Liability May Lurk in Design-Build

Design professionals should understand that they are not insulated from lawsuits even if they are retained by a design-builder. From a legal standpoint, a designer in this situation has the same legal relationship as that of a subcontractor to a general contractor.

Although architects and engineers are not happy about being cast in a subcontractor role, they must generally accept it as design-build takes a larger share of the construction market. Methods by which they might overcome subcontractor status have been informally discussed in professional circles.

One possibility is through the use of a “two-step” procedure in which the owner signs a related two-part document. The first part covers solely the design professional’s preparation of plans and specifications. The second part consists of the owner’s agreement with a contractor for the construction. This two-step concept has not caught on, however. Not only does it require the owner to negotiate two contracts, but it leaves in limbo the responsibility for construction-phase services that are intended to ensure that the construction put in place adheres to plans and specifications.

Another alternative arrangement is to employ joint ventures between builder and designer under one contract. While a workable approach, this creates a legal entity that makes the contractor and designer equally liable for defects in design or construction. They are, in effect, partners for a single project.

A recent case- 17 Vista Assoc. v. Teachers Insurance & Annuity Assn. 693 N.Y.S. 2d 554, 1999 -illustrates how a design professional working under a design-build scenario may be held responsible. A mechanical engineer was retained by a design-builder for a new building. Problems developed with the smoke-purge system designed by the engineer, and the system failed to pass a fire-department inspection. The seller of the building, who had to pay for repair of the system, filed a claim for indemnification by the design firm. Ruling in favor of the seller, the New York appellate court said common law recognizes implied indemnification, and permits a party who has been compelled to pay for the wrong of another to recover the damage amount if paid to the injured party.

The court noted that precedent cases have held that implied indemnification permits a vicariously liable building owner and contractor to shift all liability to a subcontractor, whose negligence actually caused the loss. The court also made it clear that a party who participated to some degree in the wrongdoing cannot receive the benefit of indemnification.

Milton F. Lunch was general counsel of the National Society of Professional Engineers.

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