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Massachusetts’ Highest Court Vacates Coghlin v. Gilbane: The Construction Manager at Risk Method Does Not Eliminate the Owner’s Implied Warranty of Plans and Specifications

On September 2, 2015, the Massachusetts Supreme Judicial Court (SJC) issued its long-awaited opinion in Coghlin v. Gilbane, a case that presented questions of first impression regarding the scope of design liability in the context of the construction manager at risk (CMAR) project delivery method. The case reached the SJC after the Superior Court concluded that certain traditional construction law principles did not apply to CMAR contracts. The SJC disagreed.

Although the SJC acknowledged differences between the role of the CMAR under 149A projects and that of the general contractor under traditional design-bid-build projects, the SJC concluded that those differences are not so great as to eliminate the owner’s implied warranty of the contract plans and specifications. Despite the CMAR’s increased involvement in the design process, it is the owner that “ultimately controls the design and is the final arbiter of it.” The SJC rejected the notion that the CMAR’s having obligations related to design consultation made the CMAR “the guarantor against all design defects, even those that a reasonable CMAR would not have been able to detect.” The SJC held that the legislature could not have intended such a result when it enacted Chapter 149A.

Nevertheless, the SJC concluded that the implied warranty on CMAR projects is more limited than in the traditional design-bid-build context. Because the CMAR participates in the design process, the CMAR can benefit from the implied warranty only where both of the following are met: (1) it has acted in good-faith reliance on the design, and (2) it has acted reasonably in light of its own design responsibilities. The application of this standard will depend on the facts of a given case. For example, as the CMAR’s participation in the design process increases, so does its burden to show a breach of the implied warranty.

Turning to the contract at issue in the case, the SJC held that the CMAR-related aspects of the contract do not by themselves eliminate the implied warranty; without an express disclaimer, which was absent in the contract at hand, the implied warranty applies. In fact, the SJC concluded that the language of the contract actually supported its finding of an implied warranty, by making clear that the Division of Capital Asset Management and Maintenance (DCAMM), Massachusetts’ agency in charge of state capital projects, maintains authority and control over the project design.

The SJC also held that the indemnification provision of the parties’ CMAR contract did not bar the CMAR’s third-party claims against DCAMM, but that the indemnification provision must be interpreted in light of the implied warranty, something the Superior Court did not do. The CMAR is obligated to indemnify the owner from claims arising out of the CMAR’s performance of the “work,” which does not include supervising or overseeing the work of the owner’s designer. Because the indemnification obligation does not extend to claims arising out of the performance of the designer’s work, the CMAR is not required to indemnify the owner against claims caused by design defects in breach of the implied warranty.

In light of these conclusions, the SJC vacated the Superior Court’s dismissal of the CMAR’s third-party claims against the project owner and sent the case back to the Superior Court.

When the Superior Court issued its original decision in this case last year, it created widespread fear among construction managers that signing on to CMAR contracts would forever mean taking on ultimate design liability for the project. Although the SJC’s decision should put most of those fears to rest, construction managers performing under CMAR contracts must keep in mind that they now bear a greater burden to show a breach of the owner’s implied warranty of plans and specifications. It behooves CMARs to carefully examine the language of their contracts in light of this decision and to be alert to language that attempts to disclaim the implied warranty, which could eliminate that warranty regardless of the SJC’s decision in Coghlin v. Gilbane.

All in all, the SJC’s decision marks an important victory for CMARs and (hopefully) restores a sense of order for construction managers in Massachusetts. It is the first big decision under Chapter 149A, but it likely will not be the last.

1Hinckley Allen filed an amicus brief on behalf of AGC of Massachusetts and previously published a client alert discussing Coghlin v. Gilbane, which is available here: https://www.hinckleyallen.com/publications/legal-update-the-coghlin-v-gilbane-appeal-and-its-impact-on-construction-managers-at-risk-under-chapter-149a/.

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