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By James Acret
An
engineer was swinging for the fences and a construction
manager was pitching in a case that was decided recently
in California. The case dealt with the potential liability
of architects, engineers and construction managers to
each other.
Engineers
can incur liability either under the law of contracts or
under the law of torts. The basic doctrine of contract law
is that parties should keep their promises. The basic doctrine
of tort law is that people should conduct themselves so
as to avoid inflicting injury on others. Let's focus on
the relationship between the engineer who designs a power
plant and the construction manager. Just as there are plenty
of opportunities for them to help each other out, they also
could cause each other an almost infinite amount of trouble,
anxiety and expense. They may have a relationship under
contract law because each of them has a written contract
with the project owner. In addition, under the law of torts,
they may have a duty to avoid causing injury to each other.
Now
let's suppose that at the end of a power plant "job
from hell" the owner sues the construction manager
and the engineer. The lawyer who represents the construction
manager looks around the landscape for some way to pass
off liability, and there is no shortage of candidates beginning
with the scoundrelly contractor and flowing down through
an assortment of incompetent or dishonest subcontractors
and suppliers. Toward the end of a long and professionally
satisfying day of drafting cross-complaints against these
fairly obvious parties, a light switches on. An important
party may have been left out! Why not sue the engineer?
(In the California case, it was an architect who filed a
cross-complaint against a construction manager, but the
principles of law are identical.)
First,
let's look at the contract. It is a form contract with an
indemnity provision that calls for the engineer to indemnify
the owner and its agents against claims. Hey, the
construction manager is an agent of the owner. Therefore,
doesn't the engineer have an obligation to indemnify the
construction manager against the claim? But the engineer's
lawyer can read contracts, too. So can the court. The contract
has a boilerplate provision that prevents enforcement of
the contract by so-called "third party beneficiaries."
It says that nobody other than a party to the contract has
the right to enforce any provision of the contract.
Here
we have two contract provisions that appear to conflict
with each other. One provision says that the contract is
for the benefit of agents of the owner, and the other says,
in effect, that an agent of the owner does not have the
right to enforce the contract. Which provision will the
court enforce?
One
rule of contract interpretation is that a provision that
specifically relates to a subject matter controls over more
general provisions. The construction manager pitches the
idea that the indemnity provision is more specific, but
the court sees it otherwise. The provision dealing with
third party beneficiaries specifically controls the subject
matter of who may enforce the contract, and that provision
applies to every clause in the contract, whether
general or specific. Moreover, a contract should be interpreted
so as to fulfill the intention of the parties. It is hardly
likely that the owner would have intended the indemnity
provision to apply to claims made by the owner. The provision
probably was intended to apply to claims made against
the owner, not to claims made by the owner.
After
missing the strike zone on contract theory, the construction
manager pitched tort. The engineer had a duty to produce
a design and respond to RFIs with a degree of professional
competence that would avoid causing damage to the interests
of the construction manager.
Under
tort law, the existence of a duty is determined by
the court, not by the jury. One thing a court takes into
consideration in deciding whether a duty exists is whether
the plaintiff (here, the construction manager) was sufficiently
diligent in protecting its own interests. The construction
manager could have protected itself with a provision in
its contract with the owner. That the CM failed to do so
took some speed off its pitch.
The
swing that knocked the ball out of the park was concern
for potential conflict of interest. The primary duty of
the engineer is to protect the interests of its client.
In designing the project, making interpretations of the
design documents and reviewing change order requests, the
engineer should protect the owner. To impose on the engineer,
at the same time, a duty to protect the interests of the
construction manager (a duty that could logically extend
also to contractors and subcontractors) would create an
intolerable conflict of interest!
On
such reasoning, in a case that raised identical legal issues
between a construction manager and an architect, the cross-complaint
was dismissed. The Ratcliff Architects v. Vanir Construction
Management, Inc., 88 Cal.App.4th 595, 106 Cal.Rptr.2d
1 (2001)
In
reviewing this case, one might be tempted to generalize
that engineers, architects and construction managers never
can be liable to each other in the absence of a direct written
contract establishing a duty running from one to the other.
But the law treats liability for physical injury much differently
from liability for economic loss.
There
may be a duty to protect persons and property from physical
injury when the law would not recognize a duty to protect
against economic loss.
Physical
injury results from the application of physical force against
person or property so as to produce bodily injury or property
damage. Economic loss, by contrast, can be described as
an injury to economic interests, such as a person's ability
to make a profit from a job or an owner's expectation of
collecting high rent from a successfully completed building
project. In many states, absent contract, courts do not
recognize a duty to protect against economic loss.
A
contractor claims a loss because of defective plans; a subcontractor
claims economic loss because of over-inspection by an engineer;
a second or third owner of a building claims its value is
diminished because of improper design of ducting. Although
the claimant in such cases may have sustained economic loss,
there has been no physical damage and, therefore, in many
states, absent a contractual obligation to the plaintiff,
the engineer has no liability. On the other hand, engineers
have often been held liable for injuries to workers (including
construction managers and their employees) caused by collapse,
explosion, fire, electrocution and other such accidents.
An engineer could not, as in our example above, defend against
an unsafe design on the ground that the cost of building
according to a safe design would be expensive and would,
therefore, conflict with the interests of the project owner.
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To learn more about Thelen's Construction and Government Contracts Department, click here. For more information about books and other legal materials written by James Acret, click here and enter "Acret" in the Search Products Field. To learn more about topics covered in this article, contact Paul Berning at (415) 369-7229 or at pwberning@thelen.com.
©2002 Thelen LLP
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