For most in the industry, when we think about a standard construction contract, we envision the construction documents being drafted by the architect and other design consultants. We tend to view the project as design-price-build, unless an alternative procurement mechanism has been selected such as design-build. Consistent with this design-price-build model, the contractor’s review of the design is ordinarily not to identify errors and omissions or violations of law in the design, but purely to review the design from a contractor’s constructability standpoint. Many contractors doing this work don’t carry professional liability insurance, because they don’t view themselves as designers.
But the market has changed a lot over the last ten years. Nowadays, when owners and contractors drill down with their lawyers to discuss risk, they often realize that, in fact, the contractor is performing a lot of design work. For instance, it is not uncommon for the contractor, through its subtrades, to design the mechanical, electrical, and plumbing systems to performance standards created by the owner and/or provided by code. In fact, fire sprinkler systems have been designed by the trades for a long time.
In addition, there is a certain amount of design work involved in the construction process itself. For instance, designs of shoring and forming systems may involve a professional design component. Taken together, for larger projects, a significant amount of design risk may actually be assumed by the prime contractor. In light of this, the parties should consider a number of factors when negotiating a standard construction contract. Some questions to consider are as follows:
- If the contractor is performing design work, should the contractor’s review of the Architect’s design be held to a higher professional standard, at least with respect to those systems being designed by the contractor?
- What type of insurance is in place to cover the risk associated with defects in the designs provided by the contractor, potentially including errors and omissions (E&O) and owner’s protective professional indemnity (OPPI) coverages.
- Who owns the drawings and/or who has a license to use them, and when?
- Is the project owner entitled to bring design claims directly against the subcontractor and, if so, what is the effect, if any, of the liability limitation/consequential damages waiver in the subcontract?
Asking these questions before the contract is negotiated will often help the parties understand their risk and shift as much of that risk as possible onto the appropriate party (usually the party that controls the risk) and their insurance company.