In September 2015, a Massachusetts appeals court remanded a
case involving a construction-manager-at-risk (CM@R) project and in the process
established a new standard for determining whether a CM@R reasonably and in
good faith relied on design plans and specifications in cases where defects
The case, Coghlin Electrical Contractors, Inc. v. Gilbane
Building Co. and Travelers & Surety Co. of America, has been sent back to
the Massachusetts Superior Court for reconsideration. In the case, Gilbane
Building Co. was CM on a state psychiatric facility project. It filed a lawsuit
against the project owner asserting deficient design plans after being sued by
a subcontractor with regard to design changes and resulting damages.
The lower court, ruling for the owner, dismissed Gilbane's
claims against the owner at an unusually early point in the litigation, said
Warren E. Friedman of the law firm of Peckar & Abramson. The ruling would
have provided an avenue for owners and courts to use reviews of contract
language as a basis for disposing of claims without considering any implied
warranty or facts outside the pleadings, Friedman said.
“However, now that the case has been remanded, the lower
court will have to look at Gilbane's claim against the project owner through a
different lens, because the appellate court has defined a new standard for the
general implied warranty that comes with plans and specifications prepared by a
design professional and provided by an owner to a contractor,” he explained.
The court has established a new limitation on how the
Spearin doctrine standard can be applied, requiring “an analysis of the CM@R's
level of participation in the design phase of the project and the extent to
which the contract delegates design responsibility to the CM@R in order to
assess whether the CM@R's reliance was reasonable,” he said.
The standard established in this case allows a construction
manager, and thereby a surety, to bring design-deficiency claims against a
project owner and mitigate its risk as a result, Friedman said. Had the
decision not been reversed, “sureties might lose rights to pursue a principal's
claims for defective plans and specifications and could be confronted with
performance bond claims arising out of a principal's failure to fulfill its
design-related or attendant indemnification obligations under the CM
agreement,” he said.
Variations in contract language means there is no “typical”
design responsibility for a contractor under a CM@R arrangement, Friedman said,
but the traditional model brings the CM to the table at an early stage to offer
design input intended to keep the project's budget and concept on track—resulting in a limited design scope of work for the CM. He added, however, that
he regularly sees CM@R contracts that feature more expansive language about
factors such as design-related responsibilities and constructability reviews,
which “may open the door for greater responsibility for design.”
Contract language can address potential additional risks
that could emerge from a ruling unfavorable to CMs. Steps toward this goal
include buying professional liability insurance as a risk-transfer mechanism
and defining limitations on a CM@R's design responsibilities, Friedman said.
Taking such precautions is a wise move, he said, because courts
in other states could rely on the Massachusetts appeals court's analysis that
“[t]he 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.”
Contracts and project circumstances must be analyzed and
understood on an individual basis under the new, factually dependent
Massachusetts standard, Friedman added.
For more information, read the article by Michael C. Zisa
and Warren E. Friedman featured exclusively at the NASBP magazine's website, www.suretybondquarterly.org.