The Design and Construction Management Professional Reporter: April 2016

Inside this issue:

Mississippi Appeals Court Uses Seven Factors to Determine Whether Supervisory Powers Extend Beyond Contract Provisions Contained in A/E Contract

General Contractor’s Case Against Design Professional is not Barred by the Theory of Claim Preclusion

By Daniel Lagosh, Jr., Esq.

Maryland Court of Special Appeals Upholds Dismissal in Duty of Care Case Based on Purely Economic Losses

Contractor’s Delay Claim Against the Architect Survives Motion to Dismiss in Virginia

Expecting the Unexpected: Using Standard Construction Contingency to Establish Minimum Design Standard of Care


Mississippi Appeals Court Uses Seven Factors to Determine Whether Supervisory Powers Extend Beyond Contract Provisions Contained in A/E Contract

On September 1, 2015, the Mississippi Court of Appeals (“Court”) affirmed a trial court’s entry of summary judgment in favor of architects and engineers alleged to have defectively designed scaffolding that collapsed and injured four concrete workers. The court’s decision was based on its finding that the design professionals had no duty to inspect the scaffolding.

In 2008, a medical center (“Owner”) entered into an agreement with an architect (“Architect”) to design an expansion of its facility. Although the parties did not execute a written contract, the Owner entered into agreement with the Contractor to perform services as the general contractor. The Contractor then hired a subcontractor to perform concrete services; the individual plaintiffs in the action were employed by the subcontractor.

By September 2008, the concrete slab for the first floor had been poured by the subcontractor, and the Contractor was preparing to pour the columns and concrete walls to support the second floor. The Contractor’s general superintendent asked the Engineer to design drawings for the scaffolding and second-story formwork. The Engineer’s representative met with the Contractor on site in late September 2008 to discuss some necessary features for the scaffolding. The Engineer prepared preliminary drawings using 4-x-4 posts and 2-x-4 joists to support the scaffolding and submitted them for comment to the Contractor. Unbeknownst to the Engineer, the Contractor had already begun to construct the scaffolding before receiving the Engineer’s design.

It appears from the Court’s decision that the Engineer’s design was flawed because the posts indicated in the plan were not available in the length specified in the plan. Despite that, the Contractor issued no comments on the Engineer’s design and asked the Engineer to send the final version of the design drawings. On November 18, 2008, the subcontractor was pouring wet concrete into the second-floor formwork when the scaffolding collapsed, injuring the plaintiffs.

In September 2010, the plaintiffs filed an action against the Contractor in Circuit Court alleging negligent construction of the scaffolding. The Contractor moved to dismiss the action on the grounds that it was statutorily immune from liability because it had obtained workers’ compensation insurance pursuant to the Mississippi Workers Compensation Act.

In February 2011, the plaintiffs amended their complaint adding the Engineer and Architect as defendants and claiming that they negligently designed the scaffolding and failed to correct known deficiencies in the plan. They further claimed that the Engineer and Architect negligently inspected the scaffolding; the Owner was joined in the action in June 2012.

In August 2012, the plaintiffs’ engineering expert opined that defects in the scaffolding caused the collapse. However, he did not attribute the collapse to the formwork, but opined that the formwork conformed to the Architect’s specifications.

Discussion of Summary Judgment Motion

The Architect moved for summary judgment and moved to exclude the plaintiffs’ expert’s opinion that the design professionals had a duty to inspect construction of the scaffolding. The Architect argued that the expert was not qualified to offer an opinion as to the duties of an architect. The Court agreed to exclude the expert’s opinion concerning the Architect’s purported duty to inspect, and granted the Architect’s motion for summary judgment. The Court also granted the Engineer’s summary judgment motion on the same grounds. The plaintiffs appealed.

The appellate court found no errors in the trial court’s entries of judgment, noting that “[o]nly in limited circumstances will an engineer, independently of express contract language, have a duty to supervise the construction site to ensure safe operations.”[1] Unless an engineer has undertaken by conduct or contract to supervise a construction project, he is under no duty to warn or notify workers or employees of the contractor or subcontractor of hazardous conditions at the construction site. In this instance, there was no written agreement between the Contractor and the Engineer that would have required the Engineer to inspect the formwork or scaffolding.

In its opinion, the appellate court identified “seven factors to determine whether supervisory powers go beyond the provisions of [a] contract.” Those factors include: (1) actual supervision and control of the work; (2) retention of the right to supervise and control; (3) constant participation in ongoing activities at the construction site; (4) supervision and coordination of subcontractors; (5) assumption of responsibilities for safety practices; (6) authority to issue change orders; and (7) the right to stop the work.[2]

The plaintiffs/appellants argued that the Engineer inspected the “already existent beginnings of the very structure that [the Engineer] was commissioned to design.” However, a careful examination of the Engineer’s deposition testimony reflected that the scaffolding and formwork that were in existence during the site visit related to the concrete columns and walls that would later help support the second floor – not the actual second floor, itself. The formwork and scaffolding in place during the Engineer’s visit was not the scaffolding and formwork the Engineer was commissioned to design. Nor did the Engineer know that, immediately following his site visit, the Contractor would begin to construct the scaffolding and formwork before even receiving the design drawings.

The Engineer’s testimony was unequivocal: he did not visit the site to determine whether the Contractor had followed the design. Further, the next time the Engineer visited the site, it was following the formwork collapse. There was no evidence that the Engineer was involved in the “actual supervision and control of the work;” nor did the Engineer retain any “right to supervise and control” the work, or supervise or coordinate the subcontractors. In fact, there was no evidence that the Engineer had any authority to issue orders or stop work.

As for whether there was evidence of the Engineer’s purported “constant participation in ongoing activities at the construction site,” taking the information in a light most favorable to the plaintiffs, the Contractor conceded that: (1) in completing an OSHA form, he incorrectly stated that he had seen the Engineer approximately one block away from the site; and (2) the Contractor did not have an engineer inspect the scaffolding before the subcontractor poured the concrete. In essence, the evidence presented failed to support any conclusion that the Engineer had a duty to inspect the scaffolding. In the end, design professionals must be wary of engaging in construction inspections, oversight or supervision outside of their contractual scopes of work. If they choose to volunteer their services, then they could potentially subject themselves to unanticipated, or agreed upon, liability.

[1] Family Dollar Stores of Miss, IN. v. Montgomery, 946So.2d.426, 430 (Miss.Ct.App.2006)
[2] Hobson v. Waggoner Eng’g, Inc., 878 So. 2d 68, 72 (Miss. App. 2003), citing to Hanna v. Huer, Johns, Neel, Rivers & Webb, 233 Kan. 206, 219, 662 P.2d 243, 252-53

General Contractor’s Case Against Design Professional is not Barred by the Theory of Claim Preclusion

By Daniel Lagosh, Jr., Esq.

The U.S. District Court for the District of Massachusetts recently held that a general contractor’s (“Contractor”) complaint was not barred on a theory of claim preclusion, and denied a motion to dismiss filed by the defendant design professional. In its amended complaint, the Contractor plaintiff brought suit against an architect for tortious interference with contractual relations, tortious interference with advantageous relations, and unfair and deceptive trade practices in violation of M.G.L. c. 93A.

The dispute arose out of work done for a residential condominium project in Berlin, Massachusetts (“Project”). The Contractor entered into a contract with the Owner (“Owner”) to serve as general contractor and perform certain commercial improvements, upgrades, additions, and renovations to the Project (“Contract”). The Owner then entered into a design and contract administration agreement with the architect (“Architect”) (“AIA Contract”) to administer the Contract on behalf of the Owner. The Contract identified the Architect as the “initial decision maker” to review certain claims that might arise under the Contract. Throughout the course of the Project, the Owner encountered funding issues, and the Contractor alleged that the Architect was aware of the Owner’s financial troubles.

The Contractor asserted claims under its Contract for extension of time and increased costs alleging that the Owner and Architect “wrongfully delayed and withheld” all such relief. The Contractor further alleged that the “Owner and [Architect] colluded to fabricate grounds for terminating [the Contractor] from the Project.” According to the Contractor, the Owner decided that the only way to excuse its oversight of the Project and avoid paying the Contractor was to terminate the Contract. Moreover, under the AIA Contract, the Architect was entitled to additional compensation in the event the Contractor was terminated by the Owner. The Owner eventually terminated the Contractor, and the Architect agreed to certify sufficient grounds for doing so, though the Contractor took the position that no such grounds existed. The Contractor argued further that, upon termination, it had “legitimate and identifiable prospective contracts” with subcontractors and independent contractors that were “reasonably certain of maturing into future economic benefits.” In its motion, the Architect argued that the tortious interference claims were subject to dismissal on the basis of claim preclusion. To prevail, the Architect had to establish (1) a final judgment on the merits in an earlier proceeding; (2) sufficient identicality between the cause of action asserted in the earlier and later suits; and (3) sufficient identicality between the parties in the two actions. In the Contractor’s earlier action against the Owner, the parties stipulated to dismissal of the claims. The Architect had not been a party to that prior action, and was not included in the stipulation of dismissal. Although the facts associated with the two actions were similar in nature, the Architect could not satisfy the third element required to succeed under a claim preclusion theory.

In denying the Architect’s motion to dismiss, the Court held that the Contractor had asserted the necessary elements to pursue claims for tortious interference with contractual relations and tortious interference with advantageous relations, and emphasized the fundamental nature of the general rule that a litigant is not bound by a judgment to which s/he was not a party. Since the Architect could not satisfy either the first or third prong of the claim preclusion test, the Contractor’s complaint was not barred by claim preclusion.

Maryland Court of Special Appeals Upholds Dismissal in Duty of Care Case Based on Purely Economic Losses

In January 2016, the Court of Special Appeals of Maryland issued a ruling to the effect that, in the absence of a contractual relationship on a public construction project, a design professional does not owe a duty of care to a contractor for purely economic losses. The Court declined to apply a “privity equivalent” analysis or impose an extracontractual duty on the design professional since, as is the case with design-bid-build contracts, both the design professional and the general contractor were sophisticated businesses which had ample opportunity to define and allocate their risks in their contracts with the government owner.

Sometime before October 2009, the engineer/respondent (“Engineer”), entered into a contract with the City (“City”) to design two related projects as part of an upgrade to a wastewater treatment plant (“WWTP”). The Engineer’s contract with the City provided for both design and construction phase responsibilities. The contractor (“Contractor”) bid on the first of two sanitation contracts (“K1”), one of the projects, relying on the Engineer’s designs. The Contractor was awarded the contract and, in November 2009, entered into the contract with the City to construct thirty-four “denitrification filter cells” and to construct pipes and a pipe support system. The Engineer designed the denitrification cells to expand and contract to accommodate fluctuating water pressure. The contractor constructed the cells in accordance with the Engineer’s design, but when the water retention integrity of the cells was tested, they leaked due to cracks in the expansion and contraction joints.

Shortly after the Contractor was assigned the contract, it filed suit against the Engineer alleging that (1) the leaks in the cells resulted from the Engineer’s defective design which required additional time and funds to remediate the problem; (2) the Engineer’s design for the pipe support system was similarly defective, necessitating additional time and cost to rectify; and (3) the Engineer delayed completing the design for a second sanitation contract (“K2”) for a companion project, knowing that such delays would, in turn, delay the Contractor’s ability to complete work under K1. The Contractor asserted claims for professional negligence, information negligently supplied for the guidance of others under Restatement (Second) of Torts § 552, and for negligent misrepresentation.

The Contractor’s claims were strictly economic, but because the project was design-bid-build, the Contractor and the Engineer shared no contractual relationship. Without such privity of contract, the Contractor’s complaint would be ripe for dismissal under the economic loss rule, which bars a plaintiff’s recovery in tort where damages are solely economic in nature. To avoid this, the Contractor argued that there was an “intimate nexus” between the Engineer’s design and the Contractor’s work, such that a “contractual privity equivalent” existed between the two entities. The Contractor took the further position that an intimate nexus and contractual privity equivalent also existed because the Engineer knew the Contractor would rely on its design and project schedule. The Engineer immediately moved to dismiss the complaint under the economic loss rule, arguing that the Contractor’s “pitch to apply tort principles in order to bypass its bargained-for rights . . . [is] a disruptive tactic that can only undermine public confidence in public procurement.”

After a lengthy series of responsive briefs, the trial court granted the Engineer’s motion to dismiss finding that there was no privity between the parties giving rise to a tort duty under Maryland law. The Contractor appealed.

The Court of Special Appeals affirmed the trial court’s dismissal with respect to all three causes of action. First, the professional negligence claim failed under the economic loss rule. “The general rule is that a party cannot recover against another in tort where the resulting harm is purely economic loss and the parties have no contract between them.” An exception to the rule is that a construction contractor may recover economic losses against a design professional even without contractual privity when the damage is death, personal injury, damage to property, or risk of death or serious personal injury. However, the Contractor alleged no facts indicating that there was any risk of serious injury or death, nor did it argue that the Engineer’s purported negligence created such a risk.

The Contractor’s professional negligence claim also failed under the “privity equivalent” analysis. The Contractor argued that its relationship with the Engineer satisfied the intimate nexus test because it was a bidder on the contract with the City; therefore, the Engineer knew the Contractor would rely on its drawings if it won the bid. In turn, the Engineer argued that the intimate nexus analysis did not apply at all, as contractors can seek recovery from owners in cases of negligent design under the Spearin doctrine. The Court, taking a less expansive view than the Engineer, held that “in construction matters . . . the intimate nexus analysis is not expanded to include ‘privity equivalent’ concepts of extra-contractual duty for the recovery of solely economic losses.” The reasoning is that, in construction cases the parties are often sophisticated entities that have no need for a substitute for contractual privity. A contractor typically has two lines of defense, its contract with the government owner, and United States v. Spearin,[1] which permits a contractor to pursue a negligent design claim against the owner providing the design. Moreover, the Court did not want to invite the chilling effect associated with allowing exposure to tort liability for economic loss. Design professionals retained to act as agents for owners would be less inclined to stay neutral or communicate effectively with contractors.

Second, employing the same rationale, the Court held that the Restatement (Second) of Torts § 552 claim also failed. Again, the Contractor and Engineer are sophisticated entities that negotiated separate contracts with the City. The Contractor could also recover its damages from the City under Spearin. Even if § 552 applied to the case, the Contractor failed to plead that the Engineer provided false information, an element of the claim.

Third, the Court affirmed the dismissal of the negligent misrepresentation claim. The Contractor argued that Maryland law allows a claimant to pursue a claim for negligent misrepresentation seeking solely economic losses even without contractual privity. The Engineer maintained its defense under the economic loss doctrine to the effect that the only exceptions to the rule were privity, death, injury, property damage, or risk of death or personal injury. Repeating the foregoing rationale, the Court held that no intimate nexus exists for purposes of creating a duty because the parties were free to allocate their duties and risks when they negotiated their contracts; there was no need for an alternative to privity.

The opinion provides a powerful defense for design professionals involved in public, design-bid-build contracts. The Court’s argument is well-reasoned and thorough, and relies on a familiar theme in economic loss: the unwillingness of a court to allow a sophisticated plaintiff to use tort law as a mechanism to circumvent a contract. The exceptions to the economic loss rule exist to protect those aggrieved individuals who have no other recourse, no contractual expectation and no opportunity to allocate risk. Here, the Contractor had alternative avenues for seeking recourse.

Please note that this decision is subject to further appeal by the Contractor which has since filed a Petition for Writ of Certiorari with the Court of Appeals of Maryland, the state’s highest court. The petition attempts to shift the attention from the applicability of the economic loss doctrine to the duties and obligations associated with providing professional services. It will be interesting to see where the high court stands. Design professionals and general contractors alike will benefit from monitoring the outcome of this matter.

[1] Tex. Prop. Code § 82.001 et seq. 248 U.S. 132 (1918)

Contractor’s Delay Claim Against the Architect Survives Motion to Dismiss in Virginia

The United States District Court for the Western District of Virginia (“Court”) recently denied the City of Charlottesville, Virginia’s (“City”) motion to dismiss a contractor’s (“Contractor”) complaint for damages allegedly caused by errors and omissions in the construction documents, design documents and design specifications. As with other pre-trial motions, motions to dismiss are often disfavored by courts which prefer to dispose of factually-based issues through trial. Here, the Court accepted all facts pled by the Contractor as true, and viewed those facts in a light most favorable to the Contractor.

On or about October 2011, the Contractor and the City entered into a contract for construction of a fire station (“Project”). Under its contract with the City, the Contractor was required to construct the fire station in accordance with the construction documents, including design specifications and drawings, provided by the City through its architect of record (“Architect”) for the Project.

In its complaint, the Contractor alleged that each of the 387 Requests for Information (“RFIs”) submitted to the City were based on defects, conflicts, inconsistencies, or omissions in the contract documents. The numerous RFIs prompted 63 supplemental instructions from the Architect, 49 contract change directives, and 52 construction field orders, all allegedly delaying the project by 223 days – a 50% increase in the overall construction schedule. The Contractor claimed that the City failed to respond in a timely and complete manner to many of its RFIs, resulting in the significant construction delay. Within each Proposed Change Order (“PCO”), the Contractor expressly reserved the right to claim additional damages “once the cumulative impact of the defects and resulting change directives could be ascertained.”

In or about November 2013, the Contractor filed two claims against the City seeking recovery of damages for the cumulative impact of the defects and delays allegedly attributable to the City; one claim for $1,052,970.81 relating to “additional costs of the unchanged work on the project resulting from the cumulative impacts of the defective specifications, changes to the work, and the City’s failure to provide timely direction”; and the second for damages for extra project management costs, including 3,000 additional hours, for a total of $585,254.47.

In May 2013, the Contractor and the City appeared before the City’s Vendor Appeals Board (“VAB”) to resolve disputes arising from 11 PCOs, but not the foregoing claims. On June 3, 2013, the VAB issued a decision on nine PCOs, awarding the Contractor damages on each, but declining to award delay damages associated with the PCOs. The VAB directed the City to pay $55,787.65.

In August 2014, the Contractor filed a complaint alleging four contractual claims: (1) breach of implied warranty of design adequacy through faulty plans and specifications; (2) breach of contract for failure to compensate for direct changes under the contract; (3) breach of implied warranty of cooperation as to the RFIs; and (4) breach of contract for failure to pay the VAB’s award. The Contractor sought $1,638,225.28 under counts 1-3, and $55,787.65 for the VAB award.

In its Motion to Dismiss, the City advanced several defenses to the claims.

Implied Warranty of Design Adequacy

The Contractors’ claim for breach of the implied warranty of design adequacy, often referred to as the Spearin doctrine, failed to state a claim for relief. The Spearin doctrine provides that:

Where one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to additional compensation because unforeseen difficulties are encountered…But if a contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications..[1]

This implied warranty is limited and does not protect a negligent contractor or one who makes “any express guarantee or warranty…as to [the plans and specifications provided by the owner] being sufficient or free from defects.”[2]

The City argued that the Contractor had contractually agreed that the construction documents were sufficient for bidding, negotiating, costing, pricing and construction. Further, the Contractor had a continuing duty to review and evaluate the construction documents, and notify the City of issues it discovered.

The Court rejected this argument on the grounds that “standard contract provisions” do not amount to an express warranty by which the Contractor affirmatively accepted the burden of any defects in the City’s construction documents, and allowed the Spearin claim to stand.

The Virginia Public Procurement Act

The City took the position that the Virginia Public Procurement Act (“VPPA”) barred all of the Contractor’s claims because it establishes “the public policies pertaining to governmental procurement from nongovernmental sources.” The VPPA was enacted to ensure government procurement at a reasonable cost, and in a fair and impartial manner without the appearance of impropriety. It was undisputed that the VPPA applied to the contract.

The City claimed that the Contractor failed to comply with the VPPA’s notice provisions and, as such, the entire complaint was subject to dismissal. Specifically, the VPPA requires written claims no later than 60 days after final payment. However, “written notice of the contractor’s intention to file a claim shall be given at the time of the occurrence or the beginning of the work upon which the claim is based.”

The Court disagreed holding that the claims were unambiguously identified as “Notice[s] of Claim[s]” and that the notice need not be separate from the claim itself. Rather, under Virginia law, a “written document…clearly stating the contractor’s intention to file claim” satisfies this provision. Furthermore, “any document can suffice if it clearly and timely states the contractor’s intention to later file an administrative claim.” The City claimed that the Contractor had failed to provide timely notice under the VPPA as a matter of law.

Exhaustion of Administrative Remedies

The City argued that the Contractor failed to exhaust its administrative remedies under the VPPA subjecting the claims to dismissal. Specifically, it argued that the Contractor’s claims sought recovery for “ripple effects” related, at least in part, to claims previously decided by the VAB. The City took the position that the VPPA’s exhaustion requirement mandates submission of the “cumulative impact” claims, including those withheld from the VAB.

The Court disagreed on the grounds that the Contractor’s complaint sought damages for cumulative impacts and disruption resulting from numerous defective specifications, changes to the work, and the City’s failure to provide timely direction, as opposed to the claims submitted to the VAB, which pertained to specific PCOs and associated direct damages and delays. The Court stated that the requirement to exhaust administrative remedies is not so broad as to require all disputes arising out of a construction contract to be exhausted administratively once a contractor invokes the procedures with respect to any dispute arising under that contract. Instead, the VPPA only requires that if the administrative procedures are invoked in a disputed matter, the procedures must be exhausted as to that matter before a court action may be maintained.

The Court asserted that a different matter, whose only relationship to an earlier dispute which had utilized the administrative scheme is that they both arose out of the same contract, could be pursued either administratively or by direct legal action. Since previous claims were submitted to the VAB, and the VAB rendered a decision on those claims, the Contractor could pursue its current claims in District Court rather than submitting the current claims to the VAB.

Breach of Contract

The City further alleged in its motion that the fixed-price contract prohibited the Contractor from alleging a breach of contract claim. The Court disagreed, finding that the Contractor had adequately pled breach of contract. The Court noted that whether or not the Contractor could ultimately prove its alleged compensable damages was a question for a later date.

Finally, the City argued that the breach of contractor claim was inconsistent with the VPPA because it was an attempt to circumvent the contract’s fixed price. The Court agreed that the form of contract may eventually limit recoverable damages, but such limitations do not prevent the Contractor from seeking them in the first instance. Ultimately, the Contractor was permitted to proceed with each of its claims, and the motion to dismiss was denied in its entirety.

At that early stage in the litigation, the Court was required to interpret all facts alleged in the complaint in a light most favorable to the Contractor; in essence, those facts were deemed true for the purposes of that preliminary motion. Courts generally disfavor pre-trial motions that deprive a plaintiff of an opportunity to try its case on the merits. This ruling does not necessarily signify that the Contractor will ultimately prevail on the merits, but it does set the stage for protracted and costly litigation.

To the extent design professionals are able to provide input into public construction contracts for projects, it would be helpful to incorporate terms, including affirmative statements, which require a contractor to accept responsibility for deficiencies in the contract documents based upon their pre-bid review of those documents. For those design professionals practicing in Virginia, it would be beneficial to include language requiring a contractor to verify all details shown on the plans and to notify the design professional of any errors or omissions in the design documents. In that way, at least a portion of the burden would shift to the contractor to identify issues that it could later claim affect constructability of the project.

[1] United States v. Spearin, 248 U.S. 132, 136 (1918)
[2] Modern Cont’l South v. Fairfax Cnty. Water Auth., (2006) 72 Va. Cir. 268. Finding Spearin inapplicable where express contract language requires the contractor to “verify all…details shown on the drawings” and to “notify [the engineer] of all errors, omissions, conflicts, and discrepancies.

Expecting the Unexpected: Using Standard Construction Contingency to Establish Minimum Design Standard of Care

One of the most common claims contractors bring against an architect or engineer (“A/E”) is for the recovery of cost overruns for project changes relating to alleged errors or omissions in a project’s design. When a claim is brought, the contractor will frequently provide a list of project design errors or omissions that led to cost growth. This usually serves as the contractor’s only basis for asking that the A/E pay for these costs; however, a list of design errors alone is typically insufficient to demonstrate A/E liability. One must also show that the A/E breached the applicable standard of care; without that, the existence of design errors in and of themselves is not proof of a breach of that standard.

It is a well-known industry standard that has been accepted by the courts that there is no such thing as an error-free design. Even a modest building design effort requires scores of individuals acting on hundreds of major decisions to coordinate the design of thousands of building components. A design effort is a unique, one-time creative endeavor that does not have the benefit of product testing.[1]

It is acknowledged within the industry that design errors, omissions, and project modifications will occur on every construction project. Since such errors and omissions are anticipated, a contractor cannot support a negligence claim based solely on the fact that errors, omissions or modifications to a project occurred.[2] As recovery hinges on a design professional’s deviation from the standard of care, seeking payment for design changes through claims at the end of a project is risky. Instead, contractors are better served by establishing appropriate construction contingencies to cover anticipated design changes. If a contractor fails to implement and use its contingency appropriately, it does so at its own substantial risk, regardless of the nature of the compensation framework, cost-plus or gross maximum price, to which the contractor and owner have agreed (i.e. cost-plus, gross maximum price, etc.).

There is some disagreement among architects, engineers and construction industry legal professionals as to the appropriate monetary measure of the allowable degree of imperfection that may be expected from a particular project’s design.[3] However, most practitioners agree that the allowable percentage of cost growth based on construction drawings is between three and eight percent.[4] Where a particular project fits within that percentage range depends largely on its scope, complexity and time constraints.

When defending a construction cost overrun claim, A/E attorneys should use the construction industry standard contingency allowances (“Allowances Standard”) as a benchmark to evaluate the minimum cost increase that a contractor should reasonably expect at the outset of the project. It is the industry standard for a contractor to set the following contingencies for a project based on the level of design completion attained:[5]

Conceptual Stage: ………………………………………………………………………….. 20%
Schematic Stage: …………………………………………………………………………… 15%
Preliminary Working Drawing Stage (Design Development): ……………. 10%
Final Working Drawing Stage: …………………………………………………………. 3%

These percentages, which are based on the contractor’s Allowances Standard for errors and omissions on a given project, provide guidance to A/E attorneys or design professionals evaluating and defending a claim based on alleged errors and omissions in a design. It should be noted that the contingency allowance should increase for projects that are delivered through methodologies that result in higher percentages of design changes such as fast track projects.

Due to the Allowances Standard for error and omissions, a contractor should be prepared to explain how it can prove that a designer breached the standard of care, when the contractor’s own industry standards dictate that the contractor should have expected errors, omissions, or project modifications resulting in increased construction costs within the foregoing percentages.


Contractors, architects and engineers can attempt to limit overruns before a project starts by, among other methods, obtaining independent cost estimates for the A/E’s work, peer reviewing the designs, or reviewing the A/E’s plans for ease of constructability.[6] While utilizing any of these methods will increase initial costs, they can ultimately mitigate the risk of cost overruns, making it well worth the investment. These strategies are not meant to replace contingency costs, but rather to complement them. Further, utilizing such strategies can help establish a minimum standard of care.


As discussed above, to bear liability for cost overruns, an A/E must have breached the applicable standard of care. Even when construction contingency costs are employed to establish a minimum design standard, the claimant must still demonstrate that the A/E engaged in a breach of care resulting in costs exceeding the established contingency.[7] This can be a difficult hurdle to overcome.

One way to establish that an A/E has breached its duty of care is by demonstrating a breach of contract. In Massachusetts, an A/E may contract to adhere to a higher standard of care, or to warrant perfection or near-perfection in a design.[8] Although beneficial for a contractor, such gifts are not readily given. First, A/Es are generally wary of agreeing to heightened standards of care. Second, imposition of a heightened standard of care is subject to considerable jurisdictional interpretation. For example, one Massachusetts court has interpreted language providing that, “[the architect] shall use professional skill and care to assure that the Project is properly designed, constructed and tested” as demonstrating only a reasonable and customary standard.[9] Third, warranting perfection or performance beyond that of other similarly situated professionals may run afoul of an A/E’s professional liability insurance, a circumstance that no A/E would wish to create.

If a claimant cannot establish that an A/E’s contract provides the basis for demonstrating a breach of the standard of care, it will require an expert to testify to such a deviation.[10] An expert’s opinion does not itself prove that there was an actual deviation; rather, it is used as evidence for a jury or fact finder that the A/E did not meet the requisite standard of care.


Few parties relish litigation; it is costly in time and resources, and focuses an A/E away from the goal of his/her practice. Establishing a contingency fund benefits all parties involved by serving as a benchmark for an A/E’s performance, protecting a contractor from cost overruns and shielding an owner from contractor-based claims.

[1] David W. Mockbee and Jud R. Jones, The Measure of Malpractice – There is a Place for the Threshold Approach in Evaluating Design Errors and Omissions, Journal of the ACCL, Vol. 7, No. 1, p. 153 at 156. citing, Donald Guckert, Errors and Omissions: an Owner’s Opinion on A/E Accountability, Houston Casualty Company Specialty (HCC Specialty) Risk Management Library.
[2] See generally Alan B. Stover, Chapter 3 Construction and Design Contracts, 1-3 Construction Law P 3.03 (2015)
[3] William Allensworth, Rose J. Altman, Allen Overcash, and Carol J. Patterson, Construction Law, Forum on the Construction Industry, 2009, pp. 241 – 243.
[4] Mockbee and Jones, Supra, p. 159, citing, D. Hatem and E. Howard, Standard of Care and the Structural Engineer, Structure Magazine at 30-31 (August 2009)
[5] RS Means Building Construction Cost Data, 2012, p. 11.
[6] Robert C. Epstein, The Art of Managing Construction Risks. GreenbergTrauig (June 2015), wosid/contentpilotcore40127610/ Risks.pdf.
[7] This is typically why an expert is needed – an expert will testify that a typical A/E would have performed the job differently (i.e., more cheaply, faster, with less errors/changes, etc.).
[8] See generally Klein v. Catalano, 386 Mass. 701 (1982)
[9] See Malden Cliffside Apartments, LLC v. Steffian Bradley Assocs., Inc., 66 Mass. App. Ct. 1101 (2006)
[10] MCLE Massachusetts Construction Law and Litigation § 10.2.2 (2013)