by J.T. Gallagher, Esq., Hendrick, Philips, Salzman and Siegel, P.C.
Should a subcontractor with absolutely no control over a scope of work be responsible for the proper performance of that work? It seems like a no brainer that the answer should be no. As examples, an electrical contractor would not guarantee the proper performance of a roof; nor would a masonry contractor guarantee the functionality of an HVAC system; and for good reason—that work is outside their expertise and they would typically have no control over its performance. Such uncontrollable risk is something that a prudent subcontractor should not take on, unless it is paid accordingly. Yet, there are multiple clauses commonly seen in construction contracts that shift what should be a designer’s risk to contractors and subcontractors.
It is standard industry practice for subcontractors to rely upon the designer to properly design the project so that the work can be constructed in accordance with the plans and specifications. When the work is constructed in accordance with those contract documents, it should be the designer’s responsibility to ensure that the project will comply with the applicable code requirements and perform as the designer intended. Indeed, that is the task a design professional is paid to perform. Typically, a subcontractor does not have control over the design of the project nor does it have the right to unilaterally make changes to the design. So why should a subcontractor agree to take on the risk of a defective design? Unless the subcontractor expressly intends to take on design responsibility and is being paid to do so, it should not.
Accordingly, it is important that subcontractors closely examine contracts for clauses that shift design responsibilities from the designer to the contractor and subcontractors. These clauses come in multiple forms and some seem rather innocuous, but each clause shifts significant uncontrolled risk to the subcontractor. The intent of this article is to help subcontractors identify the trigger language commonly seen in the common “design responsibility” clauses and understand the risks of those clauses so that subcontractors can take appropriate measures to mitigate those risks.
Design ‘Intent’ Clauses
The first commonly seen class of contract clauses seeking to shift the designer’s responsibility are clauses that place the burden on the contractor or subcontractor to satisfy the “design intent” or “to produce the intended result.” The basic problem with theses clauses is that the subcontractor is typically not the designer and cannot know the designer’s intent. The subcontractor can only rely on the plans and specification, which should be the designer’s expression of its intent. As such, a subcontractor’s responsibility should be limited to performing in accordance with the contract documents and its work should include only what can reasonably be inferred from those documents. In fact, even the architect’s standard form, AIA A201-2007, requires only that the contractor perform the work “in accordance with the Contract Documents.” See AIA A201-2007 ¶ 3.1.2.
An example of one of the many iterations of a design “intent” clause is as follows:
The intent of the Contract Documents is to include all items or services necessary for the proper execution and completion of the Work by Contractor.
Conflicting Design and Performance Specifications
Another commonly seen class of design responsibility clauses are those that require a subcontractor to strictly comply with the contract documents and, at the same time, to ensure that the building component or system constructed will function properly. “Performance” requirements in a contract should always pique a subcontractor’s attention. The danger in theses clause is that the design may be defective and prevent the finished product from performing properly even when the work was constructed as specified. When a subcontractor is required to install the work in accordance with the contract documents, that should be the subcontractor’s sole responsibility. If the subcontractor does not have control over the design, it should not be responsible for guaranteeing that the design will result in a properly functioning system.
An example of a conflicting design and performance requirements is as follows:
Contractor shall furnish all Work in accordance with the plans, specifications and other Contract Documents, such that the completed Work shall ensure a functional and complete facility meeting the owner’s intended purpose.
Design Coordination Responsibility
Design responsibility can also be shifted by clauses that make the subcontractor responsible for identifying design conflicts, errors, and omissions. This requirement is often imposed through a clause requiring the subcontractor to investigate and affirmatively discover design issues in the plans and specifications and immediately report them to the owner or designer. Subcontractors should avoid clauses that impose affirmative duties to ensure the design is appropriate, because, the contractor is typically not a design professional and not being paid to ensure the propriety of the design. Therefore, a subcontractor’s review of plans and specification should be limited to the subcontractor’s expertise; the constructability of the scope of work.
Latent Ambiguities
Contract clauses can also seek to shift design responsibility through provisions that provide that, in the event of conflicts, ambiguities, or discrepancies among or between various contract documents, the most stringent, most exacting, most expensive, or otherwise most onerous requirement will prevail. In the case of latent ambiguities and conflicts, the subcontractor’s reasonable interpretation of the contract documents would typically prevail under general legal principles. Thus, a subcontractor faced with a provision imposing the most expensive, onerous, exacting, or stringent standard or means and methods in the case of a latent ambiguity or conflict should seek to modify the terms to allow for instead what is reasonable under the circumstances. An appropriate resolution may be that the designer provides a reasonable interpretation in response to an RFI and the subcontractor submits a corresponding change order if necessary. Indeed, the designer is the party who likely created the conflict and should be responsible for providing a reasonable and cost effective resolution.
An example of this type of clause is as follows:
If the Contract Documents do not specifically allow the Contractor a choice as to quality of items to be furnished, but could be interpreted to permit such choice, they shall be construed to require the Contractor to furnish the best quality. . . . Owner will not accept Work which fails to comply with such standards, unless the departure from such standards is specifically identified to, and thereafter authorized in writing by, Owner’s Representative.
Incorporation by Reference
Contract clauses that incorporate terms and conditions not specifically set forth in the language of the contract can be especially dangerous for subcontractors because, when the subcontractor signs off on the contract, it is presumed to know what is in the referenced documents even if they are not attached to the contract. These clauses are often used to incorporate upstream contracts, but can also include standards, laws, regulations, or other secondary sources that can impose design or performance requirements. At a minimum, a subcontractor should investigate and understand what is contained in any referenced document and how the document will affect the subcontractor’s performance. However, it is typically better practice, if possible, to strike or significantly modify contract language that expands a subcontractor’s obligations to referenced materials that were not included in the bid or contract documents.
Building Code Compliance
Finally, subcontractors should be wary of contract clauses that require them to investigate and discover non-compliance with the applicable building codes. A subcontractor should not be required to assure that the design is in compliance with applicable building codes. Instead, the subcontractor should have the right to rely on the fact that the design professional has designed the work to meet the applicable code requirements. No more than a good faith duty to perform a reasonable review should be imposed on a subcontractor and that review should not be for the purpose of discovering code violations, but, instead, for facilitating construction.
An example of this type of clause, which also serves as an example of an incorporation by reference clause, is as follows:
Compliance With Applicable Laws. Contractor shall reasonably ensure that the Services and Work are performed, and the Project is constructed in a manner which meets the requirements of all applicable laws relating to the design, construction, occupation, and operation of the Project, including, but not limited to, building codes, fire and safety regulations, and environmental regulations. Such Applicable Laws shall be deemed minimum standards for the Project. Contractor shall immediately notify the Owner’s Representative in writing of any known violation by Architect or any Subcontractor of any Applicable Law, or any such violation of which the Contractor reasonably should have known.
Subcontractors are typically not design professionals and should not be forced to take on liability for the errors and omissions of the designers unless they have explicitly agreed to do so and are being compensated accordingly. A subcontractor should be able to rely on the designer to properly design the work just as the subcontractor will be relied upon to properly construct the work. Therefore, subcontractors should diligently identify risk shifting contract clauses and seek to appropriately modify the clauses when they can—during contract negotiations.
J.T. Gallagher, Esq., is an associate with Hendrick Phillips Salzman & Siegel, P.C., Atlanta, Ga. He brings a breadth of experience in the field of construction law with a targeted focus on construction litigation. He can be reached at (404) 522-1410 or jtg@hpsslaw.com.
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