The Worcester Superior Court recently issued a potentially landmark decision clarifying the risk that construction managers assume when entering into CM-At Risk contracts. A copy of the Court's decision is attached here.
In Coghlin Electrical Contractors, Inc. v. Gilbane Building Company, a subcontractor filed suit against the construction manager for additional costs resulting from the purported mismanagement of the project. The construction manager, in turn, sued the owner, asserting that the owner was legally responsible for damages caused by design changes and design errors that caused the additional subcontractor costs. The Court dismissed the construction manager's claim against the owner, holding that the construction manager could not pass along the additional costs.
In making this ruling, the Court focused on the construction manager's "extensive ‘Design Review' responsibilities," as well as the construction manager's "broad obligation to ‘indemnify, defend and hold harmless' [the owner]...." The Court held that this language served to "trump the long-standing Massachusetts common law principles to the effect that "where one party furnishes plans and specifications for a contractor to follow in a construction job...the party furnishing such plans impliedly warrants their sufficiency for the purpose intended' [also known as the Spearin Doctrine]." Thus the relationship between the Owner and the Construction Manager under a CMR contract is not the same as the relationship between Owner and General Contractor under a traditional design-bid-build arrangement... Given the material changes in the roles and responsibilities voluntarily undertaken by the parties in a modern CMR contracts, the protections that Massachusetts courts historically have extended to construction contractors in the traditional design-bid-build context...simply are inapplicable to such contracts.
This decision is almost certain to be appealed and will be closely watched by industry groups.