Massachusetts Court Holds GC/CM Assumed the Risk of Design Changes on Public Works Contract – Part I
This is part one of a two-part blog post on the potential differences of GC/CM contracting.
A recent Massachusetts Superior Court ruling spotlights the difference between contracts fashioned in the traditional design-bid-build protocol versus a negotiated general contractor / construction manager (GC/CM) type of procurement. A GC/CM (or, in some states, a CM/GC) firm provides a range of pre-construction services and construction management services—services that may include cost estimation, consultation regarding the design of the building project, preparation and coordination of bid packages, scheduling, cost control, value engineering, acting as the general contractor during construction, detailing the trade contractors’ scopes of work, holding the trade contracts or other subcontracts, pre-qualifying and evaluating trade contractors and subcontractors, and providing management and construction services—all at a Guaranteed Maximum Price (or, in some states, a Maximum Allowable Construction Costs), which represents the maximum amount to be paid by the public agency for the building project. The Guaranteed Maximum Price generally includes the cost of the work, the general conditions, and the fee payable to the GC/CM firm.
The Massachusetts Division of Capital Asset Management and Maintenance (“DCAMM”) contracted with Gilbane Building Company (“Gilbane”) as the GC/CM to build a psychiatric unit in Worchester, Massachusetts. DCAMM also separately contracted with an architect, Ellenzweig Associates, Inc. (“Ellenzweig”), to design the building. Gilbane’s involvement in the design of the project was limited to the review of the design documents prepared by the designer. The GC/CM contract specifically stated that Gilbane did not assume any responsibility for design by reviewing the design.
Gilbane subcontracted with Coghlin Electrical Contractors, Inc. (“Coghlin”) for the electrical construction work on the project, which was to be done in accordance with the contract documents prepared by the designer. Coghlin submitted change orders on the project due to design revisions that had to be made. However, Coghlin, Gilbane, and Ellenzweig were unable to resolve the design-related change orders, and Coghlin sued Gilbane. Gilbane, in turn, brought a third-party complaint against DCAMM for breach of its the implied warranty of the adequacy and sufficiency of the plans and specifications.
In the trial court, DCAMM took the position that the complaint against it should be dismissed because Gilbane assumed liability for the design of the project and, based on the contract’s broad indemnity clause, that Gilbane was obligated to defend and indemnify it (even though the indemnification clause excluded claims arising out of the architect’s design of the project). The court held that a construction manager working under a GC/CM contract “takes on additional duties and responsibilities for the project,” including, in this case, “an ongoing duty to ‘review the design documents for clarity, consistency, constructability, maintainability / operability and coordination among trades, [and] coordination between the specifications and drawings.’”
Specifically the court held that:
- A GC/CM procurement is an “alternative delivery method” distinct from traditional “design-bid-build.”
- The GC/CM took on additional duties and responsibilities pertaining to the design including an on-going duty to “review the design documents for clarity, consistency, constructability, maintainability / operability, and coordination among trades, coordination between drawings and specifications ….”
- “With these added duties and responsibilities comes additional financial exposure for the Construction Manager in the event something goes wrong, including … a broad obligation to indemnify and defend the Owner from and against ‘all claims…’”
The trial court went on to conclude that the public Owner’s implied warranty of the plans and specifications does not apply in GC/CM contracts. The court held that given the material changes in the roles and responsibilities undertaken in modern GC/CM contracting, the protections that the courts historically have extended to contractors in the traditional design-bid-build context (i.e. the implied warranty of the adequacy and sufficiency of the plans and specifications) are inapplicable to GC/CM contracting.
The court dismissed Gilbane’s third-party complaint against the Owner. Gilbane filed a Notice of Appeal to the Supreme Judicial Court of Massachusetts. Amicus Briefs were filed by the Associated General Contractors of America, the AIA, and the American Council of Engineering.
On September 2, 2015, the Supreme Judicial Court of Massachusetts vacated the Superior Court's order. Read part two of this blog post for more on this appellate decision, which we will post next week.
Comment: Had this decision been upheld and found support in other courts across the country, GC/CM contracting as it exists today would have been changed dramatically. Many GC/CM contractors have limited professional liability insurance coverage and do not have the in-house expertise to take on the type of design responsibility this court imposed on the GC/CM. It appears this court viewed the GC/CM akin to a design-builder, an entirely different procurement model. Coghlin Electrical Contractors, Inc. v. Gilbane Building Co. and Travelers Surety Company of America. For a video of the Supreme Court oral argument that demonstrates why it so difficult sometimes to explain construction to a panel of judges who have little or no construction experience, click here.