DSU WINS IMPORTANT SJC CASE: THE OWNER’S IMPLIED WARRANTY OF SUFFICIENCY OF DESIGN APPLICABLE TO CONSTRUCTION MANAGER AT RISK PROJECTS
Thursday, September 3, 2015 at 1:13PM
Jack DiNicola

DSU attorneys, Jack DiNicola and Mike Brangwynne, won a landmark decision from the Massachusetts Supreme Judicial Court on behalf of our client, Gilbane Building Company (“Gilbane”).  In Coghlin Electrical Contractors, Inc. v. Gilbane Building Company, et al., the SJC ruled that the owner’s implied warranty of sufficiency of its design is applicable to construction manager at risk projects, procured through M.G.L. c. 149A, reversing a Superior Court decision.

In this case, Gilbane was the construction manager at risk (“CM at Risk”) for the Worcester Psychiatric Hospital Project in Worcester, Massachusetts.  Division of Capital Asset Management and Maintenance (“DCAMM”) was the owner.  Late in the Project, the electrical subcontractor submitted a claim to Gilbane, alleging increased costs of performance due to design changes, design errors, and design omissions.  Gilbane passed that claim to DCAMM.  After DCAMM rejected the claim, the electrical subcontractor filed suit against Gilbane and its surety.  Gilbane filed a third-party complaint against DCAMM, alleging that DCAMM was responsible for the subcontractor’s damages, if any, arising out of issues relating to the design of the project.

DCAMM filed a motion to dismiss the third-party complaint, arguing that there is no implied warranty of sufficiency of the design for the CM at Risk and that the indemnification provision of the contract required Gilbane to defend and indemnify DCAMM for the subcontractor’s claims even to the extent the claims relate to issues caused by DCAMM’s designer.  The Superior Court agreed and dismissed the third-party complaint.  Gilbane appealed.

In a decision released on September 2, 2015, the SJC reversed the Superior Court and reinstated Gilbane’s third-party complaint.  The SJC essentially accepted all of the arguments set forth by Gilbane, as well as the arguments presented by the Associated General Contractors of Massachusetts and Columbia Construction in submitted amicus briefs.

The SJC held:  (1) that the owner’s implied warranty of sufficient of design is applicable to CM at Risk project so long as the CM at Risk acted in good faith reliance upon the design documents and acted reasonably with respect to the CM at Risk’s own contractual obligations; (2) that the contract did not contain an express and explicit waiver of the implied warranty; (3) that the indemnification provision did not require Gilbane to defend and indemnify DCAMM for claims arising out of issues in the design; and (4) the use of third-party pleadings is appropriate to resolve these disputes.

This decision is a major victory for general contractors and construction managers because it reverses a Superior Court decision that improperly shifted enormous risk from the owner/designer to the construction manager.  Another important part of this decision involves the indemnification provision because the SJC properly limited the indemnification obligations to the extent of Gilbane’s “Work” as a defined term. 

A copy of the decision can be found here:  http://www.mass.gov/courts/docs/sjc/reporter-of-decisions/new-opinions/11778.pdf.

Please feel free to contact Jack DiNicola if you have any questions.

Article originally appeared on DiNicola Seligson & Upton (http://dsu-law.com/).
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