March 24, 2005

Is a GC/CM responsible for design defects?

  • Recent court decision favors GC/CMs, but they should be cautious in the design phase.
    Stanislaw Ashbaugh


    Over the last 10 years, the use of the general contractor/construction manager contracting methodology in the state of Washington has increased dramatically. As a result, traditional assumptions about responsibility for design errors and omissions in the plans and specifications have been questioned and challenged.

    While no appellate court in the state has determined if a GC/CM has design responsibility, a Superior Court judge in the litigation involving the Stafford Creek Correctional Center project answered the question. Even though the decision of the trial court is not binding on other courts, the decision provides guidance to contractors and owners who are involved in GC/CM contracts or who are contemplating such contracts.

    Traditional rule

    For almost 100 years, general contractors in Washington have relied upon the rule that when an owner provides the plans and specifications, the owner warrants the accuracy, adequacy and sufficiency. Based upon this warranty, when errors or omissions are discovered in the design documents, and those defects result in additional costs, the contractor can recover the additional costs. The ability to rely upon this warranty has been beneficial to contractors with claims against owners on traditional design-bid-build projects.

    The traditional rule is fair because on design-bid-build projects the owner generally has a contract with the designer and is in the best position to insure that the plans and specifications are free from defects prior to providing them to the contractor. Obviously, the rule does not apply to projects under the design-build methodology because on those projects, the general contractor, not the owner, has a contract with the designer.

    However, whether the rule should apply to the GC/CM contracting methodology is unclear. For GC/CM contracts, the owner still has a contract with the designer. However, the GC/CM is hired during the design development phase and the GC/CM has certain preconstruction responsibilities with respect to review of the design and agreement on the maximum allowable construction cost (MACC) prior to final completion of the design documents. Given the contractor's involvement during the design development phase, owners can argue that the traditional warranty of the plans and specifications should not apply.

    Stafford Creek

    In the Stafford Creek litigation, the state Department of Corrections and the GC/CM extensively briefed and argued the applicability of the traditional rule to GC/CM contracts. In fact, a separate trial was held prior to the hearing on the respective claims for liquidated damages and additional compensation. The purpose of the first trial was to decide whether the owner's position was correct that the GC/CM expressly warranted the plans and specifications for the project were sufficient, complete and accurate.

    Under the owner's position, the GC/CM was responsible for all additional costs caused by defects in the design documents.

    Not surprisingly, the GC/CM had a different interpretation. While recognizing that it had some responsibility for missing items, the GC/CM argued that with minor exceptions, the traditional warranty of the plans and specifications by the owner applied.

    The GC/CM's position was supported by the fact that the owner had a contract with the designer. Therefore the owner was still the only party with the legal ability to ensure that the architect provided adequate, accurate and complete plans.

    Lessons learned

    After a weeklong trial devoted solely to this issue, the judge rejected the owner's position. While the decision is not binding upon other courts in the state, and is based upon the specific language of the GC/CM contract used on the project, the court's rejection of the owner's position provides valuable lessons.

    For owners, the court's focus on the fact that the owner still controlled the architect and was the only party with the power to direct the architect is significant. Owners should recognize that if the GC/CM lacks control over the architect, it would be difficult to shift all design responsibility to the GC/CM. While it is possible that a contract could be drafted in a manner to place full design responsibility on the GC/CM without the GC/CM having control over the architect, creating such a contract would be difficult.

    For GC/CMs, the decision of the trial court should be viewed as a warning. While the GC/CM avoided total responsibility for defects in the plans and specifications, the GC/CM was held responsible for missing items in the plans and specifications that should have been identified during the preconstruction constructability review. As such a requirement is typically found in GC/CM contracts, GC/CMs need to account for this additional risk and ensure that during the preconstruction phase sufficient resources are spent on identifying items missing in the design documents. Only by doing this can a GC/CM include sufficient costs within the MACC to cover additional costs during construction for such items.

    Further, GC/CMs should carefully look at the specific preconstruction requirements. The more involvement and input that the GC/CM has during the design development phase, the easier it will be for owners to shift design responsibility to the GC/CM. Diligent GC/CMs will be better able to appreciate the increased risk and protect themselves by understanding their roles and obligations with respect to additional costs associated with design errors or omissions.

    Only by having a clear understanding with the owner on these topics can a prudent GC/CM provide adequate protection for itself in negotiating and agreeing upon the MACC.

    The final result

    For the Stafford Creek litigation, the end of the first trial was not the end of the case. Because the GC/CM was responsible for some missing items in the plans and specifications, and because the owner had numerous notice defenses, a separate hearing was held to determine whether the owner was entitled to collect liquidated damages or whether the contractor was owed additional compensation for defects in the plans and specifications that exceeded the GC/CM's responsibility for missing items.

    On Feb. 8, judgment was entered in King County Superior Court in favor of the GC/CM in the amount of $6.04 million. While the GC/CM won this particular fight, the disputes over whether a GC/CM is responsible for the adequacy of the design will continue.

    Until a definitive answer is received from a Washington appellate court, both GC/CMs and owners should proceed with caution and work toward providing clearer descriptions of design responsibility.

    Christopher A. Wright is a partner at Stanislaw Ashbaugh LLP. He and founding partner Miles Stanislaw represented the GC/CM on the Stafford Creek project.

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