During the construction phase of a project, it is common for the engineer to inspect the contractor’s work on behalf of the project owner. This gives rise to questions regarding the scope of the engineer’s inspection responsibilities and the engineer’s liability for shortcomings in carrying out those responsibilities.
Scope of responsibility
The scope of the engineer’s inspection responsibilities is primarily established in the written agreement between the engineer and the project owner. A very precise and well-considered scope of work is therefore necessary in order to avoid misunderstanding on the owner’s part and unintended liability exposure on the engineer’s part.
Very few owners are willing to pay an engineer to station personnel on site 50or 60 hours a week to observe every move of the contractor. Nor are owners willing to pay to have every piece of material used by the contractor laboratory-tested.
Most owners are seeking periodic inspection of the work. The owner-engineer agreement should reflect this. The scope of work should be explicit as to how many times a week or a month the engineer is expected to visit the site.
If particular materials or installations are to be tested, this should be clearly spelled out. The agreement should then make it clear that the engineer’s inspection and testing responsibilities do not extend beyond those specifically listed and the engineer does not guarantee the sufficiency of the contractor’s work.
A contractor awarded a purchase order to a fabricator for an exterior metal stairway. The fabricator submitted shop drawings to the contractor, who in turn submitted the drawings to the architect for approval. The architect was slow reviewing the shop drawings. The delay increased the fabricator’s costs. The fabricator sued the architect for unreasonably withholding approval of the shop drawings. The architect argued that its only duty in reviewing shop drawings was to protect the interests of its client, the owner.
The Court of Appeal of Louisiana disagreed. It was foreseeable that subcontractors such as the fabricator would be economically affected by the architect’s performance of its functions. The architect therefore owed a duty to those parties to exercise due care in carrying out its responsibilities.
Gurtler, Hebert & Co., Inc. v. Wevland Machine Shop. Inc.. 405 So.2d 660 (La.App. 1991).
In recent years, a somewhat semantical debate has arisen regarding the use of the term “monitoring” rather than “inspection.” The rationale is that if an engineer “inspects” the work, the engineer will be liable for failing to detect problems, whereas if the engineer only “monitors” the work, it will be held to a lower standard of observation.
This distinction has its genesis in several arcane court decisions, but it is generally lacking in validity. It is unlikely that a modern court would allow the question of an engineer’s liability to turn on the use of the verb “inspect” rather than ‘monitor.”
There is certainly no harm in the cautionary use of the term “monitor.” Many engineers influenced by their liability insurers, have become more comfortable with this parlance. This is fine, but engineers should not be lulled into believing that the use of the term “monitor” will excuse the failure to meet professionally accepted standards or otherwise lessen their obligations.
Even if the owner-engineer agreement calls for the engineer to monitor the contractor’s work, the engineer will still be required to authorize release of payments and acceptance of the work. This authorization requires an affirmative determination on the part of the engineer. The engineer will not be able to hide behind the somewhat passive connotations in the term “monitor.”
An owner awarded an architectural agreement to an architect using the AIA Standard Form of Agreement between owner and architect. The architect prepared specifications requiring liquid mortar to be poured in a particular fashion.
The contractor had trouble with the pours and poured mortar in a manner that deviated from the specifications. The architect observed these pours but did not object. When the walls developed problems the owner sued the architect for failing to inspect the contractor’s work in the manner required by the AIA architectural agreement.
The Supreme Court of Arkansas noted that the AIA agreement does not require the architect to make continuous or exhaustive inspections and does not make the architect the guarantor of the contractor’s compliance with the plans and specifications. However, the agreement does require the architect to “guard the owner against defects and deficiencies in the work.” If the architect observed non-conforming work being performed and failed to object, the architect breached its inspection duties under the agreement.
Dan Cowling & Associates, Lnc. v. Board of Education of Clinton District School, 618 S.W.2d 158 (Arkansas 1981).
Engineers who are concerned about the liability exposure arising from construction activities should focus their attention on the preparation of a detailed, explicit scope of work in the owner-engineer agreement. This is the best precaution to take against expansive liability exposure.
Conformance with plans and specifications
One of the engineer’s primary inspection responsibilities is to determine whether the contractor is conforming to the plans and specifications for the project. The owner is entitled to strict conformance with the plans. This is what the owner is paying the contractor for. If the contractor is deviating from the plans and specs, it is important for the owner to know so that the owner may take protective measures such as withholding payment.
When inspecting the contractor’s work for conformance to the plans and specifications, the engineer is expected to use the skill and care generally accepted within the profession. The engineer is not expected to perform material tests or take other elaborate measures unless this is called for in the agreement with the owner.
There are two common pitfalls for engineers when inspecting the work. The first is a lack of familiarity with the contract requirements. This is particularly inexcusable, as the engineers usually have prepared the plans and specifications themselves. If the engineer is not thoroughly familiar with the detailed requirements of the construction contract, it will be impossible for the engineer to determine whether the contractor is conforming to those requirements.
The second pitfall is the failure to inspect work before it is covered up. Most construction contracts prohibit the contractor from covering up work before the owner or its representative has inspected it. Engineers must be alert to strictly enforce this provision. It is impossible for an engineer to reach a responsible professional opinion regarding the sufficiency of the work if the work is now under four feet of backfill or concealed by a new wall.
Frequently, the plans and specifications require a certain amount of interpretation. Plans that require a great deal of interpretation are probably sloppy or incomplete. Nonetheless, it is inevitable that questions will arise regarding the intended meaning of the plans and specs or their application to particular field conditions. In rendering these interpretations, the engineer is expected to be objective and to avoid an expansive reading of the contract requirements.
Because plans and specifications require a certain amount of interpretation, it is customary for the owner to hire the same engineer who designed the project to perform construction phase activities. The rationale is that the designer is in the best position to interpret the design and judge the contractor’s conformance to that design.
There is a countervailing school of thought, however. Some large institutional project owners, including several agencies of the federal government, prefer to hire a separate engineer for construction phase activities. The concern is that the engineer who designed the project will have a vested interest in defending the adequacy and integrity of the design. If there are problems with the design, the engineer will not be objective in arriving at an appropriate solution.
Still, the prevailing practice is for the project owner to hire the designer to inspect the contractor’s work.
Occasionally, matters of artistic interpretation arise during construction. For instance, this could involve the approval of a particular shade of paint. Construction contracts typically give the architect broad discretion to make these determinations.
Engineers should not confuse the unfettered discretion they have in making artistic determinations with their role in interpreting the plans and specifications. Properly prepared design documents should speak for themselves and require a minimum of elaboration. The engineer’s inspection responsibility is to render an opinion regarding the contractor’s conformance with those objective requirements. The engineer is not allowed to embellish the design as the work progresses.
A final issue involving conformance with the design has to do with the engineer’s approval of shop drawings and other submittals. Shop drawings are drawings submitted by construction contractors to project owners depicting the way certain aspects of the work are to be performed. Shop drawings typically address such matters as the fabrication or assembly of a particular item or the form and fit of a particular aspect of the work.
Shop drawings are necessary, particularly on large or complex construction projects. It is impossible for even the most complete set of plans and specifications to depict every detail of every installation throughout the project. Furthermore, there are certain aspects of the work where the owner and engineer look to the contractor to provide expertise in fabrication or installation of an item or even selection of a particular proprietary product.
In reviewing and approving shop drawing submittals or submittals proposing the use of a particular product, the engineer should be guided by a desire for conformance with the expressed intentions of the plans and specifications. This is what the engineer’s approval of a shop drawing submittal indicates. The work as depicted in that drawing will conform to the plans and specifications.
Much has been made of the choice of language used in approving shop drawings. Engineers are concerned that when approving shop drawings, they will inadvertently waive or alter contract requirements, thereby exposing themselves to a liability claim by the project owner. They therefore use very equivocal, noncommittal language in “approving” shop drawing submittals.
One typical statement, found on a stamp affixed to a shop drawing submittal, reads as follows:
“Review is only to check for compliance with the design concept of the project. Approval does not indicate the waiver of any contract requirement. Changes in the work may be authorized only by written change order.”
The use of this language does little to protect the engineer but a great deal to create confusion. Under the terms of the typical contract documents, the contractor cannot proceed with the work until it receives approval of submittals.
Either the submittal was approved or it wasn’t approved. Once it was approved, contractors are entitled to act in reliance on that approval.
Courts are not sympathetic to an engineer’s after-the-fact, self-serving explanation of what he or she really meant to say when he or she approved a shop drawing submittal.
Engineers who are concerned about inadvertently waiving contract requirements can take solace from one basic legal principle. If a contractor submits a drawing which entails any deviation from the plans and specifications, this deviations must be prominently noted on the drawing itself. If the drawing involves a change which the contractor fails to flag, the engineer’s approval of the drawing will not constitute a waiver of the contract requirements.
Contractor’s percentage of completion
Another of the important inspection functions of the engineer during the construction phase of the project is to determine the amount of progress the contractor has made. This is crucial, as it relates to the owner’s release of payment to the contractor.
Most construction contracts call for periodic progress payments from the owner to the contractor. Typically, payment is to be made based on the contractor’s percentage of completion, as measured by the value of the work.
For instance, if the total contract price is $1 million and the contractor has completed work at the site with a value of $150,000 the contractor is entitled to be paid the $150,000 less the stipulated “retainage” (usually 10 percent).
The job would be said to be 15 percent complete.
It should be apparent that the determination of percentage of completion involves a fair amount of subjective judgment on the part of the engineer. Additionally, the engineer is subject to conflicting pressures from the owner, who wants to make sure the contractor is not receiving advance payment for work not yet performed, and the contractor, who is hungry for maximum cash flow. It is far easier for the engineer on a unit-price contract, where an objective measurement of quantity or number of items can be applied.
When determining percentage of completion, engineers should rely on any schedule of values established in the contract between the owner and the contractor. Progress payment issue is a very good reason to insist a schedule of values to be agreed upon in advance. Without such a schedule, the engineer must apply its subjective judgment to a matter that is fraught with potential litigation.
The legal ramifications of an engineer’s authorization of release of a progress payment are significant. If the engineer fails to exercise due care in determining the contractor’s percentage of completion and the contractor is paid in excess of the value of the work in place, the engineer could be held liable.
If the overpaid contractor becomes insolvent or disappears, the engineer could held liable to the owner, the owner’s construction lender, and the contractor’s bonding company. It was foreseeable that all these parties would rely on engineer’s determination to avoid overpayment. And all these parties would foreseeably be harmed if the contractor was overpaid and then defaulted. Funds exceeding the value of the work in place would have been irretrievably disbursed. The engineer could be held liable for the difference between the value of the work in place and the total payments to the contractor authorized by the engineer.
An owner awarded a contractor a lump-sum construction contract. The contract called for the owner to make monthly progress payments to the contractor based on the architect’s certification of the contractor’s percentage of completion.
The architect certified a particular percentage of completion, but the owner refused to make a progress payment for that amount unless certain changes were made in the terms of the contract. The contractor sued the owner for breach of contract.
The Missouri Court of Appeals ruled that the owner did breach the contract. When a contract establishes the architect as the party responsible for determining the contractor’s percentage of completions, that determination is binding on both the owner and the architect. The owner was not entitled to ignore the architect’s certification or to impose additional preconditions before making the progress payment.
Hart and Son Hauling, Inc. v. MacHaffie, 706 S.W.2d 586 (Mo.App. 1996).
Certification of completion
The conclusion of a construction project is marked by two significant milestones: substantial completion and final acceptance. Each carries certain legal ramifications.
When the contractor has achieved substantial completion of the project, the project is suitable for its intended purpose. The project owner can take occupancy of the project and make use of the project. The risk of loss due to casualty is shifted from the contractor to the owner. Typically, the contractor is entitled to receive payment of the contract balance except for enough retainage to cover the cost of any “punch list” or last-minute completion items.
Once the punch list is completed by the contractor, the owner is ready to finally accept the project. The contractor is paid the remaining contract balance. Upon final acceptance and final payment, the owner waives the right to bring any claims against the contractor for defective work unless the defective work was “latent,” or hidden, or was covered by a warranty. Conversely, the contractor loses the right to assert any claim for additional compensation if it was not asserted prior to final acceptance and payment.
Not surprisingly, it is the engineer who is called upon to certify that the contractor has achieved substantial completion or final completion of the project. This certification typically is issued to the project owner. It is also common, however, for the engineer to certify to public authorities such as a building inspector that a project is substantially complete in accordance with the plans and specifications and the applicable building codes.
If construction defects are discovered after the engineer’s certification of completion, litigation may result. For instance, in recent years there have been a rash of lawsuits by condominium associations against engineers who certified to public authorities that the project had been completed in accordance with the plans and specifications.
There is not a great deal engineers can do to avoid this problem. Public authorities, construction lenders, and others customarily require an architect’s certificate before issuing an occupancy permit or authorizing the release of a final construction loan disbursement.
The only thing the engineer can do is to try to convince project owners to use certification language which accurately reflects the engineer’s limited role during the construction phase of the project. Rather than blankly certifying that the contractor’s work complies with all plans, specifications, and ordinances, engineers could more appropriately be asked to certify that to the best of their knowledge and belief this is the case. Engineers might also want to state that they are not and cannot be guarantors of the sufficiency of the contractor’s work.
Thanks to Ignacio Manzanera for providing this book