Professional liability risk is inherent in nearly every stage of the
construction process and throughout every project delivery method. To identify
it, you just have to know what you are looking for. When specifically looking
at the Construction Manager—At Risk (CMAR) delivery method, you have to
understand what services the CMAR is contracted to perform for the owner even
though they are not holding the contract for the prime design services.
Also, many insurance professionals confuse the construction management
agency (CMA) with CMAR. The CMA is not a project delivery method, but
rather a way of managing and monitoring the construction process. The CMA is
only under contract to provide professional services to the owner. The CMA does
not guarantee cost or schedule, but only manages the project on behalf of the
owner, and acts purely as a professional without the performance obligations of
any subcontractors.
The CMAR delivery method encompasses numerous forms of professional
liability, even though it involves separate contractual agreements between the
owner and design professional (DP) and the owner with the CMAR. The CMAR is
then responsible for the construction work performed by subcontractors,
typically under a guaranteed maximum price. Even though the CMAR acts as the
general contractor during the construction phase, the CMAR is usually selected
based on qualifications, expertise, and experience, similar to the way a true
professional would be selected, and not based on the lowest bid.
Services Provided
During this arrangement, it is also incumbent on the CMAR to provide the
owner with preconstruction “consulting” services throughout the design phase.
These services can include, but are not limited to:
- Defining project objectives
- Site evaluation
- Conceptual schedules and budgets
- Evaluation of design professionals
- Risk identification and mitigation
- Constructability assessments
- Project phasing assessments
- Reviews of drawings and specifications
- Value engineering
- Monitoring of the design process
The above services may expose the CMAR to professional liability should
errors be made in the above documents or professional services.
Once construction begins, the CMAR serves as the project’s general
contractor, building the project with either its own crews or subcontracted
trades, while in many cases (determined by the contract’s scope of services),
retaining the responsibility for monitoring design—coordinating any design
changes, advising the owner with any design modifications, and coordinating
approval of shop drawings with the architect or engineer, and other similar
design-related services.
In one recent case involving a CMAR, the CMAR submitted a subcontractor’s
change orders for design-related changes to the owner seeking recovery under
the Spearin Doctrine or the owner’s implied warranty of plans and
specifications only to have it rejected due to the fact that the CMAR contract
required the CMAR to provide, in addition to other services, “review of design
documents prepared by the designer.” The change orders were believed to be a
few million dollars.
Potential Exposures
In the CMAR project delivery method, the CMAR shares cost and scheduling
risk with the owner while overseeing project management. This enhances the
ability to fast-track projects and initiate the construction phase before
design and specifications are completed. As a result, the project delivery
schedule is shortened, and the opportunity to generate profits from the
completed building are achieved sooner rather than later. However, the
potential for errors do exist on many levels.
Although CMARs can make decisions based on their professional expertise,
they must construct the project according to carefully defined design
specifications to ensure certain outcomes and the finished work is completed on
time and within budget. The failure to comply can result in delays or
additional costs to the owner, which, in turn, may be submitted against the
CMAR by the owner in the form of a professional liability claim.
Field modifications provide another significant professional liability
exposure for a CMAR since they are responsible for approving plan and design
changes during the construction process. Errors performed anywhere along the
way provide the potential for risk.
Construction means and methods constitute the employ of techniques and
devices that assist the building process itself, but are not constructed as
part of the permanent structure. This normally entails temporary construction
elevators, scaffolding, safety rails, netting as well as the use of automated
tools like Building Information Modeling (BIM). CMARs are responsible for any
problems, including delays, occurring in these areas under their watch.
Now, you may be saying “Well, I have CG 22 blah, blah, blah, and that covers
my insured for means and methods” but remember, at best, you only have coverage
for bodily injury (BI) or property damage (PD)—what happens if the structure
doesn’t fall down, or you don’t get BI or PD? In these cases, contractors need
contractors professional liability insurance for the economic damages
associated with errors.
Furthermore, every CMAR performs some form of construction management
service, ranging from the hiring of subcontractors and inspection of their work
to the supervision of sequencing events. Problems in these areas as well as the
resulting flawed work can also create liability issues or the allegations of
negligence. Leaky roofing, buckling or cracking walls, collapses or settlement
issues, and wiring and plumbing problems all may fall under this category of
exposure if some third party alleges negligence in the performance of
professional services (i.e., construction management).
CMARs also need to be aware of the vicarious liability surrounding
lower-tier, subcontractor contracts. For example, a
mechanical/electrical/plumbing (MEP) contractor may be responsible for both
design and installation. Consequently, the design-builder or CMAR would assume
the liability for negligent acts caused by these services. It is then necessary
for the CMAR to identify all the contracts and subcontracts related to the
construction’s design work and ensure lower-tier contractors and professionals
carry the proper professional liability insurance.
Conclusion
Professional liability is unavoidable in today’s construction world. Every
methodology accompanies its share of risks. The key to their management is a
thorough understanding of the exposures involved with each method and the steps
necessary to secure against costly and timely errors.