Almost one hundred years ago, the United States Supreme Court announced one of the most prominent doctrines in construction law. Bearing the name of the Supreme Court case in which it was established (United States v. Spearin, 248 U.S. 132 (1918)), the “Spearin Doctrine” holds that an owner impliedly warrants the adequacy of design specifications that it requires the contractor to follow when building the construction project. Under the Spearin Doctrine, the owner is responsible for additional costs incurred by the contract as a result of defective plans and specifications. While the Spearin Doctrine does not apply to all projects and in every circumstance where the owner furnishes plans and specifications to the contractor, the Spearin Doctrine has guided risk allocation in construction contracting across the country for decades.
The Spearin Doctrine was decided in the context of a conventional design-bid-build project. Since the Spearin Doctrine became law, however, project delivery methods have continued to evolve. The industry has frequently employed new combinations of contracting methods that blend design and construction functions, favoring partnering and sharing in the risks and rewards of a project. Nevertheless, disputes regarding design constructability can occur among project participants even when an alternative project delivery method has been implemented. As the law catches up with the industry, the courts are now addressing if and how the Spearin Doctrine applies to projects that are built through alternative contracting methods. This article highlights Coghlin Electr. Contractors, Inc. v. Gilbane Building Co., 36 N.E.3d 505 (2015), a recent decision from the highest court in Massachusetts in which a court for the first time considered whether a Construction Manager At-Risk (“CMAR”) who participates to some extent in the pre-construction design phase could rely upon the Spearin Doctrine to recover costs from the public owner as a result of design errors.
The Project At Issue In Coghlin
In 2005, Massachusetts law was amended so that state agencies could employ design-build and construction management at risk delivery methods for certain construction projects. The amended law authorized CMAR projects for “construction, reconstruction, installation, demolition, maintenance or repair of any building estimated to cost not less than $5,000,000.”
Mass. Gen. Laws ch. 149A §§ 1-3. For qualifying projects, the agency enters into separate contracts, one with the designer and one with the CMAR. The agency may contract with the CMAR in the pre-construction design phase and involve the CMAR in a range of services, including cost estimation, design, coordination of bid packages, scheduling, cost control, and value engineering.
Pursuant to the foregoing statutory authority, the Massachusetts Division of Capital Asset Management and Maintenance (“DCAM”) employed the CMAR delivery method to build a psychiatric facility (“Project”). When the Project was in design, DCAM entered into a contract with Gilbane Building Co. to serve as the CMAR (“CMAR Contract”). The CMAR Contract delegated certain design-related tasks to the CMAR, such as recommending design modifications and alternatives when the design details affected construction feasibility, schedules, cost or quality. However, the CMAR Contract also emphasized that the CMAR’s recommendations would be made without assuming responsibility for the design and that DCAM and its separately-hired designer maintained authority and control over the Project design.
During the course of the Project, the CMAR’s electrical subcontractor, Coghlin Electrical Contractors, Inc. (“Coghlin”) claimed that various design discrepancies and changes affected its performance, causing substantially increased labor costs. Unsatisfied with the response to the claim, Coghlin filed suit against Gilbane for breach of their subcontract. In turn, Gilbane brought DCAM into the lawsuit seeking to pass through Coghlin’s design claim.
The Coghlin Litigation
The primary issue in the lawsuit was whether the implied warranty of the design applies when the construction project is not a traditional design-bid-build in which the owner prepares the plans and specifications without any involvement from the contractor. The trial court concluded that the implied warranty of design should not apply in a CMAR project because of material changes in the roles and responsibilities of the parties. As such, the trial court dismissed Coghlin’s pass-through claim. The case proceeded on appeal to the Supreme Judicial Court of Massachusetts, the highest court in the state.
Reviewing the trial court’s ruling that no implied warranty of design is found in a CMAR contract, the Supreme Judicial Court reached a contrary conclusion. The dispositive factor in the Supreme Judicial Court’s decision to overturn the dismissal of the case was that the CMAR did not have control of and responsibility for the design. While the CMAR under the Massachusetts statute may consult in the design phase to some degree, the court reasoned that the owner and its designer ultimately controlled the design and did not have an obligation to accept the CMAR’s input regarding design-related matters unless the particular contract between the parties stated otherwise. Thus, unlike the trial court, the Supreme Judicial Court concluded that the CMAR’s participation in the design phase, but not as the designer, did not warrant shifting the risk of a defective design from the owner and its third-party designer.
Although the Supreme Judicial Court found the implied warranty of design applicable to CMAR contracts, it developed a sliding scale test for lower courts to determine when damages for a defective design are recoverable. The court stated that the CMAR may recover damages caused by the breach of the design warranty only if it proves that its reliance on the defective plans and specifications was reasonable and in good faith. When weighing the reasonableness of the CMAR’s reliance on the design, the court explained that the fact finder should consider the CMAR’s level of participation in the design phase and the extent to which the contract delegates design responsibility to the CMAR. As the court noted, the greater the CMAR’s design responsibilities, the more difficult it will be for the CMAR to establish that its reliance on the defective design was both reasonable and in good faith. But if the CMAR could satisfy its burden under the reasonableness inquiry, it will be entitled to recover damages from the owner in the event that defects in the design result in additional costs.
The Supreme Judicial Court’s opinion in Coghlin was the first of its kind to address whether the Spearin Doctrine applies in the context of a project performed by a Construction Manager At-Risk. As the application of the Spearin Doctrine to similar projects is addressed in other states, time will tell whether the Massachusetts court’s reasonableness test gains a foothold in other jurisdictions. For now, it is significant that the process of adapting longstanding construction law doctrines to modern projects is underway.