation, but you may not need to buy the concise little guidebook that I authored and the ISA just published—the book with the anything-but-concise title, “The Automation Legal Reference, a Guide to Legal Risk in the Automation, Robotics and Process Industries.”
The reason buying may be optional is that for the past two months I have been giving away for free the essential "takeaways" from each of that book’s 21 chapters. I have parceled these out via social media and speeches [including at the Control System Integrator (CSIA) 2013 Executive Conference]. Below all 21 are listed. Control Engineering magazine is the place where many of these takeaways originated and there are several links below that can take you to a number of these initial articles.
Here are the 21 actionable insights that I believe are essential to minimizing risk in industrial engineering projects:
1. Automation projects are a type of construction project. This is my central insight. An automation project is not the sale of equipment. It’s not a software deliverable. It’s the construction of a system. Well-worn construction law principles apply, but a gap needs to be bridged between lawyers and engineers. Each needs to speak the other’s dialect.
2. Know your project delivery method. You can’t find a tree if you can’t find the forest. Knowing the "delivery method" defines—most importantly—which company owns which part of the design. Most automation projects fall under the method called "design-build," but that comes with consequences. Those consequences need to be considered (and the important exceptions identified).
3. Standard contract forms don’t work. Yes, it’s a construction project, but the standard AIA and other trade association forms fall short. Among other things, the warranties are not appropriate for software, the concepts of testing and commissioning are not even mentioned, and don’t even get me started on intellectual property.
4. Both systems and contracts need integration. Integration in the contract sense means the scope of work is nailed down and boxed up. Without it, the goalposts are on rails.
5. Limitation of liability is the king of all key contract terms. If you give attention to no other contract term, pay attention to this one. The rest of the Dirty Dozen provisions of contracts are also important, but they pale in comparison to the king.
6. The beauty of a contract clause is in the eye of the beholder. Of course, whether something rises to the level of the Dirty Dozen or the Other Ugly Eight potentially troublesome contract clauses is a matter of perspective. For instance, "free from defects," while empowering the end user, should not be endured by those that deliver software.
7. Risk should be placed on the party in the best position to control it. It’s the most compelling argument that can be made while negotiating an automation agreement—and, what’s more, it’s in the best interest of all. [See additional tips on negotiating automation contracts.]
8. Lack of clarity in specs usually serves no one—except the lawyers. (See the Seven Rules for Writing Specs.)
9. Not valuing IP is leaving money on the table. Because most automation projects involve creatively solving a physical problem, the solutions can have great value. It’s not an all-or-nothing proposition; ownership can be shared. Give attention to the possibilities.
10. Identify, then classify relevant automation standards. There are standards, and then there are standards. Some are binding, some not. Knowing which is which is—how can I put this—helpful. (See the four types of automation standards are defined here.)
11. The number one risk in not being licensed is not getting paid. Each country, state, and province has unique means of regulating—or not—those who work in the automation profession. Even if you are in one of those places that do, the odds of your company being challenged by a state agency may be small. Customers, on the other hand, may use it as an excuse not to pay.
12. Speak "green" to win more business (and to avoid liability). The upside of knowing about LEED and Green Globes is getting in the door when a competitor cannot. The downside can be suffering performance specs based on attaining LEED criteria.
13. Good e-mail hygiene wins the case. This means company-wide discipline. Sticking to the "story." Quoting the contract exactly. Using the phrase "among other things" to keep the door open to additional points. (Read more on practicing safe emailing.)
14. Asserting a claim is an investment (that should be analyzed like any other investment). You would not buy a stock where the transaction cost is greater than the potential gain. The same goes for litigation. Litigating rarely makes sense, and even when it does, there are important matters to monitor.
15. Avoiding negligence liability means giving attention to process, contracts, and insurance. Process is prevention. Contracts are avoidance. Insurance is mitigation.
16. No business mess is insured, and every business mess is insured. What your insurance company tells you in the face of a significant loss frequently is not the last word.
17. Liens and bonds are backup pots of money. If the company that owes money does not have it, these represent Plan B.
18. The most important parts of a service agreement are the exclusions. Being "on call" is a part of every maintenance and service agreement. But when does a service call turn into a new project? Your exclusions provide the answer. (Get more help with maintenance and service contracts.)
19. Beware the solvency of the middleman. Did I mention that liens and bonds are backup pots of money?
20. Conduct an audit of your legal health. Smart documentation for projects is only the external piece of the company versus legal risk continuum. The internal piece also needs attention. (See this risk management laundry list.)
21. Your lawyer and you should work from the same playbook. It is the difference between your lawyer being a part of the problem or the solution.
– Mark Voigtmann leads the automation practice at Faegre Baker Daniels, a law firm with offices in the U.S., the U.K., and China. “The Automation Legal Reference” can be purchased at the ISA bookstore at www.isa.org/books; edited by Mark T. Hoske, content manager CFE Media, Control Engineering, Plant Engineering, and Consulting-Specifying Engineer, email@example.com.
See two additional related articles below, about the automation legal reference book, and about tips for engineering and maintenance service contracts.