Do Architects and Engineers Owe a Legal Duty to Non-Contracting Parties?

Jeffrey M. Gallant and Scott D. Garbo | Clark Hill | February 14, 2018

Do architects and engineers owe a common law duty (i.e. non-contractual duty) to Contractors or Owners for alleged negligence, errors, or omissions when performing services? That answer may depend on what services are at issue.  A recent unpublished Michigan Court of Appeals opinion provides some guidance with respect to the Architect’s and Engineer’s common law duty when processing pay applications.

The Court recently held that the Owner of a construction project could not maintain a professional negligence claim against the Architect for failing to adequately review payment applications. In Auburn Hills Tax Increment Finance Authority v. Haussman Construction Co., the Owner entered into a design-build contract with the Contractor.  The Contractor in turn entered into a contract with the Architect whose services included reviewing and certifying pay applications.  The Owner relied upon the Architect’s certifications of the Contractor’s payment applications when it processed each payment to the Contractor.  However, after the Owner paid the Contractor in full, the Contractor dissolved without paying certain subcontractors, exposing the Owner to paying subcontractor claims.  The Owner also did not retain funds to account for liquidated damages assessed against the Contractor for late delivery.

With no privity of contract between the Owner and Architect, the Owner initiated a claim in professional negligence against the Architect.  The Court dismissed the suit holding that when reviewing payment applications, the Architect did not owe a common law duty to the Owner in professional negligence to withhold payments for liquidated damages or confirm that the Contractor actually paid its subcontractors.  Rather, the Court of Appeals found the Architect’s duties with respect to reviewing payment applications arose solely out of the contract between the Contractor and Architect, and as such, the Architect’s duties (to the extent it had such duties) were only owed to the Contractor.

Notably, the Court of Appeals expressly refused to consider whether the Architect owed a similar duty under common law to the Owner under a negligent misrepresentation cause of action.  However, in another recent Court of Appeals’ opinion, Ric-Man Construction, Inc. v. Neyer, Tiseo & Hindo, Ltd., the Court found a broad duty owed by design professionals (and other businesses) under a claim for negligent misrepresentation.  Specifically that Court recognized that a business generally owes a duty to third parties who justifiably rely upon information provided by that business.  Thus, if the Haussman Court would have analyzed the Owner’s negligent misrepresentation claim—and not just the claim for professional negligence—there may have been a finding that the Architect owed the Owner a common law duty arising from the Architect’s review and certification of the payment applications.

The problems that arose in Haussman highlight the need for owners and lenders to retain their own professionals when reviewing payment applications before processing payment.  However, those involved in the draw process need to be aware of their potential liability to their contracting partners and third parties who justifiably rely upon their services—even if no direct contract exists. The narrow holding in Haussman and the broader duties recognized in other recent Michigan cases, provide some guidance on whether a design professional owes a common law duty to third parties on a construction project.

While you may only have a contract with one of many project participants, Michigan courts continue to elaborate on the potential obligations owed to all other participants, including architects, engineers, contractors, subcontractors, owners, and lenders.  Clark Hill’s Construction Law Practice Group has uniquely skilled legal professionals who provide advice and consultation to members of the construction industry on a daily basis to navigate the risks inherent on a project.

Autonomous Vehicles and Ride Sharing Will Reshape Our Buildings, Our Cities, and Our Lives

Foley & Lardner | February 2018

When the first automobile hit roadways in the early 1900s, developers, planners, and city officials had to completely re-think the design and planning of cityscapes, both new and old. The era of narrow streets, communities defined by walking distance or streetcar line, and short-distance commuting gave way to massive boulevards, interstate highways, and the rise of suburbanization. These shifts in urban planning had the sole objective of utilizing the car to move as many people as quickly and safely as possible, without the limitations of public transit. But, because of this, cities themselves suffered, resulting in obsolete buildings being demolished, neighborhoods destroyed for highways, public transit being reduced or removed, and intimate communities ripped apart to shoehorn in 7-lane boulevards. Now, as autonomous cars, busses, and other next-generation technologies entering the mass-market, developers and city officials are again having to re-think how disruptive technologies will shape the way we live, work, and play in our cities.

Unlike urban planners of the past, cities and their planners are trying to integrate new technologies into their existing city-scape, rather than let that technology destroy the existing city and redefine how a city is built. Contrary to the change-and-destroy method of yesteryear, this means “future proofing” projects and city-wide masterplans. By future-proofing existing cities and future developments, planners and city officials hope to build structures that can accommodate and anticipate the changes in the way people commute and live in urban and suburban environments. This means designing buildings that can be retrofitted to convert parking structures to offices or living space, turning roadways to greenspace, or parking lots to parks and commercial spaces that add value to the urban and suburban fabric while still producing a return on investment for the city and developers alike.

As more people look to ride-sharing and car sharing services to meet their commuting and transit needs developers are anticipating a drop-off in personal car ownership and use of a personal car for day-to-day commuting. While current developments require parking space to accommodate commuters, the future might make these spaces obsolete. To avoid this predicted obsolescence, some developers are trying to figure out how they can repurpose these spaces for future use. This could mean the constructing of buildings with internal parking structures that can be converted to office, commercial, or residential space if demand for parking decreases in the future. This also means cities such as Los Angeles are studying how to repurpose their existing surface parking inventory which currently accounts for nearly 14% of the city’s footprint, or about 200 square miles of land, just for parking a car. Other cities are looking to for ways to possibly existing roadways into greenspace and repurpose existing automotive infrastructure for autonomous car staging or increasing pedestrian usage.

In San Francisco, the San Francisco Giants are looking at how they can incorporate the driverless futures into their Mission Rock project. In this 27-acre project, developers are attempting to designing future streets and street-frontage with a focus on prioritizing pedestrian pick-up and drop-off in the world of autonomous vehicles. Similarly, as e-commerce continues to rise in popularity and autonomous delivery trucks on the horizon, many apartment developments are building large storage and cold-storage areas into their footprint and delivery bays to accommodate this shift in consumer shopping.

Although developers and planners are focusing on future proofing their projects, it is not without risk. The cost to build a structure with future proofing in mind not only is more expensive, but in the scope of parking structures, it means fewer cars can fit compared to non-future proofed structure. But, the payoff later can make up for this cost. For instance, one convertible project design includes 117 spaces per floor to park cars, about 17 per floor fewer than if it were built using a conventional parking structure design. But, if this project is converted to office space or even residential living, the return on investment could be 2 to 3 times the return of keeping this a traditional parking structure.

Protecting Contractors Subject to Chief Engineer Decision Clauses

Jonathan M. Preziosi and Stephanie L. Jonaitis | Pepper Hamilton LLP | January 2018

Most contractors have encountered a prime contract provision with a governmental agency or public authority owner where the contract states that all claims for extra costs, delay damages or the like must be presented to the owner’s Chief Engineer for a decision, and that the Chief Engineer’s decision shall be conclusive, final and binding on the parties. This is a much different animal than a clause that merely requires presentation of all claims to the Chief Engineer as a prerequisite to filing a lawsuit. Under the first type of clause, the Chief Engineer becomes the sole judge and jury for the claim, and his or her decision can only be modified or reversed by the courts if the decision was based on fraud, bad faith or mistake about a fact over which no rational person could possibly disagree (such as a mathematical calculation). The right to appeal from a Chief Engineer’s decision under one of these clauses is therefore very limited.

The authors have encountered circumstances when contractors have felt that being bound by such a “Chief Engineer decision” clause is not a bad thing. The Chief Engineer for a particular agency or authority may have a well-earned reputation for dealing with contractors and their claims in an open-minded, fair and neutral manner. Other contractors are skeptical about the chances of getting a fair decision from a person who is the head of the very same organization that is being “sued” for a large amount of money, especially when the claim may involve criticism of project personnel who interact with the Chief Engineer at the office every day. This article will briefly explore key points to keep in mind for the contractor who may have doubts about having its claim decided by the Chief Engineer in the unwelcome event that a claim has to be made.

The first point to keep in mind is that the enforceability of Chief Engineer decision clauses varies from state to state. The courts of some states hold that these clauses are enforceable, and that their judges should not interfere with dispute resolution clauses that are voluntarily signed.1 The courts of other states disfavor these clauses as contracts of adhesion, and prohibit them on the assumption that the relationship between a Chief Engineer and his or her agency is just “too close” to ensure an impartial decision on a claim against the agency.2

Sometimes, Chief Engineer decision clauses will appear in contracts with bi-state agencies that are, by nature, congressional “compacts” between the governments of two states. It is quite possible that the courts of one of those states would enforce such clauses, while the courts of the other state would prohibit them. In such a situation, the contractor’s attorney should evaluate which state’s law should govern the contract, an evaluation that takes into account factors such as the location of the project, where the contract was signed, and where the important witnesses are likely to live.

Assuming that the Chief Engineer decision clause in a given contract is enforceable in the state whose law controls the contract, and that the Chief Engineer will therefore have the final, binding and conclusive say over how a claim gets decided, the contractor and its attorney should be proactive in suggesting — or demanding — that appropriate procedures are in place to ensure as fair a hearing as possible. Counsel should work cooperatively with the “claim officer” or other agency representative responsible for the administration of the hearings to ensure that there will be a right to inspect the agency’s project records and possibly take the depositions of key witnesses as a means of discovery before the hearings start. The hearings themselves should give the contractor a full and fair opportunity to cross-examine the owner’s witnesses and present rebuttal testimony after the owner has presented its defenses. Counsel should also request that the claim officer implement appropriate procedures to ensure that the Chief Engineer does not have any “off the record” communications about the claim with the agency employees or consultants involved in defending it.

Ultimately, and as the U.S. Supreme Court made clear in a case decided a half century ago, the hearing procedures must be “conducted in such a way as to require each party to present openly its side of the controversy and afford an opportunity of rebuttal.”3 Hearing procedures that do not meet this minimum standard of fairness and due process may expose the Chief Engineer’s decision to reversal by a reviewing court, even in states where Chief Engineer decision clauses are enforceable. Most agency claim officers are keenly aware of these standards and understand that it would be in the best interests of all parties to have a hearing process that incorporates procedural safeguards like those discussed above. Counsel for the contractor should proactively work with the claims officer to ensure such a process is formally established in writing before any hearings begin.


1 See, e.g.Laquila Constr., Inc. v. New York City Transit Auth., 282 A.D.2d 331, 331 (N.Y. App. Div. 2001) (holding that a dispute resolution provision making the Chief Engineer the decision maker was enforceable).

2 See, e.g.Gauntt Constr. Co. v. Del. River & Bay Auth., 575 A.2d 13 (N.J. App. Div. 1990) (“Relationship between Director and DRBA . . . is obviously too close to assure the dispassionate and impartial resolution of disputes” between the DRBA and its contractors).

3 United States v. Carlo Bianchi & Co., 373 U.S. 709 (1963).

Utah’s Portable Classrooms Put Kids at Risk, Engineering Experts Say

Benjamin Wood | Salt Lake Tribune | January 24, 2018

Civil engineering and architectural groups urge tougher building standards on 100s of units, saying Utah lacks clear rules for anchoring modular classrooms to the ground, potentially putting thousands of students in danger.

Each school day, tens of thousands of Utah children make their way into stand-alone classrooms a stone’s throw from the main campus buildings where their peers study.

Commonly known as “portables,” these modular structures occasionally get moved around, or they remain in place for decades as a low-cost alternative to constructing newer and bigger schools to relieve overcrowding.

But what, beyond gravity, secures these buildings to the ground?

That question lacks a clear answer in Utah, with a decentralized network of boards for 132 school districts and 127 charter schools in charge of overseeing structural planning.

And while most of the hundreds of portable school buildings in use in Utah are similar in construction, minimum architectural and engineering requirements that cover them are loosely defined, beyond rules that seismic and soil conditions where they are located be studied.

“They’re not required to be on a permanent foundation,” said Natalie Grange, an assistant state superintendent for the Utah Board of Education. “When they’re installed, they are hooked to the ground in some way that satisfies safety and seismic requirements.”

On Wednesday, leaders of Utah civil and structural engineering groups issued a joint statement urging new, more stringent standards on modular buildings, including portable classrooms and offices.

(Trent Nelson | Tribune file photo) Students at recess at Butterfield Canyon Elementary in Herriman, which has 14 portable classrooms. On Wednesday, several Utah civil and architectural engineering groups called for more stringent building standards on the hundreds of portable classrooms in use across the state, saying current rules may be putting students at risk.
(Trent Nelson | Tribune file photo) Students at recess at Butterfield Canyon Elementary in Herriman, which has 14 portable classrooms. On Wednesday, several Utah civil and architectural engineering groups called for more stringent building standards on the hundreds of portable classrooms in use across the state, saying current rules may be putting students at risk.

When these modulars are used for more than 180 days — virtually all portable classrooms in Utah are used beyond that timeline — they should be considered “permanent” structures and subject to more rigorous structural codes, the professional groups said.

“Unanchored and/or unbraced structures intended for occupancy do not meet the provisions of the building code and present a risk to the health and safety of the occupants,” said the statement.

Issued Wednesday, the statement is signed by Anthony Schmid, president of the American Society of Civil Engineers Utah Section; Conrad Guymon, chairman of the Utah Section’s Structural Engineering Institute; and Troy Dye, president of the Structural Engineers Association of Utah.

Matt Roblez, a past president of the the American Society of Civil Engineers Utah Section, said he became concerned about the regulatory ambiguity surrounding construction of portables after inspecting a series of modular units intended for use at Utah schools.

Building codes did not appear to be enforced, Roblez said, but unlike some states, Utah does not have clearly defined requirements or guidance for prefabricated classrooms.

“At the minimum, Utah schools should adhere to the code more strictly by securing portable classrooms to the ground with use of a permanent footing and foundational system,” Roblez said. “Until this code can be properly enforced, Utah should write an adopted standard for schools to follow.”

Supply and demand

Salt Lake County’s five school districts operate a combined 604 portable classrooms, according to district spokespeople. The numbers range from a high of 250 portables in the fast-growing Jordan School District to six portables in the comparably small Murray City School District.

Utah’s two largest school districts, Alpine and Davis, operate 363 and 347 portable classrooms, respectively.

The state’s average student-to-teacher ratio is 21.8, according to the most recent data from the state Board of Education. By that math, portable classrooms in north-Utah County, Davis County and Salt Lake County house roughly 30,000 children.

Davis School District spokesman Chris Williams described the modular units as a necessary evil. School construction often lags behind swings in student population trends, and modular classrooms allow districts to adjust more quickly to those trends.

When the Davis district last sought voter approval for a bond, written materials on the measure noted that if all the district’s portables were stacked vertically, they would form the tallest building on Earth.

“We wish we could get away from them, but as you see from the numbers, 347 of them, we use them quite a bit,” Williams said. “We definitely make sure that it’s safe for people to occupy them.”

For its portables, Davis relies on a typical system of placing the buildings on rails and tying them to bars that extend 2 to 3 feet into the soil beneath. That setup, Williams said, allows portables to absorb wind or seismic activity without sustaining damage.

In case of a major disaster, classrooms anchored in this way might be shaken off their base rails, Williams said, but would likely remain otherwise intact.

“They’re made so that they can kind of sway back and forth,” he said. “If they fall, they’re going to fall a few feet.”

He said Davis School District’s portables are all on top of soil, without a foundation or hard surface beneath them.

“Our portables are placed on the grass or on dirt,” Williams said. “We do not lay a cement pad down or asphalt to go underneath them.”

Roblez said Davis School District’s approach — while typical for districts across the state — fall short of safety standards.

“Ground stakes, the tool that many modular units use for stability, do not meet the provisions of the current code for permanent foundations,” he said. “Per the code for a permanent structure, buildings require a footing and foundational system that is required to withstand gravity loads, wind and seismic events and be placed at frost depth.”

Quick fix for overcrowding

In Granite School District, all portables installed within the past six years have been placed on hard surfaces, spokesman Ben Horsley said.

“It’s more secure, clearly, having it on concrete or asphalt,” Horsley said. “You will find some [on soil], even within Granite District. That’s not to say they’re not safe and secure.”

Like portables in the Davis district, Granite’s classrooms are tied to pairs of stakes that extend into the ground. The district has also moved to using steel frames, instead of wood, over the past decade and bolts the portables’ base siding into the asphalt or concrete beneath them, adding an extra level of anchoring, according to Steve Hogan, the district’s director of planning and boundaries.

Hogan said the district chooses flat areas to place portables — to avoid issues such as rain erosion or shifting soil — and keeps the buildings as low to the ground as possible for accessibility and to lessen the distance a building would drop if it fell off its footings.

(Trent Nelson | The Salt Lake Tribune) The footing under a portable classroom at Stansbury Elementary in West Valley City, Friday December 8, 2017.
(Trent Nelson | The Salt Lake Tribune) The footing under a portable classroom at Stansbury Elementary in West Valley City, Friday December 8, 2017.

Because building codes for portable classrooms are not spelled out in detail, Horsley said the district looks to residential mobile homes as a standard for its modular buildings. He declined to comment on the design and anchoring of other districts’ portables, but noted that he’s unaware of any safety incident in Utah related to the structural integrity of modular buildings.

“We’ve tried to go above and beyond what those [mobile home] requirements are,” Horsley said. “I think we’re about as prepared as we can be and we’ll continue to upgrade. If we see other logical, reasonable ways that we can make these safe, we’re happy to look into that.”

Ross Wentworth, an architect with the Salt Lake City-based firm Naylor Wentworth Lund, has designed portable classrooms for several school districts, most recently Jordan School District.

Wentworth said most districts use a standard design plan for modular buildings, which is then tailored to specific conditions. And because portables are lightweight, detached from and typically newer than other district structures, Wentworth said they’re preferable to other buildings children could find themselves in during an earthquake.

“If I had to choose a place for a son or daughter to be, with respect to seismic activity, it would be in a relocatable,” he said.

(Trent Nelson | The Salt Lake Tribune) Portable classrooms at Stansbury Elementary in West Valley City, Friday December 8, 2017.
(Trent Nelson | The Salt Lake Tribune) Portable classrooms at Stansbury Elementary in West Valley City, Friday December 8, 2017.

Jenefer Youngfield, school construction and safety specialist for the state Board of Education, also referred to residential mobile-home design standards as a guide for the structural requirements of portable classrooms. Like mobile homes, she said, portables do not need be secured to a fixed foundation — unless the designing architect decides that site conditions require it.

Building plans for portable classrooms must approved by a certified examiner, she noted, and public concerns regarding safety can be submitted to the state Board of Education for review.

“The long and short of it,” Youngfield said, “is it’s up to the architect or engineer.”

‘Good, durable facilities’

Wentworth said if there is a regulatory gap in standards for portables, it rests with how they are connected to the ground. Like Williams and Horsley, the school architect speculated that a worst-case scenario could shake these classrooms loose of their footings, causing them to fall 1 or 2 feet to the ground.

But Wentworth emphasized that the structures remain safe when adequate attention goes into their design and installation. And while many spend their useful life at a single location, the buildings are built to be moved, he said, helping administrators respond to shifting enrollment.

“Our experience is that they’ve been pretty good, durable facilities,” Wentworth said. “They certainly solve a unique problem for the number of students we deal with in Utah.”

But Roblez said the lack of clear regulations and minimum standards is only adding to the potential for structural damage.

He urged that more be done to mitigate the risks, with sufficient foundations being the first line of defense against earthquakes and major weather events. Roblez also called for wider public awareness on the issue.

“Parents should ask questions of school facilities managers to understand how schools are adhering to the building code,” he said.

Horsley said Granite School District welcomes feedback from community groups on structural safety, acknowledging that modular classrooms are “the next best option” to a traditional schoolhouse.

“Our preference,” he said, “would obviously be a seismically sound, permanent facility.”

Bad Facts Make Bad Law – Condo Version

Stan Martin | Commonsense Construction Law LLC | January 20, 2018

Condo bylaws that restrict the ability of a condo board to sue the developer came in a for a beating by the Massachusetts Supreme Judicial Court. While refusing to prohibit all restrictive bylaws, the Massachusetts high court roundly criticized the bylaws in question. Deservedly so.

The condo bylaw restricted the ability of the condo board to sue the developer as follows:

neither the Trustees acting in their capacity as such Trustees or acting as representatives of the Unit Owners, nor any class of the Unit Owners shall bring any litigation whatsoever unless a copy of the proposed complaint in such litigation has been delivered to all of the Unit Owners, and not less than eighty (80%) of all Unit Owners consent in writing to the bringing of such litigation within sixty (60) days after a copy of such complaint had been delivered to the Unit Owners and specifying as part of the written consent a specific monetary limitation to be paid as legal fees and costs and expenses to be incurred in connection therewith, which amount shall be separately assessed as a special assessment effective forthwith at the time of said affirmative consent.

Thus – 80% of all unit owners had to sign on affirmatively, they had to be given a cap on the legal fees to be incurred, and they had to agree to an immediate assessment covering the entire legal budget at the outset.

The underlying facts included an engineering investigation of building envelope problems and an estimate of repair costs exceeding $2 million. And the original developer still holds more than 20% of the units, and could easily continue to thwart any attempt by the condo board to sue the developer. There is little wonder that the Massachusetts court held that this provision to be “void because it contravenes public policy.”

The court did refuse to ban any limitation in condo bylaws that might establish hurdles for pursuing litigation. It refused to adopt the argument of the condo association that any such restriction was per se in violation of the Massachusetts condo law. But the hurdles presented by the condo bylaws in question were simply too high and too onerous. This was not a good set of facts upon which to decide whether condo bylaws can be more restrictive than the condo laws.

Massachusetts courts have consistently upheld contract terms in commercial settings, even when those terms caused a severe hardship to one party. But in a consumer setting – which would include condo matters – the courts have normally sided with the consumer. And the developer’s attempts in this case to insulate itself from claims of deficiencies were too high-handed for the court to stomach. This is yet another example of bad underlying facts – overreaching by a business against consumers – giving the court an opportunity to cut down the developer’s efforts. The saving grace is that the court refused to prohibit any such limitations across the board.

The case is Trustees of the Cambridge Point Condominium Trust v. Cambridge Point, LLC, et al., SJC-12327 (Jan. 19, 2018).

Why is this on a construction law blog site? The claims most likely to be affected by any such bylaw restrictions would concern design and construction of a condo project.