Construction Law Insights

When owner-supplied plans and specifications turn out to be defective or insufficient in a traditional design/bid/build scenario, the contractor is not liable to the owner for any loss or damage resulting from the defects according to the “Spearin Doctrine.” Rather, the owner gives an implied warranty that the plans it has furnished are adequate. Courts in virtually all states have adopted the Spearin Doctrine.

While the traditional design/bid/build method is popular, alternative project delivery methods are arising, allowing parties to tailor projects to suit their budgets, schedules and project goals, raising the question of the applicability of the Spearin Doctrine in situations in which parties share some responsibility for design.

For example, in the construction manager at risk (CMAR) method, the owner contracts with the designer and the CMAR who guarantees to deliver the project within a maximum price plus any reasonably inferred items or tasks. The owner typically contracts with the CMAR before the design is completed, and the CMAR acts as a consultant to the owner in the design development and construction phases.

A recent decision out of Massachusetts sheds some light on what amount of liability the CMAR should shoulder when it has input in the design process. In Coghlin Electrical Contractors, Inc. v. Gilbane Building Co., the Supreme Judicial Court of Massachusetts recognized that a CMAR may influence plans and specifications, but noted that typically the owner is under no obligation to accept the CMAR’s design suggestions. The court found that although the CMAR may be more likely to bear some responsibility for a design defect than a general contractor in a design bid build project, the CMAR should not necessarily be the guarantor against all design defects. Rather, the implied warranty still should apply to CMAR contracts where the owner maintains control of the design by contracting a separate designer and may be able to transfer liability to the designer responsible for the defect.

However, recognizing the differences between the role of a general contractor in a design/bid/build project and that of a CMAR, the court limited the extent of the implied warranty and held that a CMAR may benefit from the implied warranty only where it has acted in good faith reliance on the design and acted reasonably in light of the its own design responsibilities. The CMAR’s level of participation in the design phase and the extent to which the contract delegates design responsibility to the CMAR may affect whether its reliance was reasonable. Accordingly, the greater the CMAR’s design responsibilities in the contract, the greater its burden will be to show its reliance on the defective design was both reasonable and in good faith.

In Coghlin, an electrical subcontractor sued Gilbane, the CMAR, for cost overruns resulting from Gilbane’s alleged actions and from errors in the design. Gilbane filed a third party complaint against the public owner, alleging that any liability it had to Coghlin for design defects was properly the liability of the public owner for design errors. As described above the Massachusetts Supreme Court determined that the implied warranty of plans and specifications applied in CMAR contracts.

In addition the Massachusetts Supreme Court determined that the indemnity provisions in the CMAR contract did not require dismissal of Gilbane’s third party complaint against the public owner. The Supreme Court found that the CMAR’s indemnity obligations did not require the CMAR to indemnify the Owner for design defects that were not the responsibility of the CMAR in the underlying contract.

Since CMAR contracts typically include some design-related obligations for the CMAR, counsel and the parties should carefully review the extent of the design obligations to determine if the implied warranty of plans and specifications has been disclaimed or altered by the terms of the CMAR agreement.

PLDR Law Scott Kowalski 1

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