Professional Liability Risk and the CMAR Delivery Method
Jeff Slivka | October 2, 2015
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, the following.
- 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.
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