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A construction contractor under contract to a school district sued the project owner’s construction management firm, Jacobs Project Management Company/CSRS Consortium (“Jacobs”) alleging breach of duty to conduct constructability reviews and oversee and administer the project according to the standard of care of other professionals. The CM’s allegedly wrongful acts were summarized as including: 1) unreasonable refusal to approve payment applications and schedules; (2) delayed responses to requests for information (RFIs); (3) refusal to provide responses to reasonable questions; (4) refusal to recommend substantial completion; (5) failure to manage the oversight of the project; (6) and overall interference with the progress and completion of the project.

Held: CM owes an independent duty to the contractor to perform its services in a non-negligent manner because the contractor was a foreseeable third party that would be affected by the CM’s services. Previous court decisions in this state eliminated the use of the economic loss doctrine as a defense by architects and engineers against contractor suits. Now this decision further reduces the use of the economic loss doctrine by holding that firms such as construction managers providing professional services have no protection by the economic loss doctrine either. Latham Company, Inc. v. State Dept. of Education, 2017 WL 6032333 (Louisiana 2017).

The CM argued that because its contract was with the project owner, and not with the contractor, it owed no duty to that contractor. A series of court decisions in Louisiana that are cited in this decision explain that architects and engineers who provide designs for a project have no independent duty to the project’s contractor, and that the economic loss doctrine protects them from suit by contractors. The question in this case was whether the economic loss doctrine would also apply to a CM who had no design functions and was not acting as an architect or engineer on the project.

The CM argued that it merely provided recommendations to the Owner based on its knowledge of how construction projects are supposed to proceed. The court found that if the CM failed to render its “management services” during the design phase of the project or negligently provided those services it was reasonably foreseeable that faulty design documents could result and this could cause economic harm to the contractor. The court also found that the CM was responsible for coordinating the management of invoices, contracts, change orders, RFIs, payment requests, and certificate of substantial completion—and that by delaying or negligently processing any of these, it would be foreseeable that the project would be delayed and this would adversely affect the work and profits of the contractor.

For these reasons, the appellate court held the CM was not entitled to summary judgment against the contractor claim, but that the matter will go to trial for a decision on the facts

 

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. 20, No. 4 (Apr 2018).

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