Construction professionals haunted by the spectre of the looming Coghlin v. Gilbane appeal can now rest easier. This week, the Massachusetts Supreme Judicial Court (SJC) vacated the lower court’s decision in that case, in a ruling that included upholding the existence of an implied warranty of design
plans and specifications in the construction manager at risk (CMAR) context. Here are three highlights from the Court’s 31-page decision.[1]

First, public owners of CMAR projects do give an implied warranty of design plans and specifications, even though the CMAR may have significant design-related obligations under the contract. However, the
implied warranty is more limited than in the traditional design-bid-build context. Because the CMAR participates in the design process, it can benefit from the implied warranty only where two conditions are met: (1) the CMAR has relied on the design plans in good faith; and (2) the CMAR has acted reasonably in carrying out its own design responsibilities. This results in a sliding scale: The more the CMAR participates in the design process – and thus becomes more intimately familiar with the details of the design – the harder it will be to prove that the owner breached the implied warranty by misrepresenting some aspect of the design. In short, the CMAR’s damages for breach of the implied warranty may be limited to its good faith and reasonable reliance.

Second, the specific terms of the construction contract in Coghlin v. Gilbane did not disclaim the owner’s implied warranty. Absent an express disclaimer, which did not exist in the DCAM-Gilbane contract, the implied warranty remains in place. DCAM’s position was undermined further
by the facts that it maintained authority and control of the project design under the contract and that it conceded on appeal that it remained liable for “design changes, errors and omissions which flow from the work of the designer.”

Third, the indemnification provision in Gilbane’s CMAR contract must be interpreted in light
of DCAM’s implied warranty. Gilbane’s indemnity obligation is triggered by claims arising out of Gilbane’s performance of the work, which did not require Gilbane to supervise or oversee the work of DCAM’s designer. Therefore, claims arising out of the designer’s performance could not trigger Gilbane’s
indemnification obligation. Because Gilbane is not required to indemnify DCAM for design defects that breach the implied warranty, the Court held that the indemnification provision did not bar Gilbane’s claims against DCAM.

Based on this reasoning – and practical considerations against duplicative litigation – the SJC
concluded that Gilbane put forth valid third-party claims against DCAM, and the SJC vacated the Superior Court’s dismissal of Gilbane’s claims.

Although the SJC’s decision firmly rejects the notion that public CMAR contracts remove the owner’s implied warranty of design, construction managers performing under the CMAR project delivery method must bear in mind that their role in the design process will make proving a breach of the implied warranty more difficult. If the CMAR fails to perform its design review obligations reasonably and according to the contract, the CMAR may not be able to satisfy the SJC’s good faith / reasonable reliance test for proving a breach of implied warranty claim. It also is imperative for CMARs to carefully examine the language of their contracts in light of this decision. They are advised to be on the lookout for express disclaimers and other language that could eliminate the implied warranty.

If you have any questions, please contact the Hinckley Allen attorney with whom you regularly work or a member of our Construction Group.

[1] Hinckley Allen filed an amicus brief on behalf of AGC of Massachusetts and previously published an article discussing Coghlin v. Gilbane, available here: https://www.hinckleyallen.com/publications/legal-u…