August 2002
By ALEXANDER A. MIUCCIO, CIC Legal Counsel
Construction management usually involves the use of multiple, separate prime contractors, each performing a portion of the work and often coordinated by a single entityÑthe construction manager. The specific rules and responsibilities of the construction manager differ from one project to the next. The construction manager performs many of the management and coordination functions that would otherwise be performed by a general contractor. In addition, the construction manager often performs services during, and in connection with, the design phase, some of which might otherwise be performed by the architect (such as cost estimating) Ñ and some of which are in addition to, or are performed to a greater degree than those normally undertaken by the architect (such as analyses of construction feasibility).
Because there is no universally accepted definition of a construction manager, the construction industry has been wrestling with this problem for a number of years. Is the construction manager the owner's agent or an independent contractor? Different legal relationships exist where one is an agent as opposed to an independent contractor, especially as to trade contractors. Whether the construction manager is serving as an agent of the owner or is acting as an independent contractor, its services are generally the same.
A construction manager, when acting as agent for the owner, may enter into trade contracts on behalf of the owner. The construction manager, acting as the owner's agent, does not enter the trade contract on its own behalf. Such contracts are actually between the owner and the trade/prime contractor. In that case, the trade/prime contractor has a direct claim against the owner and not against the construction manager.
Where the construction manager is not the owner's agent, but rather an independent contractor, the role is essentially that of providing the services of a general contractor. Neither a subcontractor having a contract with a general contractor, or a trade contractor having a contract with a construction manager who is not the owner's agent, has a direct claim against the owner. In both cases there is no privity of contract with the owner. All of the subcontractor's or trade contractor's rights and obligations derive from its contract with the general contractor or independent construction manager, not the owner.
The subcontractor's or trade contractor's rights against the owner, therefore, depend upon whether its contract is with a general contractor, a construction manager, acting as agent for the owner, or a construction manager acting as an independent contractor. This factual issue does not necessarily turn on the language used in the various contracts, but rather upon the actual intent of the parties. The recent case of R & A Construction Corp. v. Queens Boulevard Extended Care Facility Corporation illustrates this point.
Background
R & A Construction Corp. entered into a construction contract with CCS Queens Corp. pursuant to which R & A agreed to provide labor and material for concrete work in the building of a nursing home facility owned by Queens Boulevard Extended Care Facility Corp. The construction contract designated CCS as the construction manager, R & A as the contractor, and Extended Care as the owner. The contract between the owner and CCS, however, provided that CCS was to act as the general contractor for the construction of the nursing home.
R & A commenced an action for breach of contract against both CCS and Extended Care, as the owner, claiming it had not been paid a balance due of $254,562.58 under the construction contract. The complaint alleged that CCS was the construction manager for the owner.
The owner moved for summary judgment, dismissing the action against it. The owner argued that the underlying construction agreement was a subcontract between R & A and CCS, and that, because CCS was acting as general contractor, only CCS was liable to R & A. The owner relied on the general rule that a project owner will not be held liable to its general contractor's subcontractors. The owner argued that R & A had submitted requisitions to, and received payments from CCS.
R & A had also claimed extras pursuant to unsigned change orders addressed and billed only to CCS. The owner also argued that R & A had filed a mechanic's lien claiming that it had been employed by, and furnished materials or performed services to, CCS.
R & A argued that CCS was acting as construction manager and agent for the owner. The construction contract between R & A and CCS described CCS as "Construction Manager for Queens Blvd. Extended Care Facility Corp." The contract also recited, "Construction Manager has been engaged by Owner to act on Owner's behalf in its construction of a project..." The contract was executed by "CCS Queens Corp. Construction Manager for Queens Blvd. Extended Care Center."
The lower court held that CCS was a general contractor and dismissed the action as against the owner. R & A appealed.
Decision
The appellate court reversed and reinstated the complaint as against the owner. According to the appellate court, the lower court erred in finding that a construction manager is the same as a general contractor. The court noted that a general contractor and a construction manager are "separate and distinct titles with different responsibilities and different relationships to the parties to a construction project." The court held that because the construction contract designated CCS as a construction manager, there was an issue of fact as to the actual relationship, and the owner was not entitled to a dismissal of the claim without a determination of the true relationship between the construction manager and the owner.
Comment
The appellate court recognized that the roles of construction manager and general contractor are different, although in some cases, such as this one, the distinctions may become blurred. Some construction management contracts provide that the construction manager is at risk for timely completion, a maximum price and the quality of work. The construction manager, in such at-risk contracts, shares many of the obligations of a traditional general contractor. On the other hand, a construction manager who is truly an agent of the owner does not assume the risks of a general contractor. Its interests coincide with those of the owner, and its responsibilities to the owner are in the nature of a fiduciary's obligations. Thus, although the language used in the various contracts may be an indication of the actual relationship, it is the actual intent of the parties that will determine the rights and obligations of the parties.
Conclusion
A contractor entering into a construction contract as a subcontractor or trade contractor should be aware of contractual designations such as construction manager or general contractor, but should not rely solely upon such titles. The contract should be carefully examined to determine whether the construction manager is signing on its own behalf as an independent contractor, or as agent for the owner. The contract between the owner and the construction manager should also be examined to determine the obligations of the parties. In this case, the appellate court held that the conflicting language used in the contracts was not a sufficient basis to determine the liabilities, but that the factual issue, as to the actual intent of the parties, must be resolved at trial.
About the author: Mr. Miuccio is a partner in the New York City-based law firm Altieri, Kushner, & Miuccio P.C. and legal counsel to the Construction Industry Council of Westchester and the Hudson Valley Inc.