In Coughlin Elec. Contractors, Inc. v. Gilbane Building Co., the Massachusetts Supreme Judicial Court asked whether participation in the design process negates a contractor’s common law Spearin doctrine protection.
Subcontractor alleged that it suffered a forty-nine percent increase in labor hours on the Project because of Contractor’s poor management and due to design defects. The alleged design defect was that the project design called for a two-foot deep interstitial space between floors to allow for the building’s mechanical, electrical and other systems. This conflicts with another part of the design, however, that called for mechanical and electrical systems occupying five feet of interstitial depth. Contractor did not receive direction on how to proceed with installation of the electrical systems for more than six weeks, before being told to “place the electrical work as high as possible in the ceiling,” allowing the project designer to “address the issue later” with the mechanical subcontractor.
Subcontractor filed a contract claim, and then later a suit in Superior Court against Contractor (and its surety). Contractor brought a third-party complaint against Awarding Authority “effectively alleg[ing] that [Awarding Authority] should indemnify [Contractor] for ‘damages caused by design changes and design errors’ that were ‘unrelated to any wrongdoing on [Contractor’s] part.” Awarding Authority moved to dismiss the third-party complaint, arguing that the the terms of its contract with Contractor requiring Contractor to “indemnify, defend and hold harmless” Awarding Authority from “all claims… arising out of or resulting from the performance of the Work,” trumped the Spearin doctrine.
The Court compared the traditional design-bid-build method of government construction contracting, where “the owner retains an engineer or an architect on a separate contract to complete the design of the public facility, and once the design is complete, the design is made available to potential bidders and the construction contract is advertised for bid,” leaving “the risk of design” with the architect or engineer, with design-build contracting, where “the owner contracts with a single party that assumes both the design and the construction responsibilities.”
By comparison, the Court found the arrangement under this particular contract to be more “[s]imilar to the design-bid-build method [because] the owner enters into separate contracts, one with the designer and another with the” contractor. Before reaching the decision, the Court noted the contractor’s consultation role during the finalization of the project design and the contractor’s ability to price a contingency to cover “project costs not associated with scope changes or latent conditions.” Nonetheless, the Court found that an implied warranty of the design by the Owner to the Contractor still existed. More specifically, the Court stated that it was, “not persuaded that the relationships [between the Owner, the contractor and the designer] are so different that no implied warranty of the designer’s plans and specifications should apply.” Further, the Court concluded, that “the scope of liability arising from that implied warranty is more limited than in a design-bid-build project.”
The extent of the limitation depends on a number of case-specific factors, which could vary depending on the terms of the contracts in issue. The factors identified in the instant case were:
- Whether the owner is under any obligation to accept the contractor’s design suggestions or whether the owner’s separately contracted designer maintains control over the design,
- Whether the contractor acted reasonably in relying on the design given the contractor’s contractual design participation role, and
- Whether the contract language itself contains an express disclaimer of the Spearin doctrine protection for the contractor.
In this case, the Court found that Awarding Authority retained control over the project design and that even the “significant design-related obligations” were limited by Awarding Authority’s “authority and control over the Project’s design.” The Court held that Contractor “may be able to recover, but only to the extent that the additional costs were caused by [Contractor]’s reasonable and good faith reliance on the defective plans and specifications.”
The Court also interpreted the indemnification provision of the contract in light of the ruling applying the Spearin doctrine and held that, “claims, damages, losses, and expenses that arise out of the Designer’s performance, as opposed to [Contractor’s] design consultation and review performance, do not trigger the indemnification provision.”
For more information, see Dec. 2016 Mass. Law Rev., Case Comment (S. Khan & M. Sams), Coghlin Elec. Contractors, Inc. v. Gilbane Building Co., 472 Mass. 549 (2015), available online at: https://www.massbar.org/docs/default-source/publications-document-library/massachusetts-law-review/2016/vol-98-no-3/vol98no3.pdf