Contractors Risking More Than What They Bargained For?

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A couple of years ago, I co-authored a featured article for The Construction Lawyer(the Journal of the ABA Forum on Construction Law, Vol. 32, Issue 4, Fall 2012) entitled Is the Construction Manager Holding Any of the Cards? (A Critical Look at Construction Management at-Risk and Where it is Headed) and co-presented the topic at the 2012 ABA Forum on Construction Law’s Annual Meeting in Las Vegas at the Bellagio Hotel with Tishman Construction Senior Vice-President and General Counsel, Judy Herman, and Assistant General Counsel at Kiewit, John Carpenter. In both the paper and presentation, we discussed the role of construction manager at-risk (CMAR) in the modern construction industry, and the differences between the role of a CMAR and that of a classic general contractor. We also discusses the evolving legal risks faced by CMARs, including the potential risk of intentionally (or unintentionally) assuming the design of a project.

The Massachusetts Supreme Judicial Court is now reviewing a potentially seminal CMAR case, Coghlin Electrical Contractors, Inc. v. Gilbane Building Co. and Travelers & Surety Company of America, Docket No. SJC-11778.  The case will eventually mark one of the few appellate decisions (especially from a state supreme court) concerning a CMAR’s rights, duties and responsibilities on a private or public work of improvement.

Gilbane had entered into a public works contract for both preconstruction and construction services for the construction of a psychiatric facility. The public agency also entered into a separate agreement with the “Designer” of the project, Ellenzweig Associates, Inc. (“Ellenzweig”).  Gilbane’s involvement in the design of the project was limited to review of design documents prepared by Ellenzweig.  Interestingly, the contract specifically stated that in reviewing the design, Gilbane did not assume Ellenzweig’s responsibility for design.

Gilbane subcontracted with Coghlin Electrical Contractors, Inc. (“Coghlin”) to perform the electrical work on the project pursuant to the plans and specifications prepared by Ellenzweig. Coghlin submitted design related change order requests (“CORs”) to Gilbane who submitted them to the public agency. Coghlin sued Gilbane (who, in turn, asserted a third party (cross-complaint) against the public agency), seeking recovery for the CORs relying upon the public agency’s implied warranty of plans and specifications.

The trial court granted the public agency’s motion to dismiss Gilbane’s cross-complaint, specifically noting that the CMAR is project delivery method distinct from traditional design-bid-build and concluding that:

  • the public agency’s implied warranty of plans and specifications is “simply inapplicable” to the CMAR alternative project delivery method;
  • Gilbane assumed “additional duties and responsibilities for the project, including . . . an ongoing duty to ‘review the design documents for clarity, consistency, constructability, maintainability/ operability and coordination among the trades, coordination between drawings and specifications. . .’ ” due to its role as CMAR;
  • Gilbane assumed “additional financial exposure…in the event that something [went] wrong, including . . . a broad obligation to indemnify and defend the Owner from and against ‘all claims, damages, losses and expenses . . . arising out of or resulting from the performance of the Work[.]’ “;
  • Though the indemnity clause in contract documents did not extend to the liability of the Designer arising out of the preparation of the plans and specifications, that limitation did not limit Gilbane’s obligation to indemnify the public agency; and
  • even a change in the design of the walls and ceilings could not be a change in “scope” since the project, as initially planned, included wall and ceilings, thereby rendering those items within the original “scope” of the project.

Gilbane directly appealed the trial court’s order to the Massachusetts Supreme Judicial Court. Amicus briefs were filed by several interested parties, including the AIA, AGC of America and the American Council of Engineering.  If affirmed, contractors will rethink and/or certainly re-price CMAR opportunities (at least in Massachusetts) since they are likely to assume at least a significant portion of design liability for such a CMAR project even when the owner procures the design from an independent design professional.  Though oral argument was held exactly three months ago, the construction industry in Massachusetts (and around the country) anxiously awaits this important decision from the high court for the Commonwealth.

To review the court docket and case information, go to http://www.ma-appellatecourts.org/display_docket.php?dno=SJC-11778

For more information about this topic please contact:

Christopher E. Ng, Esq.

Gibbs Giden Locher Turner Senet & Wittbrodt LLP

1880 Century Park East 12th Floor

Los Angeles, CA 90067

email: cng@gibbsgiden.com

The content contained herein is published online by Gibbs Giden Locher Turner Senet & Wittbrodt LLP (“Gibbs Giden”) for informational purposes only, may not reflect the most current legal developments, verdicts or settlements, and does not constitute legal advice. Do not act on the information contained herein without seeking the advice of licensed counsel.

Copyright 2015 Gibbs Giden Locher Turner Senet & Wittbrodt LLP ©

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