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Architects' Potential Liability Arising from Defective Work Architects' Potential Liability Arising from Defective Work

Architects' Potential Liability Arising from Defective Work

Liability for defects occurring on a construction project is generally thought to break down as follows: architects and engineers are responsible for errors and omissions in the design, and contractors are responsible for failures to perform the work according to that design. Notwithstanding this typical allocation, a recent decision by the Indiana Court of Appeals highlights how architects can have liability exposure arising from a contractor’s defective work.

Like most construction projects, the case of Rusnak v. Brent Wagner Architects, 55 N.E.3d 834 (Ind. Ct. App. 2016) turns on the language in the key contracts: the homeowner’s contract with the general contractor building the home, and the owner’s contract with the architect. The contract between Owner and Architect included standard AIA language that the Architect’s services included visiting the site, reviewing and certifying payments, reviewing the Contractor’s submittals, rejecting nonconforming Work, and interpreting the Contract Documents.

The contract between the Owner and General Contractor also included standard AIA language that the Contractor “shall supervise and direct the Work, using the Contractor’s best skill and attention. The Contractor shall be solely responsible for and have control over construction means, methods, techniques, sequences and procedures, and for coordinating all portions of the Work.” Regarding the role of the Architect, the general conditions (standard form) stated, “the Architect will not have control over or charge of and will not be responsible for construction means, methods, techniques, sequences or procedures, or for safety precautions and programs in connection with the Work, since these are solely the Contractor’s responsibility. The Architect will not be responsible for the Contractor’s failure to carry out the Work in accordance with the Contract documents….The Architect will have authority to reject Work that does not conform to the Contract Documents.”

A dispute arose when Owner, dissatisfied with the workmanship, did not pay Contractor the agreed upon sum for project. Contractor filed a lawsuit against Owner, who in turn filed a third party complaint against Architect for breach of contract. In the claim against the Architect, Owner alleged breach of the duty to properly design and supervise the project “by allowing the construction conduct to fall below the applicable standard of care.” Essentially, Owner contended that Architect was responsible for general oversight of the project and all work being performed. Owner identified numerous instances of defective work performed by the Contractor, which Owner alleged Architect failed to prevent and/or reject.

Architect admitted that it had observed one instance of defective work performed by the Contractor – namely, the front step layout. Prior to the concrete being installed for the steps, the Architect had observed that the stair framing did not extend far enough to the left by approximately three inches. Architect notified the Contractor, who after reviewing the condition, told Architect it was too late to change the layout because the concrete trucks were already on their way to the site and “they needed to deal with it.”

Architect filed a motion for summary judgment, arguing the contracts make clear it is not liable for alleged defects or mistakes by Contractor. The trial court agreed, and entered summary judgment in favor of Architect, finding Architect had performed all of its contractual duties and obligations that were owed to Owner. The Indiana Court of Appeals disagreed, and reversed the ruling in favor Architect.

The Court of Appeals focused on the Architect's role in rejecting nonconforming work. The court said the contractual language in the contracts that relieves the Architect of liability for Contractor's performance of the work does not excuse Architect from its own obligation to reject the work it knows fails to conform to the design. Significantly, the court appeared to interpret the standard contractual language as providing more than the authority to reject nonconforming work, but additionally, the duty to reject such work.

Moreover, the court declined to rule that Architect satisfied its duty when it notified Contractor of the nonconforming work. Rather, the court of appeals remanded the case back to the trial court to determine what the duty to reject nonconforming work means, i.e., whether notification to Contractor was sufficient, if Architect was required to do more, such as take action to make sure the defective work was corrected, or if Architect should have rejected the corresponding pay application.

Though there was no final determination of liability by the court of appeals that provides definitive guidance, the court of appeals' decision nevertheless raises potential implications for architects and other designers performing these typical construction administration services. First, architects who are contractually authorized to reject nonconforming work may be held to also have a duty to do so, even if the applicable contracts state that the architect will not have control over or charge of construction, will not be responsible for construction means, methods, techniques, or procedures, and will not be responsible for the contractor's failure to carry out the work in accordance with the contract documents. Second, though it is not clear from the case what action by the architect is required to discharge the duty to reject the defective work, it may not be sufficient to simply notify the contractor, and it also may not be sufficient to reject the pay application after the fact. Rather, the architect may be required to do more, such as timely notifying the owner or taking some other action before the work continues.

After the Rusnak case, architects and other designers should recognize that when operating under standard AIA contracts, their construction observation and pay application review services are not merely for the convenience of the owner, nor is an owner necessarily limited in looking only to the contractor when there is nonconforming work. Architects and other parties seeking more certainty on this allocation of responsibility should consider modifying the standard language to clarify how the architect can discharge its duty to reject nonconforming work. Alternatives might be to clarify in the contracts that the duty to reject work is satisfied by notifying the owner, or by notifying the contractor (in writing), and/or by rejecting part or all of the pay application that includes the nonconforming work. As always, the parties to the contract should confirm that any modifications to standard language be carried through in the other contracts on the project to minimize the risk of inadvertent inconsistencies.

For more information, contact Rebecca Seamands.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.

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