Massachusetts top Court issued a much awaited decision Coughlin Electric v Gilbane Building Co ruling on construction contracting methods and the scope of duty between Owners/ Designers and Construction Managers under the relatively new Construction Manager at Risk arrangement. New contracting methods involve the builder sooner, during the design process. The Court had to allocate risk of design flaws under the agreement and determined the Owner makes a warranty that the plans it turns over to the Construction Manager are to some extent adequate.
Facts – The Owner, State of Massachusetts hired Gilbane as construction manager at risk (CM) while plans for a new hospital were still being drawn. The contract had Gilbane consulting regarding the design and agreeing to protect the owner from claims.
During the work an electrical subcontractor claimed a change order saying it was owed money, partially due to design changes. The CM got sued on this claim, the owner refused to pay, so the CM made a claim in court against the Owner.
The Owner moved to dismiss the claim filed by the CM on the theory that the contract required the CM to pay for any kind of claims arising out of design. The CM argued that it did not create the design and could not be tagged with every kind of responsibility for it. The trial court sided with the Owner and dismissed the case.
ISSUE – Has a public Owner any responsibility to a CM under the CM at risk contract for design issues?
HOLDING – The Owner giving plans to a Construction Manager at Risk has some responsibility to warrant the adequacy of those plans. Dismissal reversed.
REASONS – Contractors under the CM at risk contract are involved with the design team’s efforts but not to such an extent that owners can shut off all liability for the drawings no matter what. The question for the Court in this case was – does an Owner have any duty at all? The court said there is a duty and gave some guidance for its determination.
The Court discussed design-bid-build, design build and CM at Risk contract forms and the way the agreements allocate design risk. The scope of the owner’s warranty of its plans varies under the different contract forms.
CM at Risk is widely used by private owners for big jobs due to the benefits flowing from integration of the efforts of participants. The Legislature allowed Massachusetts to put up public buildings under this contracting style. Designers have insurance and the Court found the lawmakers could not have intended to shift all design risk onto builders.
The CM agreed to study and review the plans and consult with the designer but this did not amount to an express disclaimer by the Owner of some warranty liability exposure.
The implied warranty by the Owner of the adequacy of the design overpowered even the indemnity provision. The CM agreed to protect the Owner from claims about “the Work”, which the Court said did not include the designer’s responsibility for design. The indemnity clause did not bar the CM’s third party complaint.