Owner’s claims against design-builder’s architect regarding design-builder’s applications for payment. Auburn Hills Tax Increment Finance Authority v. Haussman Construction Company. Court of Appeals of Michigan (2018), by Hugh Anderson

Summary: Haussman Construction retained Mayotte Group, Inc., an architecture firm, to design a four-story parking structure. Somewhat afterward, Haussman entered into an “Owner-Builder” agreement with the project owner, the Auburn Hills Tax Increment Finance Authority, agreeing to “serve as general contractor for the design and construction” of the parking structure. The Owner-Builder agreement identified Mayotte as the project architect.

Haussman completed the structure, months behind schedule (perhaps), and obtained a final payment. Shortly thereafter Haussman’s owner and principal fled to Florida, leaving some of the project’s subcontractors unpaid. The owner sued Mayotte based on professional negligence, contending that Mayotte was negligent in approving payment applications from Haussman to Auburn Hills that failed to account for liquidated damages that Auburn Hills was entitled to, and in failing to protect Auburn Hills from exposure to claims by unpaid subcontractors.

Mayotte moved for summary disposition (summary judgment), which the trial court granted. Auburn Hills appealed, arguing that Mayotte owed Auburn Hills a legal duty “to properly and accurately” certify Haussman’s payment applications.

Decision: The Court of Appeals affirmed the trial court’s decision in favor of Mayotte, the architecture firm. In reviewing Mayotte’s contract with the design-builder, the court did not find a duty to approve payment applications. The contract contained a vague duty to “execute certificates,” but that duty was restricted by a clause saying Mayotte had no obligation to execute certificates beyond its knowledge, or concerning matters outside the scope of its contractual duties. The court also failed to find any duties regarding delay in completion or liquidated damages; in fact, neither the Owner-Builder nor Haussman-Mayotte contracts contained a completion date for Haussman’s work.

The decision also indicated that because there was no contractual relationship between Auburn Hills and Mayotte, even a duty stated in a contract would need to be supplemented by a duty arising from some additional source: a special relationship, a voluntary undertaking of a task, an obligation to the public, or some similar circumstance. No such duty from Mayotte to Auburn Hills was identified.
Comment: Reportedly the owner, Auburn Hills, had considered retaining an architect to design the structure, but concluded that it would be better for the contractor to retain the architect, in what was cryptically referred to as a “CM” arrangement, but in fact was design-build.

Design-build may have been a good project delivery method for the parking structure, but insufficient effort went into assigning roles and responsibilities. Not only was Mayotte not tasked with certifying payment applications, or making determinations about liquidated damages or contractor’s payment of subcontractors, but Mayotte was not in position to carry out such tasks. As a sub to Haussman, the architect could not reasonably pass judgment on Haussman’s payment applications to the owner. These functions should have been conducted by the owner, Auburn Hills, itself, or by a construction manager or advisor working directly for Auburn Hills.

By voluntarily undertaking to approve the payment applications (despite the impropriety of doing so), Mayotte exposed itself to the argument that it should have provided related additional services such as investigating whether Haussman was paying its subs, or determining whether liquidated damages should be levied against the amount owed for design/construction. The courts here rightly viewed Mayotte’s undertaking narrowly, but in other settings the decision might have been less protective of Mayotte.