The ENR print edition of 10/12/15 included an article Law & Risk Mitigation IIwhich touches upon several of the issues raised in this blog. One key point in our posts on Law relates to control – authority and responsibility are linked – and perhaps no matter what the contract documents may say to the contrary.
Another key point in our posts is that Risk relates to a lack of control – perhaps where authority is limited or unachievable.
A case (Coghlin Electrical Contractors, Inc. v. Gilbane Building Company) discussed in the article explores who shall bear the risk of design error where the parties have agreed to a CMAR (construction manager at risk) style contract. In this scenario the CMAR contractor not only agreed to significant indemnification language but also to assist the designer during the preconstruction phase. But Gilbane did not have the right to dictate design nor to terminate the design consultant.
Gilbane’s responsibility to assist did not rise to an independent review of the design. But even if agreeing to such responsibility, had Gilbane discovered errors, they had no authority to tell the designer to remedy. We are not talking of health-safety-welfare corrections here but only of those which may impact various scheduling and coordination issues. So it is all too easy for the designer to say “the budget for that drawing is already exceeded, you can address this in the field.”
Amazingly, I actually encountered this response in one of my former careers while working for a design-build contractor. With year-end bonuses in the balance, the VP Engineering shifted this minor to then major cost to the VP Construction. In the dog fight that ensued it was the VP Construction who was fired. Office politics trumps all. Where the designer and contractor are separate entities the only deterrent to this behavior is at the level of the owner – who has the authority to terminate the designer if deemed necessary. And so also the responsibility for control of its designer.
Later in my career, after starting my own practice, I encountered a similar situation. In Pennsylvania large public contracts are typically broken into three or four segments in a system called Multiple Prime Contracts to encourage bidding by smaller local contractors. My client was the contractor given the obligation of coordination. The contract required submittal of a CPM. Failure to timely provide would be a material breach. The electrical “prime” contractor refused to participate.
The municipal engineer when told “we have a problem” said “no, you have a problem.” So I ghost wrote a short letter, then sent by my client’s project manager to the engineer, city attorney, and federal judge supervising the consent decree that this project be done in an expeditious manner. We noted we had the obligation to coordinate and to provide a CPM with input from this “prime” contractor. We noted the “prime” contractor refused to perform creating material breach. We then DIRECTED the city to terminate their “prime” contractor. We noted the City’s failure to abide to our directive would result in waiver of my client’s duty to provide a CPM and to any consequential damages if my client could not complete the project by the stipulated deadline.
I do not know what transpired at the office of the city attorney. I do know the electrical “prime” suddenly replaced its superintendent, submitted all information we needed, and we all worked together to very profitably finish the project ahead of schedule. The 2 x 4 to the forehead sometimes does wonders.
The rule of law is that responsibility should be tied to authority to control. But not every owner or contractor or designer or subcontractor may fully appreciate this. In the instant case, the Supreme Court of Massachusetts got this right, but only after the Superior Court got it wrong. And so we return to the topic of this post – RISK.