Enforceability of clause stating that engineer has no duty to contractor. Domson, Inc. v. Kadrmas Lee and Jackson, Inc. Supreme Court of South Dakota (2018), by Hugh Anderson

Summary: This case is focused on an EJCDC construction contract clause, currently set forth as Paragraph 10.07.A of EJCDC C-700 (2018). This clause was included in the road construction contract between the project owner, the Oglala Sioux Tribe, and Domson, Inc. Dakota Engineering and Kadrmas, Lee and Jackson (KLJ) were the design engineers, and KLJ had contract administration duties during construction. Domson was late in completing the project and KLJ, on behalf of the Tribe, assessed over $100,000 in liquidated damages against Domson. The contractor responded by suing KLJ based on negligent administration of the contract.

In the lawsuit, KLJ asserted that it was insulated from liability for negligent contract administration by the following clause (the contract is not identified in the decision as EJCDC, but the clause is verbatim from various editions of C-700):

9.09 Neither Engineer’s authority or responsibility under this Article 9 or under any other provision of the Contract Documents nor any decision made by Engineer in good faith either to exercise or not exercise such authority or responsibility or the undertaking, exercise, or performance of any authority or responsibility by Engineer shall create, impose, or give rise to any duty in contract, tort, or otherwise owed by Engineer to Contractor….

The trial court agreed with KLJ and granted summary judgment in KLJ’s favor, based in part on the 9.09 clause. An appeal to the state supreme court followed.

Decision: As a starting point in its decision the Supreme Court of South Dakota confirmed that under South Dakota law an engineer can owe a duty to a contractor, despite the lack of contractual privity between them. The key question was whether clause 9.09 was enforceable to insulate the engineer from a claim based on the potential duty.

A South Dakota statute states that contracts that attempt to exempt anyone from responsibility for negligent “violation of law” are against public policy. The court held that exempting a party from negligent contract administration claims is not the same as exempting a party from violations of law, and therefore the statute did not apply.

The court next discussed case law, from federal and other jurisdictions, in which the same or similar clauses to 9.09 were examined. Most of these cases held that such clauses are enforceable in protecting engineers against claims of ordinary professional negligence (as opposed to willful or intentional acts). The court distinguished those few cases that had been decided in favor of contractor—for example, a case in which the clause in question (not an EJCDC clause) was deemed ambiguous.

The court cautioned against finding a contract clause void or unenforceable on public policy grounds except in “cases free from doubt.” Here, the court was unable to identify any specific public policy, precedent, or statute that would suffice to justify voiding the 9.09 clause. The court stated that the clause “unambiguously” informed the contractor that the engineer was immune from attacks arising from good faith exercise of engineer’s duties.

Domson had submitted an affidavit to the trial court in which a professional engineer offered the expert opinion that KLJ’s engineering actions and decisions during construction were below an acceptable standard. However, Domson did not present any evidence that the engineer had acted in bad faith, or had been willful or intentional in the actions that allegedly harmed the contractor. As a result, the South Dakota Supreme Court held that the lower court had correctly issued summary judgment in KLJ’s favor, based on the 9.09 clause.

Comment: Clause 9.09 in its various forms (such as C-700 2018’s 10.07.A) is intended to allow the engineer to administer the construction contract without fear of claims from the contractor and its subcontractors and suppliers. This is especially important with respect to engineer’s decisions with respect to the interpretation of the design and contractor’s compliance with the requirements of the drawings and specifications. In this commentator’s view, the clause is not intended to exonerate engineer from the consequences of design errors. The South Dakota case examined that issue and likewise concluded that claims by Domson based on allegations of negligent design would not be shielded by 9.09. Nonetheless the court upheld summary judgment in the engineer’s favor based on the lack of evidence of any violation of the professional standard of care.