Under California Law, the question of who is potentially liable for injuries/damages arising from defects caused by a project’s design may depend on several things, including who is making the claim, and what type of damages are being claimed. As for claims by a public entity for damages arising from defects in the plans/specifications for a project, the public entity has numerous remedies against the designer of the project. The public entity has a breach of contract claim against the architect or engineer the public entity hired to design the project, and/or a negligence claim if the defects caused personal injuries or property damages. Whether the public entity can hold anyone else liable for the defects is not as clear.
California has a number of cases in which Courts have held that contractors that follow a project’s plans and specifications without deviation are not liable for any damages caused by design defects. For example in Barnthouse v. California Steel Buildings Co. (1963) 215 Cal.App.2d 72, the Court found that a grandstand was built by the general contractor in accordance with the plans and specifications that the general contractor was bound to follow because of their contractual obligation with the County of Madera. The Court found that Barnthouse could not be liable for the injuries that occurred on the grandstand citing Johnson v. City of San Leandro (1960) 179 Cal.App.2d 794, 801. However, other cases have held a contractor liable when its own negligence contributes to the loss. (See Stewart v. Cox (1961), 55 Cal. 2d 857, 863; (1962) 58 Cal. 2d 368, 379; and Diamond Springs Lime Co. v. American River Constructors (1971) 16 Cal. App. 3d 581, 593.)
The basis for the position that a general contractor is not liable for damages caused solely by design defects, especially on public works projects, was recently expanded by the Supreme Judicial Court of the State of Massachusetts to apply to an at-risk construction manager (i.e. a construction manager that directly hires the subcontractors that construct the project). (See Coghlin Elec. Contractors, Inc. v. Gilbane Bldg. Co. (2015) 472 Mass. 549; 36 N.E.3d 505) In Coughlin, a subcontractor sued the construction manager claiming it incurred additional costs because of numerous problems on the project, including design errors and omissions. The construction manager sued the public entity that hired it seeking to recover any portion of those alleged damages that arise from errors in the design. The issue before the Court was whether the implied warranty owed by the public entity regarding the project’s plans and specifications was applicable to the construction manager and allowed it to recover the added costs caused by design errors from the public entity.
The Coughlin Court noted that similar to the design-bid-build method, when a public entity’s hires an at-risk construction manager, it still typically enters into a separate contract with a designer to design the project. However, the Court also noted that unlike the general contractor in the design-bid-build method, the owner may contract with the construction manager before the design has been completed, and may hire the construction manager to provide consultation regarding the design of the project. As a result, the construction manager may influence the project’s final plans and specifications. Despite this significant difference, the Court was not persuaded that the relationships between public entity/general contractor versus public entity/construction manager were so different that no implied warranty of the designer’s plans and specifications should apply in construction management at risk contracts and that the construction managers should bear all additional costs caused by design defects.
The Court based that conclusion on its finding that while construction managers may consult regarding the design of the project, the owner, through the designer, ultimately controls the design and is the final arbiter of it; unless the contract states otherwise. Having reached that conclusion, the Court then concluded that the owner’s implied warranty does apply in a public construction management at risk contract but with one additional requirement. The Court held that the construction manager 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 construction manager’s own design responsibilities. Thus, the Court held that the construction manager’s level of participation in the design phase of the project and the extent to which the contract delegates design responsibility to the construction manager may affect a fact finder’s determination as to whether the construction manager’s reliance was reasonable.
In California, the legislature adopted/modified Public Contract Code Section 20146, to allow counties to utilize construction manager at-risk construction contracts for the erection, construction, alteration, repair, or improvement of any building owned or leased by the county so long as the project is in excess of one million dollars ($1,000,000). (See Public Contracts Code §1104; and see Los Angeles Unified School Dist. v. Great American Ins. Co. (2010) 49 Cal.4th 739, 744). The Court in the Los Angeles Unified School District case held that a “contractor of public works who, acting reasonably, is misled by incorrect plans and specifications issued by the public authorities as the basis for bids and who, as a result, submits a bid which is lower than he would have otherwise made may recover in a contract action for extra work or expenses necessitated by the conditions being other than as represented.” In California, both the Legislature and the Courts have recognizes the theory that public entities do impliedly warrant the plans and specifications which they obtain from a designer and which they require a general contractor to follow to construct the project. (See Public Contracts Code §1104; and see Los Angeles Unified School Dist. v. Great American Ins. Co. (2010) 49 Cal.4th 739, 744). As such, it would be reasonable to expect a California Court to adopt the holding of Coughlin and apply it in California.
For more information on the content of this article, please contact your Murtaugh Meyer Nelson & Treglia LLP attorney or Madelyn A. Enright and/or Matthew W. Johnson at (949)794-4000.
Madelyn A. Enright
Matthew W. Johnson
Murtaugh Treglia Stern & Deily LLP
2603 Main Street, Penthouse, Irvine, CA 92614
Telephone: (949) 794-4000; Fax: (949) 794-4099
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