September 3, 2015 Article

Alert: Massachusetts High Court Clarifies Construction Manager’s Role

The Massachusetts Supreme Judicial Court issued a very significant ruling yesterday regarding the use of the CM-At Risk delivery method, particularly on public jobs.

In Coghlin Electrical Contractors, Inc. v. Gilbane Building Company, the Court held that a construction manager who performed preconstruction services to assist in the development of plans and specifications did not waive the owner’s implied warranty as to the sufficiency of the plans and specifications. In addition, the Court held that the contract’s language requiring the construction manager to indemnify the owner from any subcontractor claims did not bar the construction manager from suing the owner – even to pass along a subcontractor’s claim – for a claim based upon errors in the plans and specifications.

The Massachusetts Division of Capital Asset Management and Maintenance (“DCAM”) entered into a contract with Ellenzweig Associates to prepare designs to build a psychiatric facility at the site of the Worcester State Hospital (“Project”).

When the designs were partially completed, DCAM entered into a contract with Gilbane Building Company (“Gilbane”) as the CMAR. Gilbane then entered into a subcontract with Coghlin Electrical Contractors, Inc. (“Coghlin”), to perform electrical work. The subcontract incorporated by reference the terms of the contract between DCAM and Gilbane. A dispute arose between Coghlin and Gilbane regarding additional costs that Coghlin alleged resulted from various scheduling, coordination, management, and design errors. After Coghlin filed suit against Gilbane, Gilbane filed a third-party complaint against DCAM, asserting that, "in the event that Coghlin proves its claims against Gilbane," DCAM committed a breach of its contract with Gilbane by refusing to pay Gilbane the amounts claimed by Coghlin. DCAM filed a motion to dismiss the third party complaint claiming that Gilbane could not obtain indemnification for design defects when Gilbane had participated in the development of plans and specifications for the Project.

The Massachusetts Superior Court had originally held that a Construction Manager who provides design assist services could not make a claim against the owner when later problems arise on the job due to defects in the plans and specs. That lower court held that although Massachusetts recognizes the “Spearin Doctrine,” in which the project owner gives an implied warranty regarding the feasibility of the designer’s plans and specs, the CM could not raise that warranty, given their role in developing the plans and specs. The Court also held that the contract’s indemnification language (which required the construction manager to indemnify the owner from subcontractor claims) constituted a further waiver in this case, since the dispute originated with a subcontractor’s complaint regarding the plans and specs.

The Massachusetts Supreme Judicial Court reversed the lower court’s decision, holding:

“(1) under our common law, a public owner of a construction management at risk project gives an implied warranty regarding the designer's plans and specifications, but the scope of liability arising from that implied warranty is more limited than in a design-bid-build project; (2) the construction management at risk contract in this case did not disclaim the implied warranty; and (3) the indemnification provision in the contract did not prohibit the CMAR from filing a third-party complaint against the owner that sought reimbursement under the implied warranty for damages claimed by the subcontractor arising from the insufficiency of or defects in the design.”

The SJC reached its decision in part based on the fact that “t]he possibility that the CMAR may consult regarding the building design does not suggest that the CMAR should be the guarantor against all design defects, even those that a reasonable CMAR would not have been able to detect.” The SJC found that the scope of the implied warranty will depend upon whether the CMAR “acted in good faith reliance on the design and acted reasonably in light of the CMAR's own design responsibilities.” In making such determinations, courts will need to consider the “CMAR's level of participation in the design phase of the project and the extent to which the contract delegates design responsibility to the CMAR.” The SJC signaled that “[t]he greater the CMAR's design responsibilities in the contract, the greater the CMAR's burden will be to show, when it seeks to establish the owner's liability under the implied warranty, that its reliance on the defective design was both reasonable and in good faith.”

This is a significant decision because the lower court’s ruling, if upheld, would have a chilling effect on construction using the CM-At Risk method as builders would be far more hesitant to provide design assist services, if they thought that doing so would make them responsible for the entire design.

For further information, please contact Ken Rubinstein at 617.226.3868 / [email protected]; or Nathan Fennessy at 603.410.1528 / [email protected].

Firm Highlights


Avoid the Pain Points in Trump Tariffs

New tariffs on imported materials such as steel, aluminum, solar panels, lumber and plywood have caused suppliers to increase their prices to contractors, boosting the overall cost of construction. Industry experts expect more tariffs...


Litigation and Arbitration Venue Provisions in Construction Contracts: When and How They Work

Venue and choice-of-law provisions are fairly standard in construction contacts, but can be overlooked due to their location within a contract. When drafted effectively, these provisions can help limit uncertainty about where and how...


Construction Alert: U.S. Supreme Court Declines to Knock Down Tariffs

The United States Supreme Court announced Monday that it will not take up a steel importer group’s challenge to President Trump’s broad authority to impose tariffs and set trade restrictions. The High Court rejected...


Social Engineering Insurance Vital for Capital Project

Cyber fraud is an increasing concern in the construction industry. As a result, the insurance industry has developed Social Engineering Insurance to protect companies from the confidence schemes in which as bad actor defrauds...


Understanding the Contractor’s Consent: The Hidden Dangers in a Common Form

At the start of a commercial construction project, lenders frequently request the "Contractor's Consent to Assignment" or "Contractor's Consent" forms from contractors. These contracts allow the bank to assume ownership of the project in...


Best Practices for Avoiding Cyber-Fraud on Capital Projects

The construction industry is increasingly under the threat of cyber-fraud. Criminals know that large capital projects often require significant payments, which occur regularly. It is fairly easy to identify the contractors involved in these...


Prefabrication in Practice: Weighing the Advantages Against the Challenges

In recent years, prefabrication and modular construction have become a more popular choice for large-scale construction projects. Proponents of prefabrication have lauded that prefabbed construction yields better, cheaper and faster construction because projects can...


ConsensusDocs vs. AIA - Which Contract Is Best for Contractors?

Choosing the right contract is essential to protecting your rights as a contractor. AIA Contracts have long been the industry standard, but Consensus Docs are fast becoming a reasonable option. In this article, Nathan...


Hurry Up and Wait: Dealing with Delays When the Project Still Finishes Early

While most delay claims involve situations where a delay pushes the project beyond the schedule, delay can occur even where a contractor completes work early or on time.  In this article, Kenneth E. Rubinstein...