Construction Manager at Risk’s right to rely on drawings and specifications furnished by Owner, by Hugh Anderson

Issue: Construction Manager at Risk’s right to rely on drawings and specifications furnished by Owner, under implied warranty of design. Coghlin Electrical Contractors, Inc. v. Gilbane Building Company. Supreme Judicial Court of Massachusetts (2015).

Summary: Gilbane was the construction manager at risk (CMAR) on a public hospital project. Coghlin Electrical was a subcontractor to Gilbane. According to Coghlin, errors and omissions in the design furnished by the public owner (and prepared by an A/E firm) were a primary cause for labor increases of 49% for the electrical work. Gilbane ultimately pursued recovery from the owner for the losses incurred by the subcontractor.

In traditional design-­‐bid-­‐build construction, the owner presents the contractor with a completed set of drawings and specifications, and impliedly warrants that design against defects. As stated nearly a century ago in United States v. Spearin, “if the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for defects” in the design. In the CMAR project delivery system, however, the CMAR typically has responsibilities with respect to the design, while the A/E is still preparing it. During the design phase, a CMAR typically provides advice, consultation, and commentary regarding the design, and may influence the final design. In this case, the public owner argued that the CMAR’s involvement during the design eliminated the CMAR’s ability to benefit from an implied warranty of the design. The trial court agreed with the owner’s position, finding that the CMAR method entails “material changes in the roles and responsibilities” of the parties, and that as a result the owner did not impliedly warrant the design to the CMAR.

Decision: The Massachusetts Supreme Judicial Court reversed the lower court decision, holding that the owner continues to impliedly warrant the design under CMAR. The court reasoned that despite CMAR consultation during the design, the owner (and the owner’s A/E) ultimately control the design. Mere consultation should not make the CMAR a “guarantor” against all design defects.

Despite this general support for the implied warranty of design in the CMAR setting, the court did hold that the scope of the implied warranty is somewhat reduced in CMAR. In limiting the scope of the implied warranty, the court noted that even under the law applicable to implied warranty of design in a traditional setting, the warranty is not absolute: the contractor’s reliance on the design must be given in good faith, essentially meaning that a contractor may not ignore obvious omissions or errors in the design. In a CMAR situation, the court held that there must be good faith reliance on the design and the CM must act “reasonably” in light of its own “design responsibilities.” According to the decision, the greater the CMAR’s design responsibilities in the contract, the greater the burden on the CMAR to show that its reliance was in good faith and reasonable.

Comment: A CM is not a design professional and should not have genuine “design responsibilities.” Most of the design-­‐related duties under the Gilbane CMAR contract are similar to those required of the contractor under standard general conditions such as EJCDC® C-­‐700—for example, careful review of the design, comparison of the design to field conditions, and reporting of obvious errors or inconsistencies. The difference is that the CM begins its design-­‐related tasks before the design is completed, at a point when the CM input can make a greater impact (and in some cases before a final construction price or GMP is established). In addition, the CM looks for the potential impact of the design on construction costs, and constructability. But it is important to recognize that a CM is not qualified to apply engineering expertise to a review of the design. A CM’s review of the design is not a peer review. A CM contract should be explicit in emphasizing the two very different roles played by the A/E and the CM, and in fact the Gilbane contract had some good clauses in that regard (for example, a statement that the CMAR shall make recommendations about the design relating to “construction feasibility, schedules, cost or quality…without, however, assuming the [A/E’s] responsibility for design.”)

The “limits” that the Massachusetts decision places on the scope of the implied warranty in CMAR appear to be reasonable and unremarkable. Essentially, if a CM’s consultations regarding design result in exposure of a possible defect or similar issue, the issue should be confronted and addressed at that point, for the good of the project. If the CM raises an issue and the A/E and Owner choose to ignore it, the implied warranty should apply.