Design-Assist, An Ambiguous Term Causing Conflict In The Construction Industry [1]

John P. Ahlers | Ahlers Cressman & Sleight | October 31, 2019

“Design-Assist” is one of the recent cost-saving trends being touted for construction projects and, in particular, construction projects utilizing alternative procurement methods.  If an internet search for the term, “design-assist” is made, the result will be numerous construction industry articles and white papers lauding “design-assist” as a recent cost-saving trend in construction procurement.  From a legal perspective, however, the term “design-assist” is notably absent from court opinions and most state licensing laws.  With the exception of the ConsensusDocs, few standard form contracts even include the term “design-assist” in their text.

The ConsensusDocs agreement provides examples of the Constructor’s obligations to perform “assisting activities” (the term “design-assist” is not used) and states that, notwithstanding the performance of such “assisting activities” by the Constructor, the responsibility of the design remains with the Designer unless otherwise stated in the Contract:

  • Article 4.5 DESIGN PROFESSIONAL’S RESPONSIBIITIES The Designer shall furnish or provide all design and engineering services necessary to design the Project in accordance with the Owner’s objectives … the Designer shall draw upon the assistance of Constructor and others in developing the design, but the Designer shall retain overall responsibility for all design decisions….
  • Article 4.6 CONSTRUCTOR’S RESPONSIBILITIES [T]he Constructor shall assist the Designer in the development of the Project Plan and Project Design but shall not provide professional services which constitute the practice of architecture or engineering unless the Constructor needs to provide such services in order to carry out its responsibilities … or unless specifically called for by the Contract Documents.
  • Article 6.3.3 INTEGRATED DESIGN PRINCIPLES In order to achieve the Project objectives, the design process must occur in a collaborative manner, informed by the free-flow of accurate information concerning program, quality, cost, and schedule.  While retaining overall responsibility for the Project design, the Designer must work collaboratively with the other members of the IPD Team, drawing on their respective expertise in order to achieve the Project objectives.[2]
  • Design-assist contracting is a construction management method to improve quality and maintain cost.  It is most commonly used when a specialty trade, fabrication, or building method requires a unique solution or set of trade skills.  Design-assist contracting is best suited for design building or construction management at risk (CM@R) projects in which the architect and owner work with trades people, manufacturers, and subcontractors to develop a budget and project schedule for a unique solution, material, or construction application, such as reproducing historic windows or finishing plaster walls.[3]

Thus, without an accepted definition, the term “design-assist” is open to multiple interpretations and expectations within the industry.  Allocation of design responsibility is a significant risk and hence, the use of undefined terms, such as the use of “design-assist” in contract documents creates unintended consequences for the participants in Design-Build, GCCM, Engineer-Procure-Construct (EPC) contracts where the term “design-assist” is used.

The term “assist” means to “give help to; aid.”[4]  Clearly, design-assist does not encompass all design responsibilities on a given project.  The demarcation as to when contractors, in assisting with design services “cross the line” and enter into professional territory is fuzzy.  If a contractor is deemed to cross the threshold into professional territory, there are significant additional risks to the contractor:

  • A contractor may likely be held to a higher standard than that which governs design professionals;
  • A contractor will not, as a matter of public policy, be permitted to limit its liability for negligent acts because it is now subject to claims based on professional liability as well as contractual liability;
  • A contractor risks criminal liability for unlicensed practice of engineering or architecture if performing professional services rather than working as a contractor; and
  • Pursuant to the “professional acts” exclusion, coverage for professional liability is generally excluded under commercial general liability or other commercial liability policies.

Then the issue becomes how best to limit the liability of a contractor if the owner insists on using the term “design-assist.”  If “design-assist” is going to be used in a contract, it should be defined, the scope of the Contractor should be clarified, and, if possible, the Contractor’s liability should be limited.  For example,

Define/Defining the Contractor’s design-assist role:

  • Using an electrical subcontractor as an example, the Contractor shall review the electrical design documents and specifications for any errors, inconsistencies, or omissions;
  • Review of the electrical design documents and specifications for clarity and constructability to reduce the risk of field conflicts and changes to the Work;
  • Coordination with the Design Professionals to identify routing and eliminate conflicts among the Work of other trades;
  • Alternatively, if it is desired that the Subcontractor is responsible for the design, the Contract should clearly so state the responsibility that the Subcontractor is able to price its work accordingly.

The Subcontractor shall be responsible for addressing any questions which arise as to the interpretation of the design and as to the fulfillment of the Subcontract Agreement.

Clarify:

Another way to limit the design-assist obligations is to clarify specifically what the Subcontractor or Contractor’s role is as follows:

  • The recommendations and advice of Contractor concerning modifications and alternatives shall be subject to review and approval of the Engineer.

Limit:

Finally, the Contractor should limit its liability for its role in the design.  A suggestion:

  • It is expressly recognized that Contractor is neither acting in the capacity of a licensed design professional nor assuming any design liability in its review of the design or collaboration on the constructability.

[1] This blog article is based on the Journal of American College of Construction Lawyers, Vol. 11, #1 Winter 2017, Joel D. Heusinger, “Ambiguity Breeds Conflict: The Importance of Defining ‘Design-Assist’ in the Construction Industry.”

[2] ConsensusDocs 300, Standard Multi-Party Integrated Project Delivery (IPD) Agreement (emphasis added).

[3] “The Basics of Design-Assist Contracting,” David Hart, AIA Best Practice (October 2007).

[4] New World Dictionary of American English, 83 (3d College Ed. 1991).

Single Contractor Not Precluded from Providing Both Design and Construction Services

Jennifer Brandenburg, Michael Maurer and Gary Schons | Best Best & Krieger | December 4, 2019

A contractor that had two separate contracts with a school district — one for preconstruction services and the other for construction services — did not have a disqualifying conflict of interest, a California appellate court held. The decision provides an important clarification for public agencies that want to hire the same contractor for both the design and construction stages.

In California Taxpayers Action Network v. Taber Construction, Inc., the First District Court of Appeal on Wednesday found that, because Mount Diablo Unified School District hired Taber Construction in a single procurement for both construction phases, the construction company was not in a position to influence how the public entity spends the public’s money. Government Code section 1090 prohibits public officials and employees, including certain independent contractors and consultants, from having a financial interest in government contracts made in their official capacities. Taber, therefore, could not have used its preconstruction consulting work to influence the school district to hire it for the construction phase because the school district had already selected Taber to perform that work. (Note that school districts may procure construction contracts without awarding to a low bidder by using the lease-leaseback method.)

The court’s opinion never explicitly mentions Davis v. Fresno Unified School District, but it serves as a much-needed clarification of the 2015 Davis opinion. Davis involved similar but distinguishable facts. A school district first hired a contractor to perform preconstruction services, and then subsequently hired the contractor to perform construction work through a lease-leaseback procurement. The Davis court held that the mere allegation that the contractor had a hand in designing and developing the plans and specifications was sufficient to bring a lawsuit under section 1090. The court left open the question as to whether the plaintiff could actually prove that the contractor had a conflict of interest.

Two key distinctions separate the Taber case from the Davis case. The first is factual: the school district selected Taber through a single Request for Qualifications/Proposal process. Thus, Taber was never in a position where it could influence the transaction until it was confirmed to provide work in both phases. This differs from Davis where work on the preconstruction phase led to the offer of a construction contract. The second distinction is analytical. Both cases rely on the case of Stigall v. Taft, which held that section 1090 precludes an official who performs preliminary discussions and drawings of plans and specifications from bidding on future contracts for that work. But where Davis simply concluded there may be a conflict of interest, Taber took a more logical and analytical approach, holding that Taber only provided services to the school district, not as a de facto official of the school district. That is, participation in the design phase does not automatically preclude work in the construction phase. The question under section 1090 is whether the contractor performed design work as a public official and had the opportunity to improperly influence the public agency to hire it for the construction work.

Taber provides an important clarification because there may be value in having the construction contractor perform preconstruction services. In the case of Taber, the preconstruction services included scheduling, estimating, constructability review and development of a guaranteed maximum price; i.e., work that the construction contractor is uniquely able to perform. Beyond the lease-leaseback context, Taber’s analysis of a “one transaction” procurement for multi-phased work provides a framework for public agencies to utilize a single independent contractor without the independent contractor improperly influencing the public agency.

If you have any questions about this new decision or how it may impact your agency, please contact the authors of this Legal Alert listed to the right in the firm’s Municipal Law practice group, or your BB&K attorney.

The Expansion of Potential Liability of Construction Managers and Consultants

Scott D. Cessar | Construction Executive | October 9, 2019

Over the last decade or so, there has been far more judicial willingness to adopt legal theories that result in an increased risk of exposure to construction managers and consultants working on construction projects. This has resulted in a greater likelihood of lawsuits being filed that name construction managers and consultants as defendants and a greater likelihood of those lawsuits surviving efforts to have the lawsuits dismissed prior to trial. The consequence of more claims has led to increased costs for legal expenses, settlements and uncompensated personnel time devoted to the defense of the claims.

This expansion of potential liability may be broken into two sets: 

  1. claims for pure economic loss not arising from property damage or personal injury by parties not in a contractual relationship with a construction manager or consultant; and
  2. claims for property damage or personal injury by a party not in a contractual relationship with a construction manager or consultant.

The first set concerns claims by a contractor against a construction manager or consultant that its breach of duties owed to the owner on a project and/or its provision of incomplete or inaccurate information on a project, which it knew, or should have reasonably anticipated, would be relied on by the contractor, resulted in damages to the contractor. 

For many years, in the great majority of jurisdictions, construction managers and construction managers were insulated from such claims by the economic loss rule, which prohibited third parties from asserting negligence claims against parties to recover pure economic losses, not caused by personal injury or property damage, from parties to which they were not in privity of contract. 

The economic loss rule, however, has been eroded significantly over the years by the growing judicial adoption of the Restatement (Second) of Torts §552(a)1,  which states that entities in the business of supplying information that they know or should reasonably anticipate will be relied on by third parties may be held responsible for money damages if this information is proven to cause harm to a third party that relied on the information. 

The great majority of states have now adopted the Restatement Second of Torts §552(a). 

The consequence is that, for example, in Tennessee a court found that a construction manager could be held potentially liable to a concrete contractor for money damages based on its allegation that the construction manager had incorrectly measured and set the benchmarks to which the concrete floors were poured. Similarly, in New York, a court held that a construction manager could be held potentially liable to a contractor for money damages for negligent misrepresentations based on its alleged failure to identify defects in the design documents because the construction manager had a duty to review those documents.

The second set concerns claims by injured workers or adjacent property owners against s or consultants for damages for personal injury or property damage. Following the Restatement Second of Torts §324(a), a construction manager or consultant may be held liable if it either “gratuitously or for consideration” renders services that it should recognize could cause physical harm and, in rendering such services, fails to exercise reasonable care, which results in harm. 

Just about every state has either adopted Restatement Second of Torts §324(a) or recognizes the same cause of action based on the common-law doctrine of negligent undertaking. 

The consequence is that, for example, in the District of Columbia an environmental consultant was held to be potentially responsible to a worker who claimed injuries due to exposure to contaminated soils, based on the fact that the consultant prepared the environmental assessment report and had an ongoing obligation to monitor air conditions. In another example, in Arizona, a CM was held to be potentially responsible for almost $4 million in property damages caused when a sprinkler system malfunctioned, based on the CM’s obligation to supervise the system’s installation. 

In these cases, the language of the construction manager’s and consultant’s contracts are closely scrutinized by the courts as to the duties they agreed to undertake as well as their actual conduct on the project in determining whether they could be potentially liable such that the case should go to a jury. 

A subset of this expansion of liability of construction managers and consultants is whether a party may claim that it is an intended third-party beneficiary of the owner’s contract with the construction manager or consultant. Here, courts will scrutinize the owner’s contract with the construction manager or consultant to determine if third parties were entitled to rely on the information provided by the construction manager or consultant. Thus, in the District of Columbia case discussed above, the environmental consultant was held to also be potentially responsible to the excavation subcontractor for any damages the injured worker might recover from the excavation subcontractor based on faulty air monitoring, under the theory that the excavation subcontractor was an intended third-party beneficiary of the owner-consultant contract. 

In order to protect themselves as best as can be, construction managers and consultants should take care in the negotiation and drafting of contracts to not accept broad delegations of duties inconsistent with their actual scope of work. If possible, they should include disclaimers in their contracts as to who may rely on their work product and expressly state that third parties are not intended beneficiaries of those contracts. Although this will not preclude potential liability in all states, it will certainly be useful if the case goes to the jury. In addition, construction manager s and consultants should consult with their insurance broker to be sure that they have robust coverage in view of the magnitude of their potential liability exposure.

Design-Build Contractor Held to the Same Standard On Differing Site Conditions Clause

Matthew DeVries | Best Practices Construction Law | November 20, 2019

Each and every kid in my house is held to the same standard—a very tough one I might add.  You see, I recognize they are different ages, difference sexes, and have different strengths and weaknesses, but that does not change how I choose to parent as a single dad.  In the same way, a court recently held that the type of contract delivery method did not change the applicability of the differing site conditions clause.

Appeal of John C. Grimberg Co., Inc., ASBCA No. 58791 (Oct. 25, 2018) involved the construction of a biolab facility at Fort Detrick, Maryland. The contract was a design-build contract.  As is typical of a design-build contract, no unit prices for rock excavation were set for because the contractor’s foundation solution is not established at the time of award. Interestingly, this contractor had performed other contracts at Fort Detrick involving deep foundations that happened to be design-bid-build contracts containing unit prices for excavation.

During construction, the presence of incompetent rock forced the contractor to use more drilling rigs than anticipated.  This crowded the site and prevented scheduled commencement of grade beams and rough-in of underslab MEP work. By the time the contractor completed drilling piers, it had excavated nearly four times the amount it had anticipated in its proposal.  The contractor submitted a Request for Equitable Adjustment, alleging that it had encountered a Type I differing site condition—i.e, where the site differed materially from those represented by the government. The contracting officer denied the claim, and the contractor appealed.

To establish such a claim, a contractor must prove: (1) the conditions indicated in the contract differed materially from those actually encountered during performance; (2) the actual conditions were reasonably unforeseeable to the contractor at the time of bidding; (3) contractor reliance; and (4) damages.  In this case, the board rejected the government’s argument that the differing site conditions clause is applied more restrictively to a design-build contractor than in the design-bid-build context. The board reasoned:

The identical DSC clause is required to be included in fixed-price construction projects, whether the design-bid-build or design-build method of contracting is utilized. There is no justification for interpreting the clause differently in the design-build context. As appellant concedes, design risk is transferred to contractors in the design-bid context, but not the risk of DSCs. A design-builder does not forfeit its rights under the DSC clause to rely on solicitation representations of subsurface site conditions.

The board concluded the contractor had established Type I differing site conditions claim that the “quantities of rock encountered greatly exceeded the quantity reasonably foreseeable based on a fair reading of contractual indications, albeit the Project was constructed in highly-variable karst topography at the site.”

Ultimately the decision is a good lesson for contractors to document “all of the facts, circumstances and contractual indications of subsurface conditions,” which is what the board relied upon in making its decision.  Another lesson learned is the importance of “reasonableness” when drafting or submitting claims.  Although the board found that two of the borings used by the contractor were unreasonable, it was “more reasonable” than the government’s analysis.  In the end, reasonableness matters.

New Mandatory Bond Notice Forms in Florida

Brian A. Wolf and Miles D. Jolley | Smith Currie & Hancock | November 18, 2019

Subcontractors and suppliers must now use new, statutory notice of nonpayment forms to preserve payment bond claims, and sign each notice of nonpayment under oath.

The State of Florida instituted changes to the statutes governing public-project payment bonds (section 255.05, Florida Statutes) and private-project payment bonds (section 713.23, Florida Statutes). The changes went into effect on October 1, 2019. Previously, notices of nonpayment were not required to be signed under oath. Now, the law requires the use of specific statutory notice forms that claimants must sign under oath. Previously, there were no statutory penalties for claimants who exaggerated the amount claimed against a payment bond. Now there are specific statutory penalties against a claimant who willfully or negligently signs a notice of nonpayment that includes a claim for work not performed or materials not furnished, or who is guilty of signing a notice prepared with willful or gross negligence.

Public construction payment bonds are governed by section 255.05, Florida Statues, also known as Florida’s Little Miller Act. This statute requires all payment bond claimants who don’t have a direct contract with the general contractor to serve both the bonding company and the general contractor with a notice of nonpayment no later than 90 days after their last date of work or last delivery of materials. The amended statute now requires that the claimant use the statutory notice form and sign the form under oath. If the claimant includes exaggerated claims, or intentionally makes a claim for work or materials not provided, or otherwise prepares a notice with gross negligence, then the bonding company and the general contractor will be able to use such as a complete defense to an otherwise valid bond claim.

Private construction payment bonds posted by the general contractor are governed by section 713.23, Florida Statutes. This statute requires all payment bond claimants including those contracting directly with the general contractor to serve both the bonding company and the general contractor with a notice of nonpayment no later than 90 days after their last date of work or last delivery of materials. The amended statute now requires that the claimant use the statutory notice form and sign the form under oath. If the claimant includes exaggerated claims, or intentionally makes a claim for work or materials not provided, or otherwise prepares a notice with gross negligence, then the bonding company and the general contractor will be able to use such as a complete defense to an otherwise valid bond claim. Another important change to section 713.23 is the new requirement that payment bond claimants specify the portion of their bond claim that represents retainage. Previously, the requirement to specify the amount claimed for retainage only applied to public projects — now it applies to both public and private projects.

The changes to Florida’s payment bond statutes are intended to deter and penalize claimants who make exaggerated or fraudulent bond claims. It should be anticipated that the courts will apply the revised statutes in the same manner as established law regarding fraudulent liens since the statutory changes are modeled after the Florida’s fraudulent lien statute, section 713.31, Florida Statutes. Claimants who previously used lien notice services or non-attorney collection companies to prepare their bond-claim notices should strongly consider using an experienced construction attorney to advise them regarding both liens and bond notices since the penalties for serving a false, exaggerated or negligently prepared notices are severe, and advice of legal counsel is a recognized defense to a fraudulent lien claim.