A CONSULTING ENGINEER / ARCHITECT’S PROTECTION FROM A NEGLIGENCE CLAIM BY A CONTRACTOR

Posted on November 27, 2011November 27, 2011 by Edward Garber

The case of Recreational Design & Construction, Inc. v. Wiss, Janney Elstner & Associates, Inc., 2011 WL 5117163 (S.D.Fla. 2011), is a recent case discussing whether an independent engineering firm hired as a consultant by an owner can be liable to the general contractor for professional negligence under Florida law. In this case, the City of North Miami Beach (“City”) hired a contractor to perform all design and construction services for a water slide project (“Contractor”). The City also hired a separate engineering firm to evaluate and perform inspections of the contractor’s work (“Engineer”). The engineering firm hired another engineering firm as a subconsultant to perform the engineering inspections (“Subconsultant”).

The Subconsultant issued a report to the Engineer that was provided to the City explaining that the water slide the Contractor designed and started to construct was structurally unsafe. The report recommended repairs to be implemented on the slide. The City rejected the Contractor’s work based on the Subconsultant’s recommendation and required the Contractor to implement the repairs before completing the work.

The Contractor, instead of suing the City, sued the Engineer and Subconsultant for professional negligence (also known as professional malpractice) to recover its costs in reconstructing the slide and implementing the repairs recommended to the City. Both the Engineer and Subconsultant moved to dismiss the Contractor’s complaint arguing that they did not owe a duty of care to the Contractor; therefore, they could not be liable in negligence to the Contractor under the law. The Southern District of Florida agreed with the Engineer and Subconsultant and dismissed the Contractor’s complaint with prejudice.

In order to be liable for professional negligence, a plaintiff must prove the following elements against the defendant-professional: 1) the defendant owed a duty of care to the plaintiff; 2) the defendant breached its duty of care; and 3) the breach of the duty of care proximately caused damages to the plaintiff. See Recreational Design & Construction, 2011 WL at *2 citing Moransis v. Heathman, 744 So.2d 973, 975 n.3 (Fla. 1999). The element of duty, however, is a question of law in Florida and must be determined by the court before a negligence case proceeds to the jury or trier of fact. See Wallace v. Dean, 3 So.3d 1035, 1046 (Fla. 2009).

The Contractor relied on the Florida Supreme Court’s ruling in A.R. Moyer, Inc. v. Graham, 285 So.2d 397 (Fla. 1973), in arguing that the Engineer and Subconsultant owed the Contractor a duty to perform its work and issue recommendations to the City with reasonable care and due diligence. In A.R. Moyer, the Florida Supreme Court held that a general contractor can maintain a cause of action against a supervising architect for the architect’s negligent performance of a contractual duty (even though the contractor has no contractual privity with the architect). Particularly, the Florida Supreme Court found that the following circumstances would present a professional negligence cause of action by the contractor against a supervising architect or engineer:

“(a) supervising architect or engineer is negligent in preparation of plans and specifications; (b) the supervising architect or engineer negligently causes delays in preparation of corrected plans and specifications; (c) the supervising architect or engineer negligently prepared and negligently supervised corrected plans and specifications; (d) the supervising architect or engineer negligently failed to award an architect’s certificate upon completion of the project; (e) the architect or engineer was negligent in exercise of supervision and control of contractor.” A.R. Moyer, 285 So.2d at 402.

Of importance, the “professional defendant [in A.R. Moyer] was an architect whose responsibilities on the relevant project were to prepare the designs and plans for the project, approve the overall structural components or framework for the project, and supervise the general contractor’s execution of those plans, including having the authority to halt the contractor’s work.” Recreational Design & Construction, 2011 WL at *4. In other words, A.R. Moyer dealt with more of a traditional architect or engineer that, among other things, served as the architect / engineer-of-record for the project and had detailed contract administration services that enabled them to make decisions that could effect the contractor, which is why the Court described the professional as a supervisory architect or engineer.

But, in Recreational Design & Construction, the Engineer and Subconsultant, were really nothing more than a consultant providing expert-related services issuing recommendations, advice, or suggestions to the City in which the City could accept or reject. The Engineer and Subconsultant did not serve as the engineer-of-record. They did not design the plans for the City’s project. They did not issue specifications for the project. They were not performing supervision to ensure that the Contractor’s construction complied with their design (since they were not the designer). And, they did not have authority to halt the construction of the project or issue corrective details directly to the Contractor. Instead, as previously mentioned, their services were truly within the realm of consulting services in which it was up to the City to determine how it wanted to utilize any suggestions, advice, or recommendations. For these reasons, and because the role of the Engineer and Subconsultant in this case was substantially different than the role of the architect in A.R. Moyer, the Southern District held they did not owe a duty of care to the Contractor. See also McElvy, Jennewein, Stefany, Howard, Inc. v. Arlington, Elec., Inc., 582 So.2d 47 (Fla. 2d DCA 1991) (finding that architect did not owe duty to subcontractor because architect was required to issue advice to owner regarding interpretation of architect’s design, but it was the owner responsible for making the ultimate decision based on the advice of the architect).

An architect or engineer that is serving as the architect / engineer-of-record for a construction project may want to implement certain language in their contract with the owner that while it will render certain advise, recommendations, or suggestions to the owner regarding its design and specifications and interpretations thereof, it is the owner that is required to render the ultimate decision regarding the advice, suggestions, and recommendations. This way, if the contractor does pursue a professional negligence claim against them, they can argue they were not a supervisory architect or engineer and should not be deemed to owe a duty to the contractor because it was the owner that made the ultimate decision that affected the contractor.

Also, owners on construction projects sometimes hire other consultants or experts to assist in the construction of their project. For instance, sometimes owners hire a building envelope consultant or a glazing consultant, etc. These consultants sometimes worry about the contractor asserting a negligence claim against them based on their advice, suggestions, and recommendations made to the owner. These consultants, however, should be able to rely on the arguments in Recreational Design & Construction to support they do not owe a duty to the contractor. These consultants can also employ the same contractual language suggestions above so that their contract specifically expresses that it is the owner that is required to act on the advice, suggestions, and recommendations of the consultant so that it remains understood that the owner, and not the consultant, has ultimate control over the contractor’s work.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

CAREFUL DRAFTING OF ARBITRATION PROVISIONS TO ENSURE THE STATUTE OF LIMITATIONS APPLIES TO CLAIMS RESOLVED THROUGH ARBITRATION

Posted on November 27, 2011November 27, 2011 by Edward Garber

Many construction contracts include arbitration provisions as the means to resolve a dispute instead of resorting to litigation. Certain owners prefer to resolve their disputes with contractors through arbitration and certain contractors, likewise, prefer to resolve their disputes with subcontractors through arbitration.

The case of Raymond James Financial Services, Inc. v. Phillips, 36 Fla. L. Weekly D2479a (2d DCA 2011), certified the following question to the Florida Supreme Court:

“Does Section 95.011, Florida Statutes, apply to arbitration when the parties have not expressly included a provision in their arbitration agreement stating that it is applicable.”

While this case was not a construction case, the question certified to the Florida Supreme Court was a fundamental issue that applied to ALL arbitration provisions. Section 95.011 is included in Florida Statutes Chapter 95 (“Chapter 95”) dealing with the statute of limitations for actions. The statute of limitations requires lawsuits to be brought within the specified timeframe set forth in Chapter 95 or else the action is time-barred, meaning it cannot properly be asserted under the law. In this case, however, the Second District found that there was nothing in the arbitration provision at-issue that required actions to be brought within the limitations periods set forth in Chapter 95 and, along these lines, nothing in Chapter 95 clarified that the statutes of limitations for actions was intended to apply to disputes resolved through arbitration.

This decision was crucial because if the statute of limitations is not intended to apply to disputes resolved through arbitration, and nothing in the arbitration provision clarifies that the statute of limitations periods set forth in Chapter 95 are intended to apply, then there is technically NO time period for when a dispute needs to be initiated because they could never be time-barred under the law. The corollary of this is that it could open arbitration floodgates because parties that thought they could no longer bring an arbitration claim under the law could now assert an argument that their claim was never time-barred under the law.

Luckily, the Florida Supreme Court answered the Second District’s certified question in the affirmative holding that the statute of limitations DOES APPLY TO ARBITRATION PROCEEDINGS!!! See Raymond James Financial Services, Inc. v. Phillips, 126 So.3d 186 (2013). This means that the defense of statute of limitations can be raised in an arbitration proceeding as a basis to bar an untimely filed claim.

With respect to construction contractors, parties that utilize the AIA Agreements (promulgated by the American Institute of Architects) that select arbitration as the dispute resolution procedure should still safely ensure the agreement contains a provision to the effect:

“In no effect shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim would be barred under the applicable statute of limitations.”

The AIA standard form agreements usually include this provision almost verbatim. This provision should not be deleted. When drafting or negotiating an AIA agreement that includes an arbitration provision, a party should ensure that language to the effect is included in the agreement and not deleted or substantially manipulated so as to render it ambiguous. Also, parties that do not use an AIA agreement and prefer arbitration need to draft such a provision or mimic one after the provision used in the standard form AIA agreements to ensure the statute of limitations applies to claims / disputes resolved through arbitration no matter what.

CAREFUL DRAFTING OF PAY-WHEN-PAID PROVISIONS

Posted on November 27, 2011November 27, 2011 by Edward Garber

The pay-when-paid provision is an important aspect of a contractor’s subcontract. Under this provision, the risk of an owner’s nonpayment to a contractor for a subcontractor’s scope of work is shifted to the subcontractor. In other words, a contractor is not responsible for paying the subcontractor unless the contractor was specifically paid by the owner for the subcontractor’s work–the owner’s payment to the contractor serves as an express condition precedent to the contractor’s payment to a subcontractor. However, for pay-when-paid provisions to be enforceable, they need to be clearly drafted so that it is unequivocal that the owner’s payment to the contractor for a subcontractor’s work serves as the express condition precedent to the contractor’s payment to the subcontractor.

Subcontractors oftentimes look for arguments to circumvent the pay-when-provision. If the contractor has a payment bond, then the subcontractor does not need to look to the contractor for payment, even if the owner has not paid the contractor for the subcontractor’s work. When there is a payment bond, the subcontractor can sue the bond and the surety that issued the bond cannot raise the pay-when-paid provision as a defense. See OBS Co. v. Pace Construction Corp., 558 So.2d 404 (Fla. 1990).

However, if there is no payment bond, or the subcontractor, for whatever reason, did not properly preserve its rights to pursue a payment bond claim, the recent case of International Engineering Services, Inc. v. Scherer Construction & Engineering of Central Florida, LLC, 2011 WL 5109306 (5th DCA 2011), provides another argument that a subcontractor can raise in an effort to escape the harsh effect of a pay-when-paid provision. In this case, the subcontract incorporated by reference the contractor’s prime contract with the owner. The prime contract provided:

“Neither final payment nor any remaining retained percentage shall become due until the Contractor submits to the Architect (1) an affidavit that payrolls, bills for materials and equipment, and other indebtedness connected with the Work for which the Owner or the Owner’s property might be responsible or encumbered (less amounts withheld by Owner) have been paid or otherwise satisfied.”

The subcontractor successfully argued that this provision in the prime contract, which was incorporated into its subcontract, created an ambiguity with the pay-when-paid provision. The reason being is that this provision maintained that the owner was not responsible for paying the contractor until the contractor paid its subcontractors. Well, this conflicts with a pay-when-paid provision which says a contractor is not responsible for paying a subcontractor until an owner has paid the contractor. By the subcontractor arguing that this provision in the prime contract conflicts and creates an ambiguity with the pay-when-paid provision, the Fifth District held that the pay-when-paid provision was unenforceable because it was ambiguous. Thus, the contractor was responsible for paying the subcontractor!

The outcome of this case is important for both contractors and subcontractors. For contractors, it is important to ensure that language in the prime contract does not conflict with language in the subcontract, particularly the pay-when-paid provision. Typically, all subcontracts incorporate by reference the prime contract. One thing a contractor can do is to include a provision in the subcontract that says something to the effect: “If anything in the subcontract conflicts or creates an ambiguity with anything in the prime contract, the terms of the subcontract shall govern. This includes anything that conflicts with the pay-when-paid provision included in this subcontract and subcontractor therefore understands that owner’s payment to contractor for subcontractor’s scope of work is an express condition precedent to contractor’s payment to subcontractor.”

For subcontractors, it is important to request a copy of the owner’s prime contract with the contractor since it is incorporated into the subcontract. By looking for a provision in the prime contract that may conflict with the pay-when-paid provision in the subcontract–a provision similar to the one referenced above that requires the contractor to pay its subcontractors before the owner is obligated to pay the contractor final payment–can allow the subcontractor to argue that the pay-when-paid provision should be deemed unenforceable thereby making the contractor liable to the subcontractor for payment even if the contractor was not paid by the owner.