All Puffed Up…Proposals Can Bite Back

Contact: Gregory P. Cafouros; Kroger, Gardis & Regas, LLP (Indianapolis, Indiana, USA)

Architects and Engineers benefit from a rule in construction known as The Economic Loss Doctrine, limiting a design professional’s exposure in construction claims. The players in a construction project dispute are required to follow the “chain of contracts” that the owner, construction manager, general contractor, subcontractors and design professionals signed before beginning their work.

In a recent case, however, Community College of Philadelphia v. Stantec Architecture & Engineering, a jury awarded the College $5.5 million for breach of contract and professional negligence. The College alleged that Stantec used unlicensed designers and engineers, fell behind in their proposed schedule of completion of contract documents and relied too heavily of the RFI process to callout conflicts in the contract documents. The net result was alleged to have resulted in delays and increased costs of more than 50% over the College’s budget.

What is unusual in this case is that the jury looked at the pre-contract construction schedule and proposal supplied by Stantec in their response to the College’s RFP as a basis for liability. Stantec’s proposal indicated that they would use “experienced professionals” and “senior level professionals”, when in fact interns from Drexel University were used as well as unlicensed architects. Less experienced employees were used particularly in the position of Project Architect. In-house MEP engineers were touted in the proposal to save costs, but in fact these services were contracted out.

Adding to the confusion was the use of multiple prime contractors for the work resulting in hundreds of disciplinary conflicts, deficiencies, errors and omissions.

The take away from all this is that the contents of a proposal may be relied upon by owners and could be considered part of a contract for the work. To avoid this, your contract must be very explicit that there are no other documents which pertain to your professional services other than your contract. In addition, work should not begin without a signed contract in place limiting the reliance of owner on the contents of a proposal. This led to Stantec’s problem. They worked for months and were paid without a signed contract in hand.

Puffing has its place in presenting one’s qualifications and expertise. But this puffing tends to accrete overtime, from one proposal to the next, gradually ramping up the hype and hyperbole to extreme levels. Care should be taken to carefully review proposals for promises that are over the top.