7/30/2019 Liability of Construction Managers

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I

n the last several years, construction managers

have taken on an increasingly larger share

o construction projects. Unlike general

contractors, which are generally at risk or all

aspects o the project—rom cost to schedule to

he quality o the work—the risk and responsibility

o a construction manager can vary greatly rom

project to project, depending on the nature o the

ontract. In this article, we will explore the key

aspects o construction management agreements

and present a sampling o relevant judicial

holdings.

The hallmark o construction management

s the total participation o the manager in the

onstruction process, oten beginning with the

onceptualization o the project. The construction

manager will work with the owner and the design

eam to produce a coordinated and cost efcient

et o construction documents. The construction

manager will then assist the owner in selecting

ubcontractors (or trade contractors) and, to

varying degrees, coordinate and administer the

actual construction.

Generally speaking, construction managers act

either in an advisory capacity, as agent or the

owner, or as a constructor, acting as an independent

ontractor, much like a general contractor. When

acting as advisor, the construction manager will

enter into trade contracts as agent or the owner;as a constructor, the construction manager will

enter into contracts directly with subcontractors.

The construction manager’s contractual liability

varies drastically depending on the nature o its

employment.

As an advisor, the construction manager is,

essentially, liable only or its own acts o negligence

or breach o contract. It is not considered to be

acting “at risk” with respect to the cost, time or

quality o perormance by the trade contractors.

Acting as a constructor, the construction manager

is generally responsible or the construction o

the project; however, the construction manager’s

ultimate liability or the key elements o the

project—cost, schedule and quality o the work—

can vary greatly based upon its agreement with

the owner.

Obligations of the Manager

Perhaps the only universal statement that can

be made about the obligations and liabilities o a

construction manager is: “it depends upon what

it says in the contract.” As with almost any other

legal relationship, the rights and obligations o

the construction manager (to the owner, to trade

contractors and to third-parties) are controlled

primarily by the language o the respective

agreements. While there are certain statutory and

common law rules regarding what can and cannot

be included in construction contracts, very ew

generalities can be made.

When the construction manager is acting only

as the owner’s advisor—also known as pure

construction management—the construction

manger typically does not assume any responsibility

or the cost, time or the quality o the work. The

construction manager may, as part o its contractwith the owner, agree to prepare estimates o the

cost o the work, but the estimates are typically not

guaranteed. The American Institute o Architects

most current Standard Form o Agreement Between

Owner and Construction Manager as Adviser (AIA 

Document C132-2009) specifcally provides that

“the Construction Manager does not warrant or

represent that bids or negotiated prices will not

vary rom the budget proposed, established or

approved by the Owner, or rom any cost estimate

or evaluation prepared by the Construction

Manager.” (AIA Document A132-2009 §6.2).

The construction manager as advisor

o course, assume greater responsibilit

the cost o the work, but will typically i

on additional compensation to relect

added risk and will insist upon adeq

contingencies in its estimates to accoun

potential cost overruns and unoreseen c

The construction manager acting as constr

will be liable or the cost o the project i it a

to perorm the work or a guaranteed maxi

price (GMP) or a lump sum. This is not the

where the agreement is structured on a “

plus” basis. Under a cost plus arrangement

construction manager is reimbursed or all c

o the work and is paid a ee, generally determ

as a percentage o the cost o the work. U

a GMP, the construction manager will guar

the total cost o the project, which include

supervisory expenses and subcontract c

(usually based on drawings which are 80-90 pe

complete). A major component o a GMP i

establishment o a contingency, usually 3-5 pe

o the subcontract and general conditions

supervisory expenses) costs. The constru

manager can utilize the contingency to ose

cost o, or example, bid error, deective w

subcontractor deaults, scheduling con

delays, etc.

Where the construction management agreeprovides or a GMP, there is oten an arrange

or the sharing o any savings between the o

and the construction manager i the fnal

o the work is less than the GMP. Where t

is a sharing o savings, any unused conting

might likewise be shared. (The sharing o sa

both rom the GMP and the contingency inv

detailed business negotiations which are pr

specifc.)

The construction management agreemen

also determine the construction manager’s lia

or completion o the project in accordance

Volume 244—No. 63 wedNesday, september 29,

Liability of ConstructionManagers: Look to the Contract

ConstruCtion Law

eNNeth m. blocK and JohN-patricK curraN are partnersf Tannenbaum Helpern Syracuse & Hirschtritt.

©2010 ALMwww. NYL J.com

By

Keeh M.

Blck 

And

 Jh P

C

7/30/2019 Liability of Construction Managers

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an agreed upon schedule. Generally speaking,

as a constructor, a construction manager is

esponsible or completing the project on time

and may be responsible to the owner or damages

ncurred as a result o delay. The extent o the

damages—whether they be liquidated, direct

or consequential—is a unction o the terms o

he construction management agreement. Even

n the absence o liquidated damages or delay,he construction manager may be obligated to

maintain the progress o the work in accordance

with the project schedule and be responsible

or the cost o overtime and additional shits in

order to maintain that schedule. Where there is a

ontingency, the construction manager may utilize

unds in the contingency to cover such additional

osts.

As a constructor, the construction manager is

also responsible or the quality o the work o its

ubcontractors. Where the construction manager

annot prevail upon the responsible subcontractor

o remedy the deective work, the construction

manager will be required to remedy the deects

at its expense; however, the contingency would

be available or that purpose.

As an advisor, the construction manager only

has an obligation to confrm generally that the

work o the trade contractors is being perormed in

accordance with the respective trade contracts. The

ypical construction manger as advisor agreement

will provide speciically that the construction

manager is not responsible or and has no control

over the means, methods and procedures o the

onstruction and is not responsible or the ailure

o the trade contractors to perorm the work in

accordance with the terms o their respective

ontracts.

Liability to Trade Contractors

The common assumption is that the construction

manager as advisor is acting solely as the owner’s

agent and, under standard principals o agency,

s not liable or the obligations o its disclosed

principal, the owner.

However, as the Court o Appeals wrote in Walls

. Turner Constr. Co., “the label o construction

manager versus general contractor is notnecessarily determinative.” 4 N.Y.3d 861, 864, 798

N.Y.S.2d 351 (2005). Simply calling itsel an agent

may not be sufcient to insulate the construction

manager rom an obligation to make payment to

he trade contractors. The construction manager

has to be careul not to create a contractual

elationship between itsel and the individual trade

ontractors perorming the work. I the contractors

are bound to the construction manager or the

proper perormance o the work, it may not matter

hat the construction manager has held itsel out

olely as the owner’s agent.

In Blandford Land Clearing Corp. v. National 

Union Fire Insurance Company of Pittsburgh, Pa., 

260 A.D.2d 86, 698 N.Y.S.2d 237 (1st Dept. 1999),

a general contractor (claiming to be acting as the

agent o the owner) attempted to insulate itsel

rom an obligation to pay subcontractors on a

project by including language in its subcontract

agreements that read that “[]or the purposes o

payment only, Contractor is acting as agent oOwner.” 260 A.D.2d at 88. The court ound that,

since the subcontractors owed an obligation to

the general contractor to perorm the work, there

must be the corresponding obligation on the part

o the general contractor to pay the subcontractors

or the work.

While Blandford involved a general contractor,

as opposed to a construction manager, there is no

reason to think that the decision would be dierent

i a construction manager signed the contracts as

the owner’s agent. The lesson to be learned is that

in order or the construction manager to insulate

itsel rom any contractual obligation to make

payment to trade contractors, it must not enter

into direct agreements with the trade contractors.

When the construction manager is acting

as the constructor, it is typically assumed the

construction manager has the direct obligation

to make payment to the trade contractors or the

perormance o the work. This duty is ordinarily

independent o the owner’s obligation to make

payments to the construction manager, and the

construction manager has a payment obligation

to the trade contractors irrespective o whether

the construction manager has received payment

rom the owner. West-Fair Elec. Contractors v. Aetna

Cas. & Sur. Co., 87 N.Y.2d 148, 638 N.Y.S.2d 394

(1995) (a provision in a subcontract that provides

that the general contractor is only required to pay

the subcontractor i the owner pays the generalcontractor—a so-called pay when paid provision—

is unenorceable as against public policy).

Liability to Third Parties

With respect to tort liability, a construction

manager’s liability to third parties depends both

on the role that the construction manager assumes

and the ability o the construction manager to

control the activity that caused the injury.

In the pure construction management scenario,

where the construction manager does not have

control over the perormance o the work o the

contractors, the construction manager is typ

not liable to third parties or injuries resulting

the work. A construction manager “may noneth

become responsible or the saety o the wo

at a construction site i it has been delegate

authority and duties o a general contractor, o

unctions as an agent o the owner o the prem

 Pino v. Irvington Union Free School District , 43 A

1130, 843 N.Y.S.2d 133 (3rd Dept. 2007). The arises requently in the context o claims o

liability under New York Labor Law Section 24

also known as the Scaolding Law.

In Walls, the Court o Appeals held that

lthough a construction manager o a work s

generally not responsible or injuries under L

Law § 240(1), one may be vicariously liable a

agent o the property owner or injuries susta

under the statute in an instance where the man

had the ability to control the activity which bro

about the injury.” 4 N.Y.3d 861 at 863-864

N.Y.S.2d 351 (2005).

The court ound that the construction man

had a duty, under its contract with the owner o

project, to enorce compliance by the indiv

trade contractors with applicable saety regula

and to direct trade contractors to correct u

conditions. The court wrote that the deen

Turner Construction Co., was not the “ty

construction manager,” but was instead the “

ears and voice o the owner.” 4 N.Y.3d 861 at

Accordingly, the court confrmed that Turne

vicariously liable as a statutory agent o the ow

4 N.Y.3d 861 at 864.

While Walls and the cases that have ollow

appear as an odd deviation rom the typica

o agency—that a disclosed principal is liab

actions o its agent perormed within the s

o the agency, not the other way around—

decisions make it clear that, at least in the co

o Labor Law §240(1) claims, the extent o

construction manager’s liability will be dictat

the scope o its authority. C. Kindlon v. Scho

Central School Dist ., 66 A.D.3d 1200, 887 N.Y

310 (3rd Dept. 2009) (no direct control as to s

matters shielded the construction manager

liability).

The obligations o a construction managas an advisor or constructor, as an agen

independent contractor—are a unction o

terms o its contract with the owner. So, too, w

liabilities o a construction manager to an ow

subcontractor or third party vary dependin

the agreement.

wedNesday, september 29,

Reprinted with permission from the September 29, 2010 edition of the NEW YOR JOURNAL © 2010. ALM Media Properties, LLC. All rights reserved. Further dwithout permission is prohibited. For information, contact 877-257-3382 or repricom. # 070-09-10-39

Perhaps the only universal statement

that can be made about the obligations

and liabilities of a construction manager

is: “it depends upon what it says in the

contract.”