This is part two of a two-part blog post on the potential differences of GC/CM contracting. Read part one of this series here.
As reported last week, a Massachusetts trial court recently ruled that a Construction Manager at Risk (“GC/CM”), due to the material changes in roles and responsibilities undertaken in modern GC/CM contracting, is no longer afforded the protections that courts historically have extended to contractors (the implied warranty of the adequacy and sufficiency of the plans and specifications). The highly-anticipated appellate ruling in Coghlin Electrical Contractors, Inc. v. Gilbane Building Co. was issued in September 2015.[1] The court ruled that the GC/CM’s pre-construction involvement in design does not preclude the GC/CM from raising a Spearin claim (i.e. claim of breach of the implied warranty of the adequacy and sufficiency of the plans and specifications). Spearin’s applicability under the GC/CM delivery method had not been a direct subject of any court case until Coghlin.
The background of the Coghlin case was that during the project, an electrical subcontractor (“Coghlin”) of the general contractor (“Gilbane”) noted several design-related discrepancies—one being that the ceilings were designed so that two feet of space would be left at the bottom of the structural steel when five feet were required to accommodate the mechanical and electrical work. Coghlin sued Gilbane, and Gilbane sued the public works owner on the ground that the owner had breached the implied warranty that the plans and specifications were sufficient. The State (the “Owner”) successfully argued to the trial court that Gilbane had assumed the liability for the design because, as the GC/CM, Gilbane had been involved in the design process.
The Massachusetts Supreme Judicial Court started its analysis by evaluating the State’s statute authorizing the GC/CM delivery methods on public works projects. The court concluded that the legislature never “intended to abolish the owner’s implied warranty and to require that the CMAR [Construction Manager at Risk] bear the entirety of the risk arising from design defects.”[2] Though the GC/CM may provide “consultation” regarding the design, that consultation did not mean that the GC/CM had control over the design. The court stated:
The possibility that the CMAR [Construction Manager at Risk] may consult regarding the building design does not suggest that the CMAR shall be the guarantor against all design defects, even those that a reasonable CMAR would not have been able to detect.[3]
Control of the design remained with the Owner. Consequently, the court concluded that the public works owner impliedly warranted the sufficiency of the design under a GC/CM process.
The court, however, did not foreclose the possibility that the warranty may be more limited than under the traditional design-bid-build delivery model. To prove the owner’s breach of its implied warranty of the design, a GC/CM must, according to the court’s decision, show that it relied in good faith on the design in light of its own design responsibilities. The court explained that the GC/CM’s level of participation in the design phase and the extent to which the contract delegates design responsibility to the GC/CM may affect a fact-finder’s determination as to whether the GC/CM’s reliance was reasonable. In other words, depending on the GC/CM’s particular involvement and contractual obligations with respect to the design, the court will weigh the breadth of any implied warranty claim against the owner.
The court also pointed out that the contract provisions, which required the GC/CM to “carefully study” and “carefully compare” all design-related documents, to “take field measurements and verify field conditions,” and to review the design “on a continuous basis,” were not enough to expressly abrogate the implied warranty. The contract did not contain an express disclaimer of the implied warranty. The court rejected the State’s argument that it should be indemnified by the GC/CM for its subcontractor’s design defect claims, finding that this would inappropriately absolve the State from its implied warranty obligations.
Comment: This case points out one of the pitfalls of GC/CM contracting. The Spearin doctrine has always been based on the concept of “reasonable reliance.” Such reliance for a design-bid-build contractor might be different for a GC/CM. GC/CMs provide pre-construction services and typically review the owner’s design for value engineering and constructability as it is being developed. Consequently, as the Coghlin court pointed out, the extent of a GC/CM’s pre-construction involvement should be a factor in whether and to what extent the GC/CM can rely on the implied warranty of the sufficiency of the plans and specifications. A practice pointer might be to confront the issue of the Spearin warranty head on and provide for the risk assignment in the agreement, i.e. something along the following lines:
The parties agree that providing construction services does not constitute control of the design by the GC/CM. Therefore, the Owner’s implied warranty of the sufficiency and adequacy of the plans and specifications is unaffected by the GC/CM’s performance of preconstruction services.
GC/CMs are not designers, and they should not be held responsible for design deficiencies that cannot be reasonably detected prior to construction.
[1] 472 Mass. 549, 36 N.E. 3d 505 (2015).
[2] Coghlin, 472 Mass. at 559.
[3] Coghlin, 472 Mass. at 549.