Pennsylvania Supreme Court Permits Contractors To Sue Design Professionals

By Gary P. Hunt, Esq.

Kenneth W. Lee, Esq. &

In the case of Bilt Rite Contractors, Inc. v. The Architectural Studio, 2005 Pa LEXIS 99, the Pennsylvania Supreme Court dramatically abandoned longstanding precedent to now permit a contractor to directly sue a design professional for negligent misrepresentation of information pertaining to a construction project.  Prior to this decision, a contractor that incurred damages due to errors in a design professional’s work could not sue the design professional unless there was a direct contractual relationship with the design professional.  Previously, unless the owner joined the design professional in the contractor’s action against the owner, the design professional could not be made a party to the contractor’s action because of the “economic loss” rule.

In Bilt-Rite, the Pennsylvania Supreme Court adopted Section 522 of the Restatement (Second) of Torts (“Information Negligently Supplied for the Guidance of Others”), and held that the “economic loss rule” no longer bars actions by a contractor directly against a design professional.  Section 522 holds a design professional liable to a contractor if the design professional provides false information to a contractor who relies upon the information where the design professional fails to exercise reasonable skill or care in obtaining or furnishing the information.

This decision has the potential to dramatically impact owner/design professional/contractor relationships.  Some of the potential impacts are:

1.  Construction contract documents will be modified to address the new legal concepts arising under Bilt-Rite.   Perhaps the most important outcome of the Bilt Rite decision will be a reevaluation within the construction industry as to which party should bear the risk of loss.  Owners may be asked to indemnify design professionals from contractor claims.  Owners and design professionals may seek contract modifications to allow all parties to be made a part of construction claims.  Contractors may be asked to sign contracts that prospectively release any claims they have against a design professional.

2.  The standard to be applied in an action against the design professional under Bilt-Rite is uncertain.  Though the Bilt-Rite decision appears to impose a professional negligence standard, the decision continually refers to the design professional’s “misrepresentation” or “negligent misrepresentation”.  The Pennsylvania Supreme Court has previously defined a five factor test for “misrepresentation” entitling a contractor to extra/additional compensation from an owner.  Acchione & Canuso, Inc. v. Com., Dept. of Transp., 461 A.2d 615 (Pa. 1983).  The Acchione standard appears to be less stringent than that set forth in Bilt-Rite.  If the Bilt-Rite standard is applicable to the contractor/design professional case, then it is unlikely design professionals should see any increased liability because the standard is the same as in an action brought by an owner against a design professional.  If Acchione is the standard, then design professionals may have reason to worry.

3.  Design professional/contractor communications will become more formal, with a greater effort to document all such communications.

4.  The resolution of construction disputes may be simplified.  The owner will no longer be a necessary party in order to “pass through” the contractor’s claim against the design professional.

5.  Submission of disputes in different forums may lead to conflicting results.  If the contractor is required to sue the owner in one forum (such as the Board of Claims or arbitration) which does not have jurisdiction over the design professional, it is possible that different outcomes to essentially the same claim could result. 

6.  Design professionals will be exposed to claims by a broader class of parties.   The Bilt-Rite opinion and Section 522 are broad enough that subcontractors can probably bring an action against the design professional.

7.  The development of a new “cottage” industry of design professional “experts” who will assist the contractor.  Pennsylvania Supreme Court Rule 1042.3 requires that prior to bringing a professional negligence claim, the party instituting the action must have an expert opinion that professional negligence has occurred.  Thus, before a contractor can bring an action against a design professional the contractor will probably need the opinion of another design professional that the targeted party has committed professional negligence.

8.  Owners and design professionals are likely to operate more independently.  Often, the owner relies totally upon the design professional as to all matters involved in a construction project, including advice as to a contractor’s claims.  Design professionals, no longer insulated from direct claims by contractors, will be sensitive to the impact their actions may have on their own liability, and owners will be more sensitive to a design professionals desire to position itself in the event of such a claim.

9.  Independent consultants may be required.  Now that a contractor may sue both the owner and the design professional, design professionals might ask the owner to engage an independent consultant to review the design professional’s work and advise the owner independently of the design professional as to all matters, design, construction and any contractor claims.  An independent consultant to the owner may well  have several advantages: a) contractor claims are resolved more expeditiously because the design professional is not judging issues for which it might ultimately be liable; b) the design professional may be provided with a defense, i.e., if the independent consultant “missed it” how has the design professional breached its standard of care; and c) the review by an independent consultant during the design phase may result in more accurate plans, specifications and bid/contract documents, thereby potentially decreasing the number of claims asserted by contractors.

The Bilt Rite decision raises many other issues, most of which will be resolved only over a period of time through contractual negotiation or litigation.  The impact of the decision is likely to be seen first in the contract documentation stage of a project.  Contractors are likely to be presented with contracts containing terms not typically seen in existing contract documents.  Design professionals will be looking for protection in their contracts with owners.  Second, the continuing trend toward marriage of the contractor profession and the design profession known as “design/build” projects is likely to accelerate so as to minimize the dispersion of responsibility for issues that arise during construction and to avoid the additional expense of the owner having to hire an independent consultant.  

For more information on this topic, please contact Gary Hunt at 412.594.5518; ghunt@tuckerlaw.com or Ken Lee at 717.234.4121; klee@tuckerlaw.com.

^ Back to top

Pennsylvania’s Move Toward Best Value Contracting

By Jessica Quinn-Horgan, Esq.

The Pennsylvania Department of General Services (DGS) plans to implement a new system later this year through which it will award all construction projects with a total value of $5 million or greater. This competitive contracting process is a departure from the traditional low-bid method, requiring projects to be awarded to the contractor offering the best combination of price and qualifications.

Best Value Contracting (“BVC”) is an innovative approach to construction contracting that is gaining widespread recognition throughout the country at the federal, state and local levels. Federal agencies used BVC in approximately 70 percent of all federal construction projects in 2001, while at least 10 states have adopted this method for public works programs. 

Under the proposed BVC process, three categories will be considered when awarding contracts:

1. price;

2. MBE/WBE participation; and

3. a contractor’s technical submission.

The technical submission requires the contractor to supply information on its work experience, past performance, safety record, key personnel, worker training, customer satisfaction and bonding. A contractor’s response in each category will be evaluated and given a weighted score. DGS has developed a Request for Proposal (“RFP”) form, which describes the specific criteria it will use in evaluating a contractor’s proposal in each category. The form can be found on the DGS Web site, www.dgs.state.pa.us, under “What’s New at DGS.” While the bid price will be the most heavily weighed of the three factors, a contractor that is not the lowest bidder may still be awarded the project if it receives a higher total score after considering all three categories.

The movement toward BVC is fueled in large part by the realization of project owners that the traditional low-bid method is a false economy when the project is hampered by poor quality work, schedule delays, cost-overruns, change orders and litigation. Therefore, under the BVC method, a contractor’s past performance on a project may dictate whether it is awarded its next job. 

Jessica Quinn-Horgan is an attorney in the firm’s RECON Industry Group. For more information on this topic, please contact Jessica at 412.594.5558 or jhorgan@tuckerlaw.com.

^ Back to top

Mandate Waiver Program Does Not Supercede Separations Act

By Christopher A. Coppula, Esq.

Mechanical Contractors Association of Eastern Pennsylvania, Inc. v. Commonwealth of Pennsylvania, Department of Education, 860 A.2d 1145 (Pa. Cmwlth. 2004).  The Pennsylvania Commonwealth Court ruled that the Education Empowerment Act does not authorize the Department of Education to waive the requirements of the Separations Act requirement of separate construction contracts for plumbing, HVAC and electrical work.

SUMMARY AND FACTUAL BACKGROUND

In the matter of Mechanical Contractors Association of Eastern Pennsylvania, Inc. v. Commonwealth of Pennsylvania, Department of Education, a mechanical contractors’ association filed a petition seeking a declaration that the Department of Education through the Mandate Waiver Program of the Education Empowerment Act could not issue a waiver to school districts exempting them from the requirements of the Separations Act, mandating their seeking separate bids for plumbing, heating, ventilation and electrical work on building projects. 

The Separations Act, 71 P.S. §1618, requires the award of separate contracts for plumbing, heating, ventilation and electricity in the erection, construction and alteration of public buildings over $4,000. Section 751(a) of the Public School Code, 24 P.S. §7-751(a), requires all construction over $10,000 on any school building be done under “separate contracts.”  The Mandate Waiver Program of the Education Empowerment Act specifically permits school districts to apply for a waiver of certain School Code requirements in order to “operate in a more effective, efficient or economical matter” 24 P.S. §17-1714-B(a).  Certain requirements of the School Code are specifically treated as “non-waivable” under the Mandate Waiver Program.  However, Section 751(a) relating to separate bids for construction over $10,000 is not among them. As a result, for a short period of time several school districts requested and received from the Department of Education waivers of the “multiple prime” requirement.

DISCUSSION

In Mechanical Contractors Association of Eastern Pennsylvania, Inc. v. Commonwealth of Pennsylvania, Department of Education, the Commonwealth Court concluded that the Pennsylvania Department of Education (PDE) was without legal authority to waive the requirements of the Separations Act.  The Mandate Waiver Program specifically states that nothing in the statute shall be construed to “supersede or abrogate” the provisions of the Separations Act.  Because the intent of the Separations Act would be impaired by the issuance of a waiver of the separations requirements set forth in Section 751 of the Public School Code, the Commonwealth Court denied PDE the right to grant a waiver of that aspect of Section 751.

As a result, school districts may no longer apply to PDE for a mandate waiver to allow the award of “single prime” contracts for construction projects that otherwise are subject to the Separations Act. New legislation would be required in order to allow relief from the requirement of multiple prime contractors.

Christopher A. Coppula is an attorney in the firm’s RECON Industry Group. For more information on this topic, please contact Chris at 412.594.5567 or via e-mail at ccoppula@tuckerlaw.com.

^ Back to top

In each issue, we introduce a member of the RECON Industry Group. In this issue, we spotlight...

W. THEODORE BROOKS

Mr. Brooks, Co-Chair of the firm’s RECON Industry Group, represents clients involved in a broad range of businesses, including real estate services and real estate development, manufacturing, distribution, retailing, printing, professional corporations and nursing home and personal care home management. He has represented real estate developers and land owners in all aspects of land development, including acquisition, financing, subdivision, zoning and land use regulations, leasing and taxation.

Ted, along with Tucker Arensberg Real Estate Services Corporation (TARES), serve as title agents for national title insurance companies and handle all aspects of title examination and certification, as well as full document preparation and closing services.

Ted graduated from Bucknell University in 1966 with a B.A. in History, and received his law degree from the University of Pittsburgh School of Law in 1969.

In addition to having been an active member of the Board of Neighborhood Legal Services of Pittsburgh and the Pittsburgh Airport Area Chamber of Commerce. Ted is active in church, community and pro bono legal matters.

^ Back to top

< Back