On a home building project in excess of $5 million, the homeowner contracted with a construction manager to oversee the project for a $375,000 fixed fee for a specified scope of services that included preparing a budget, soliciting bids for major contracts, supervising and coordinating construction, ensuring that materials and workmanships met quality, and supervising completion of punch list items.  Fiduciary language was included in the agreement that provided that the CM “shall, at all times, act in a fiduciary relationship of trust and confidence” with the homeowner.  The owner alleged the CM breached its fiduciary duty based on several allegations including, it (1) failed to solicit competitive bids for major contracts; (2) improperly reserved work for itself without seeking competitive bids; (3) didn’t prepare a revised budget; (4) didn’t perform certain CM services; (5) improperly installed a water line; and (6) exceeded the amount allocated in the estimate for “direct overhead.”

Both the trial court and appellate court found that the homeowner failed to present sufficient evidence to support the allegations of breach of fiduciary duty.  Although the court, in fact, found that the CM had indeed failed to do some of the items alleged, it also found that the homeowner had accepted the work the way it was performed without complaint at the time it was performed and didn’t take up the CM on its offer at that time to correct certain issues.  In this regard, the trial court had concluded that the parties had modified the terms of the contract by their actions, and thereby relieved the MD from its obligation to provide certain services within the scope of the work.  Spagnuolo Builders v. Martinelli, 2013 WL 1776080 (NJ 2013).

The court found in favor of the CM on its claim for payment of the balance of the contract that the owner had withheld.  Moreover, the court found the CM was entitled to additional fees and costs due to having to perform its services for a much longer period of time than bargained for.  The trial court stated that although the scope of work had not changed, the owner was nevertheless required to pay the CM an equitable adjustment for the extra time in which it was required to provide the services.  The contract time changed from an anticipated 14 -18 months into an ultimate 31 months.

The appellate court agreed, and explained, “We are nevertheless convinced that the award of additional fees to the [CM] was warranted as an equitable remedy to avoid unjust enrichment.  This remedy may be employed when, as in this case, a contract does not expressly provide for remuneration.”   The court concluded that it was appropriate for the CM to recover on the basis of unjust enrichment because it had showed that the owner “received a benefit and that retention of that benefit without payment would be unjust.”

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 15, No. 10 (Oct 2013).

Copyright 2013, ConstructionRisk, LLC