Construction Manager at Risk May Have Design Risk According to Mass. SJC
Yesterday, September 2, 2015, the Supreme Judicial Court released its Coghlin v. Gilbane opinion. Note, the case has been remanded to the Superior Court for proceedings consistent with the SJC’s opinion.
The full SJC opinion can be accessed here.
The issue on appeal was whether the owner’s implied warranty obligation, which applies in traditional design-bid-build, also applies in the CMR context. Donovan Hatem represented, on a pro bono basis, both ACEC/Mass and the Massachusetts Chapter of the AIA, in support of the Commonwealth’s position that a CMAR is not automatically entitled to recover on a breach of implied warranty theory.
The following is an analysis of the most significant points from the SJC’s opinion:
- The SJC held that the owner’s implied warranty of design adequacy (“implied warranty”) obligation applied in the CMR context; however, the scope of that obligation “is more limited than in a design-bid-build project.” Specifically, the Court holds:
Although the owner’s implied warranty applies in a public construction management at risk contract, the differences between the responsibilities of a general contractor in a design-bid-build project and those of a CMAR affect the scope of the implied warranty. The general contractor in a design-bid-build project may benefit from the implied warranty where it relied on the plans and specifications in good faith, but the CMAR may benefit from the implied warranty only where it has acted in good faith reliance on the design and acted reasonably in light of the CMAR’s own design responsibilities. The 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. See generally Sweet & Schneier, supra at § 14.04 (“all of the modern variations [on the design-bid-build method] have as a common denominator: a blurring of the lines of responsibility”). Therefore, the CMAR may recover damages caused by the breach of the implied warranty, but only if it satisfies its burden of proving that its reliance on the defective plans and specifications was reasonable and in good faith. The amount of recoverable damages may be limited to that which is caused by the CMAR’s reasonable and good faith reliance on design defects that constitute a breach of the implied warranty.
- In Donovan Hatem’s opinion, the SJC’s decision provides a balanced and conscientious application of sound risk allocation principles as specifically applied in the CMR context.
- The SJC ruled that while an implied warranty obligation may be disclaimed by clear and specific contractual terms, no such disclaimer was found in the CMR Contract at issue. The decision leaves open the question and the potential that an owner, through express and specific contract terms, may disclaim any implied warranty obligation.
- The SJC’s decision in Gilbane emphasizes that in deciding whether a CMAR may prevail on a breach of implied warranty obligation theory, a court will need to focus on the specifics pertaining to the CMAR’s contractual and actual roles, responsibilities and performance in the design development process, as well as whether the CMAR expressly and explicitly disclaimed any right of recovery for such a breach.
- In many instances, public owners will seek the assistance of their design professionals to document the record of the CMAR’s involvement in the design development process. In the Gilbane case, the record before the SJC was insufficient to allow the Court to evaluate the CMAR’s role and responsibilities in design development, an inadequacy attributable to DCAMM’s litigation strategy to challenge Gilbane’s claim before such an evidentiary record had been developed.
- As previously reported Donovan Hatem’s most serious reservation about the Commonwealth’s position in Gilbane derived from its strategic decision to challenge as a matter of law – right out of the box – through a motion to dismiss the legal sufficiency of Gilbane’s allegations – without an adequate and more robust evidentiary record presented which would have provided the court with a framework to consider the implied warranty issue in the specific CMR context. By this strategic motion to dismiss approach, the Commonwealth was, in effect, contending that in no set of circumstances – i.e., no matter what the evidentiary record may reveal – may an owner owe any implied warranty obligation to a CMAR. In response, Gilbane was contending that the traditional owner implied warranty obligation applied in CMR to the same extent applicable in the traditional design-bid-build method. Based on the record before it, the SJC, in effect, held that neither of the polar positions asserted by the Commonwealth or Gilbane were correct.
- The SJC’s rejection of both competing contentions was a balanced and conscientious decision, holding that the implied warranty obligation, while potentially applicable in the CMR context, provides a more limited right of recovery to the CMAR and that recovery depends upon the CMAR meeting certain burdens of proof (good faith reliance and reasonableness, and proof of specific damages flowing from any breach of the implied warranty obligation); and that the judicial determination of the CMAR’s entitlement to recovery may only be made based on an adequate evidentiary record as to the contractual and actual roles, responsibilities and performance of the CMR in the design development process. More specifically, the Court notes:
[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.
- The bottom line is that while the implied warranty obligation may apply in the CMR context, CMRs have potentially significantly greater design risk exposure in CMR project delivery than in design-bid-build.