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Liability of Construction Managers

Liability of Construction Managers

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Published by Alptekin Dag

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Published by: Alptekin Dag on Dec 12, 2012
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I
n the last several years, construction managershave taken on an increasingly larger shareo construction projects. Unlike generalcontractors, which are generally at risk or allaspects o the project—rom cost to schedule tothe quality o the work—the risk and responsibilityo a construction manager can vary greatly romproject to project, depending on the nature o thecontract. In this article, we will explore the keyaspects o construction management agreementsand present a sampling o relevant judicialholdings.The hallmark o construction managementis the total participation o the manager in theconstruction process, oten beginning with theconceptualization o the project. The constructionmanager will work with the owner and the designteam to produce a coordinated and cost efcientset o construction documents. The constructionmanager will then assist the owner in selectingsubcontractors (or trade contractors) and, tovarying degrees, coordinate and administer theactual construction.Generally speaking, construction managers acteither in an advisory capacity, as agent or theowner, or as a constructor, acting as an independentcontractor, much like a general contractor. Whenacting as advisor, the construction manager willenter into trade contracts as agent or the owner;as a constructor, the construction manager willenter into contracts directly with subcontractors.The construction manager’s contractual liabilityvaries drastically depending on the nature o itsemployment.As an advisor, the construction manager is,essentially, liable only or its own acts o negligenceor breach o contract. It is not considered to beacting “at risk” with respect to the cost, time orquality o perormance by the trade contractors.Acting as a constructor, the construction manageris generally responsible or the construction othe project; however, the construction manager’sultimate liability or the key elements o theproject—cost, schedule and quality o the work—can vary greatly based upon its agreement withthe owner.
Obligations of the Manager
Perhaps the only universal statement that canbe made about the obligations and liabilities o aconstruction manager is: “it depends upon whatit says in the contract.” As with almost any otherlegal relationship, the rights and obligations othe construction manager (to the owner, to tradecontractors and to third-parties) are controlledprimarily by the language o the respectiveagreements. While there are certain statutory andcommon law rules regarding what can and cannotbe included in construction contracts, very ewgeneralities can be made.When the construction manager is acting onlyas the owner’s advisor—also known as pureconstruction management—the constructionmanger typically does not assume any responsibilityor the cost, time or the quality o the work. Theconstruction manager may, as part o its contractwith the owner, agree to prepare estimates o thecost o the work, but the estimates are typically notguaranteed. The American Institute o Architectsmost current Standard Form o Agreement BetweenOwner and Construction Manager as Adviser (AIA Document C132-2009) specifcally provides that“the Construction Manager does not warrant orrepresent that bids or negotiated prices will notvary rom the budget proposed, established orapproved by the Owner, or rom any cost estimateor evaluation prepared by the ConstructionManager.” (AIA Document A132-2009 §6.2).The construction manager as advisor may,o course, assume greater responsibility orthe cost o the work, but will typically insiston additional compensation to relect thatadded risk and will insist upon adequatecontingencies in its estimates to account orpotential cost overruns and unoreseen costs.The construction manager acting as constructorwill be liable or the cost o the project i it agreesto perorm the work or a guaranteed maximumprice (GMP) or a lump sum. This is not the casewhere the agreement is structured on a “costplus” basis. Under a cost plus arrangement, theconstruction manager is reimbursed or all costso the work and is paid a ee, generally determinedas a percentage o the cost o the work. Undera GMP, the construction manager will guarantythe total cost o the project, which includes itssupervisory expenses and subcontract costs(usually based on drawings which are 80-90 percentcomplete). A major component o a GMP is theestablishment o a contingency, usually 3-5 percento the subcontract and general conditions (e.g.,supervisory expenses) costs. The constructionmanager can utilize the contingency to oset thecost o, or example, bid error, deective work,subcontractor deaults, scheduling conlicts,delays, etc.Where the construction management agreementprovides or a GMP, there is oten an arrangementor the sharing o any savings between the ownerand the construction manager i the fnal costo the work is less than the GMP. Where thereis a sharing o savings, any unused contingencymight likewise be shared. (The sharing o savingsboth rom the GMP and the contingency involvesdetailed business negotiations which are projectspecifc.)The construction management agreement willalso determine the construction manager’s liabilityor completion o the project in accordance with
Volume 244—No. 63wedNesday, september 29, 2010
Liability of ConstructionManagers: Look to the Contract
ConstruCtion Law
KeNNeth m. blocK 
and 
JohN-patricK curraN
are partnersof Tannenbaum Helpern Syracuse & Hirschtritt.
©2010 ALM
www. NYLJ.com
By
Keeh M.Blck 
And
 Jh Pck C

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