On September 2, 2015, in Coghlin Electrical Contractors, Inc. v. Gilbane Building Company, the Massachusetts Supreme Judicial Court held that a construction manager at risk (CMAR) that provided preconstruction design-related services could assert a third-party claim against the project owner based on the defective designs. Applying the Spearin Doctrine, the court found that the project owner impliedly warranted the designer's plans and specifications (36 N.E.3d 505).

The Massachusetts Division of Capital Asset Management and Maintenance (DCAM) contracted with a designer to design a psychiatric facility. When the designs were partially finished, DCAM contracted with Gilbane to be the CMAR under Chapter 149A of the Massachusetts General Laws. Gilbane participated in the completion of the designs. Gilbane subcontracted the electrical work to Coghlin.

Design defects caused problems with the framing of floors, walls, and ceilings, as a result of which Coghlin incurred a nearly 50% increase in labor hours to perform the electrical work. Coghlin incurred additional costs when the designer rejected the use of electrical fixtures that were specifically required under the contract documents.

Before reaching substantial completion, Coghlin requested an equitable adjustment of the contract price due to the extra costs it incurred. Gilbane refused and Coghlin sued for breach of the subcontract. Gilbane filed a third-party complaint against DCAM, asserting that if Coghlin prevails, DCAM is in breach of its contract with Gilbane for refusing to pay Gilbane the amounts owed to Coghlin.

The trial court granted DCAM's motion to dismiss because Gilbane:

The trial court held that the implied warranty of the sufficiency of contract documents under the Spearin Doctrine only applied to design-bid-build projects and not CMAR projects. Gilbane appealed.

In a CMAR system, for a set fee the construction manager acts as an advisor before construction and then performs the actual construction for a GMP. The CMAR is responsible for costs that exceed the GMP, except for when a change order is issued that increases the GMP.

Under the Spearin Doctrine, a project owner impliedly warrants the adequacy and sufficiency of the contract documents provided to contractors, including the specifications and drawings (United States v. Spearin, 248 U.S. 132 (1918)). A contractor is not responsible for the consequences of a defective design even when the contract obligates the contractor to visit the site, check the plans, and inform itself of the requirements of the work (see Practice Note, Selecting the Right Private Project Delivery System: Box, The Spearin Doctrine).

The court held that the implied warranty under the Spearin Doctrine also applies to public CMAR projects. Although a CMAR may contribute to the development of the plans and specifications as part of its preconstruction services, this does not defeat the implied warranty given by the project owner. The court reasoned that the implied warranty applies because:

However, the court stated that the scope of the implied warranty under a CMAR project delivery system is more limited than in a design-bid-build project. A CMAR may benefit from the implied warranty only where it can demonstrate that it acted in good faith reliance on the design and acted reasonably in light of the CMAR's own design responsibilities.

The court also found that the contract documents did not disclaim the implied warranty. The contract documents obligated Gilbane to review the designs, check the site, and consult with DCAM and the designer, but this was not sufficient to overcome the implied warranty. To disclaim the implied warranty under the Spearin Doctrine, the contract documents must contain express and specific language to that effect.

Additionally, the court found that the indemnification provision did not prevent Gilbane from asserting the third-party complaint against DCAM because it did not cover claims arising from the breach of the implied warranty.

This opinion is a significant clarification of the parties' potential risks when using a CMAR project delivery system. Without this decision, CMARs may be unwilling to provide preconstruction services or participate in the development of plans and specifications if they could be exposed to increased liability for defective designs. However, CMARs should be aware that the extent of their preconstruction services may affect their liability for design defects.

Project owners should be aware that they may be responsible for additional costs resulting from defective designs even where the CMAR provides input into the design as part of tis preconstruction services. Project owners seeking to disclaim the implied warranty under the Spearin Doctrine must do so explicitly in the contract documents.

For more information on CMAR agreements, see Practice Notes, Private Construction Project Delivery Systems: Overview, Construction Manager at Risk and Selecting the Right Private Project Delivery System: Selecting a Construction Manager at Risk.

For more information on GMP agreements, see Practice Note, Guaranteed Maximum Price Contracts: Drafting Strategies and Standard Clauses, Guaranteed Maximum Price (GMP) Clauses.