Massachusetts Court Renders Important Decision Concerning the Interpretation of CMR Public Construction Contracts

By James L. Rudolph, Esq. and Kara Moheban McLoy, Esq.

In Coughlin Electrical Contractors, Inc. v. Gilbane Building Co. et al., a Massachusetts Superior Court judge addressed an issue apparently of first impression concerning the interpretation of a Construction Manager at Risk (“CMR”) public construction contract. A CMR contract shifts the majority of the design review, management responsibility and financial risks of a public construction project to the “Construction Manager” in exchange for a “Guaranteed Maximum Price.” The novel issue presented in the case is whether the CMR contract at issue, which provided Construction Manager Gilbane with broad planning and oversight responsibilities, as well as an obligation to “indemnify, defend and hold harmless” third-party defendant DCAM, from and against, “all claims, damages, losses and expenses … arising out of or resulting from the performance of the [w]ork” altered well-settled Massachusetts common law principles generally protective of construction contractors. In granting DCAM’s Motion to Dismiss, the Court emphasized that due to the material changes in the duties and responsibilities undertaken by the parties in CMR contracts, the protections historically afforded to construction contractors in a traditional design-bid-build context do not apply to such contracts.

The public construction project at issue in this case is the Massachusetts Department of Mental Health’s adult and adolescent psychiatric facility located in Worcester, MA built between 2009 and 2012. Defendant Gilbane Building Company served as the Construction Manager on the Project pursuant to a CMR contract with Massachusetts Division of Capital Asset Management (“DCAM”). Plaintiff Coghlin Electrical Contractors, Inc., the primary electrical subcontractor on the Project, filed suit against Gilbane seeking compensation for additional costs that it allegedly incurred as a result of Gilbane’s mismanagement of the Project. In response, Gilbane brought third-party claims against DCAM for breach of contract, contribution and indemnification alleging, in part, that DCAM as contractual “Owner” of the Project is responsible, under Massachusetts common law, for damages that Coughlin may recover for any increased costs in the Project resulting from design changes and design errors. While noting that Massachusetts common law traditionally has been protective of construction contractors in cases where the owner has provided erroneous or ambiguous plans and specifications, the Court emphasized that that the relationship between the Owner and the Construction Manager under a CMR contract which employs an “alternative delivery method” differs from the relationship between the Owner and General Contractor under a traditional design-bid-build arrangement. The Court pointed out that a Construction Manager, like Gilbane, working on a Project under a CMR contract takes on additional duties and responsibilities and financial exposure in the event something goes wrong, including a broad obligation to indemnify and defend the Owner, like DCAM, from and against “all claims, damages, losses and expenses, including but not limited to court costs and attorney’s fees, arising out of the performance of the work,” regardless of whether “such claims, damages, losses and/or expenses, are caused in whole or in part by the actions or inactions of a party indemnified hereunder.” As a result, the Court ruled in favor of DCAM and dismissed Gilbane’s third-party claims against DCAM which has far-reaching implications for Construction Managers who enter into CMR contracts with the assumption that common law principles concerning the allocation of risk in construction contracts apply to such contracts. The Decision is dated June 23, 2014. It is not clear at this point if it will be appealed.