In the “old” days, the standard format for construction contracts had the contractor taking a design dictated by the owner or the owner’s design team, bidding on it, and building it to the owner’s plans and specifications through the contractor’s choice of means and methods. Design and construction were separate; the owner engaged an architect and/or engineer for the design and engaged a contractor for the construction. In this system the owner warrants the sufficiency of the design to produce the intended product. This often led to finger pointing when problems arose with the finished product, the contractor blaming the design and the designers blaming the construction. See J. Sweet & M.M. Schneier, Legal Aspects of Architecture, Engineering and the Construction Process § 14.09E (9th ed. 2013) (“Owners are often frustrated when they look to the designer who claims that the contractor did not follow the design, with the latter claiming that the problem was poor design”).
Eventually a class of design-build contractors arose, offering owners one-stop shopping for both design and construction. Even public works projects began to use design-build, with explicit legislative authority. See RSA 21-I:80 (allowing the Commissioner of Administrative Services to use design-build for buildings included in capital projects); RSA 228:4 (allowing transportation improvement projects with a cost of up to $25,000,000 to use design-build). With this type of delivery system, finger pointing between builder and designer is eliminated for problems with the finished product; there is no owner warranty of the sufficiency of the design. But the checks and balances inherent in having separate contracting entities, particularly the designer’s oversight role in an effort to protect the owner from corner-cutting contractors, was lost.
Construction management has become a popular “middle ground” alternative, with the CM acting as the owner’s agent to shepherd a project from design to completion. Sometimes the CM will contract on the owner’s behalf with multiple prime contractors (who would have been deemed subcontractors under the traditional GC format) and also oversee their performance (a task which would have been performed by an architect or engineer under the traditional GC format) to ensure that each of them performs properly. Sometimes the CM assumes the risk of nonperformance by those prime contractors and becomes directly liable to the owner for their errors in a manner virtually indistinguishable from a GC’s liability for subcontractor errors. But in either case, the CM typically gets involved in the design through preconstruction services, sharing its construction expertise with the owner’s design team. This synergy can be quite helpful.
Such sharing of design responsibility between the CM and the owner’s architect/engineer blurs the line between liability and nonliability for design defects. One resolution is to assign responsibility to the party with ultimate responsibility, which will typically be the owner’s design team. Another approach is to assign responsibility to the party suggesting the particular element of the design that is being challenged. A third approach is to require reliance by the CM on the design provided by the owner’s design team, and factor in the extent of the CM’s involvement. The Massachusetts Supreme Judicial Court recently adopted this approach in Coghlin Electrical Contractors Inc. v. Gilbane Building Company, 472 Mass. 549 (2015), which held that “[t]he CMAR’s level of participation in the design phase of the project and the extent to which the contract delegates design responsibility to the CMAR may affect a fact finder’s determination as to whether the CMAR's reliance was reasonable. The greater the CMAR’s design responsibilities in the contract, the greater the CMAR’s burden will be to show, when it seeks to establish the owner’s liability under the implied warranty, that its reliance on the defective design was both reasonable and in good faith.”
Which way New Hampshire’s courts will go is anyone’s guess; mine is that the Massachusetts approach will hold sway. But the allocation of responsibility will always be informed by the contract language, and the CM and Owner are free to carve up responsibility as they see fit.
Eventually a class of design-build contractors arose, offering owners one-stop shopping for both design and construction. Even public works projects began to use design-build, with explicit legislative authority. See RSA 21-I:80 (allowing the Commissioner of Administrative Services to use design-build for buildings included in capital projects); RSA 228:4 (allowing transportation improvement projects with a cost of up to $25,000,000 to use design-build). With this type of delivery system, finger pointing between builder and designer is eliminated for problems with the finished product; there is no owner warranty of the sufficiency of the design. But the checks and balances inherent in having separate contracting entities, particularly the designer’s oversight role in an effort to protect the owner from corner-cutting contractors, was lost.
Construction management has become a popular “middle ground” alternative, with the CM acting as the owner’s agent to shepherd a project from design to completion. Sometimes the CM will contract on the owner’s behalf with multiple prime contractors (who would have been deemed subcontractors under the traditional GC format) and also oversee their performance (a task which would have been performed by an architect or engineer under the traditional GC format) to ensure that each of them performs properly. Sometimes the CM assumes the risk of nonperformance by those prime contractors and becomes directly liable to the owner for their errors in a manner virtually indistinguishable from a GC’s liability for subcontractor errors. But in either case, the CM typically gets involved in the design through preconstruction services, sharing its construction expertise with the owner’s design team. This synergy can be quite helpful.
Such sharing of design responsibility between the CM and the owner’s architect/engineer blurs the line between liability and nonliability for design defects. One resolution is to assign responsibility to the party with ultimate responsibility, which will typically be the owner’s design team. Another approach is to assign responsibility to the party suggesting the particular element of the design that is being challenged. A third approach is to require reliance by the CM on the design provided by the owner’s design team, and factor in the extent of the CM’s involvement. The Massachusetts Supreme Judicial Court recently adopted this approach in Coghlin Electrical Contractors Inc. v. Gilbane Building Company, 472 Mass. 549 (2015), which held that “[t]he CMAR’s level of participation in the design phase of the project and the extent to which the contract delegates design responsibility to the CMAR may affect a fact finder’s determination as to whether the CMAR's reliance was reasonable. The greater the CMAR’s design responsibilities in the contract, the greater the CMAR’s burden will be to show, when it seeks to establish the owner’s liability under the implied warranty, that its reliance on the defective design was both reasonable and in good faith.”
Which way New Hampshire’s courts will go is anyone’s guess; mine is that the Massachusetts approach will hold sway. But the allocation of responsibility will always be informed by the contract language, and the CM and Owner are free to carve up responsibility as they see fit.
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