GANTS, C.J.
This case requires us to resolve three issues regarding a public construction contract that implements the construction management at risk delivery method, pursuant to G. L. c. 149A: (1) Does the owner who furnishes the plans and specifications in a public construction management at risk project give an implied warranty of their sufficiency for the purpose intended, as the owner does under our common law in traditional design-bid-build construction projects? (2) If so, did the parties to the construction management at risk contract in this case disclaim the implied warranty? (3) If they did not, did the indemnification provision in the contract prohibit the construction manager at risk (CMAR) from filing a third-party complaint against the owner in a case brought by a subcontractor seeking reimbursement of additional costs, thus requiring the CMAR to file a separate complaint against the owner to recover the additional costs caused by an insufficient or defective design under the implied warranty?
We conclude: (1) under our common law, a public owner of a construction management at risk project gives an implied warranty regarding the designer's plans and specifications, but the scope of liability arising from that implied warranty is more limited than in a design-bid-build project; (2) the construction management at risk contract in this case did not disclaim the implied warranty; and (3) the indemnification provision in the contract did not prohibit the CMAR from filing a third-party
Background. The Division of Capital Asset Management and Maintenance (DCAM) is the owner of a construction project to build a psychiatric facility at the site of the Worcester State Hospital (Project). DCAM entered into a contract with Ellenzweig Associates (Designer) to prepare the Project's designs. See G. L. c. 7C, § 44 ("Designer" is individual or other entity "engaged in the practice of architecture, landscape architecture, or engineering" and registered in discipline required for project). When the designs were partially completed, DCAM entered into a contract with Gilbane Building Company (Gilbane) as the CMAR.
On July 19, 2012, approximately one month before it substantially completed its work, Coghlin submitted to Gilbane a request for equitable adjustment of the contract price. Nearly one year later, on July 17, 2013, Coghlin filed a complaint in the Superior Court against Gilbane, alleging, inter alia, that Gilbane committed a breach of its subcontract with Coghlin by causing Coghlin to incur additional costs resulting from various scheduling, coordination, management, and design errors.
Because DCAM's liability on the third-party complaint is contingent upon Coghlin prevailing on its complaint, we recite the
In its third-party complaint, Gilbane claims that it performed its work in accordance with the contract, and that DCAM has not paid Gilbane for the amounts sought by Coghlin. DCAM filed a motion to dismiss the third-party complaint. After conducting a
In his decision, the judge recognized that Gilbane's third-party complaint effectively alleged that DCAM should indemnify Gilbane for "damages caused by design changes and design errors," that were "unrelated to any wrongdoing on Gilbane's part," for which Gilbane may be liable to Coghlin. The judge, citing J. Lewin & C.E. Schaub, Jr., Construction Law § 7:3, at 452 (2012) (Lewin & Schaub, Jr.), acknowledged that Massachusetts common law "traditionally has been protective of construction contractors in circumstances where the owner has supplied erroneous or, perhaps, ambiguous plans and specifications." See Lewin & Schaub, Jr., supra at § 7:3, at 464 (2014-2015) ("where a party provides a contractor with a set of plans and specifications for construction to follow, there is an implied warranty that those plans and specifications are adequate and sufficient"). The judge concluded, however, that the implied warranty of the owner applies only where the construction project uses the traditional design-bid-build construction method, in which the owner retains a designer to design the project, construction bids are submitted based on that design, and the general contractor who wins the contract is expected to build the project in accordance with the plans and specifications of the design. The judge determined that this implied warranty does not apply where, as here, the construction project uses the construction management at risk method, given the "material changes in the roles and responsibilities voluntarily undertaken by the parties" to such contracts.
The judge also determined that the indemnification provision in the contract between DCAM and Gilbane, which requires Gilbane to indemnify, defend, and hold harmless DCAM from all claims, damages, losses, and expenses "arising out of or resulting from the performance of the Work," as defined in the contract, imposes liability on Gilbane for any damages it might win in its third-party claims against DCAM. The judge concluded that, because Gilbane effectively is suing itself in its third-party complaint, Gilbane's third-party claims create "an impermissible `circuity of obligation'" (citation omitted). Gilbane appealed, and we allowed its motion for direct appellate review.
Discussion. "We review the allowance of a motion to dismiss de novo," accepting as true the facts alleged in the plaintiff's and the third-party plaintiff's complaints as well as any favorable inferences that reasonably can be drawn from them. Galiastro v.
1. Construction management at risk contracts under G. L. c. 149A. a. Construction project delivery methods. The construction management at risk contract at issue in this case differs from contracts made pursuant to the conventional design-bid-build method. In a design-bid-build project, "the owner retains an engineer or an architect on a separate contract to complete the design of the public facility," and once the design is complete, the design is made available to potential bidders and the construction contract is advertised for bid. Associated Subcontractors of Mass., Inc. v. University of Mass. Bldg. Auth., 442 Mass. 159, 165 n.8 (2004), quoting D. Gransberg, The Cost of Inaction: Does Massachusetts Need Public Construction Reform? at 3 (1999). Contractors submit prices, and the project is awarded to the "lowest responsive and responsible bidder." Associated Subcontractors of Mass., Inc., supra, quoting Gransberg, supra. The construction services contract between the owner and the contractor allocates to the contractor the responsibility of "selecting, coordinating, and administrating the work of all of the various subcontractors." Lewin & Schaub, Jr., supra at § 2:6, at 14. "[T]he risk of the design is allocated to the engineer or architect, while the risk of construction is allocated to the contractor." Id. at 14-15.
On January 1, 2005, § 27 of the "Act further regulating public construction in the Commonwealth" became effective, see St. 2004, c. 193, § 27, authorizing public agencies to use two additional delivery methods: design-build and construction management at risk. In a design-build project, the owner contracts with a single party that assumes both the design and the construction responsibilities. See G. L. c. 149A, § 15 ("Design build" defined as "construction delivery system that provides responsibility for the delivery of design services and construction services within a single contract"); Lewin & Schaub, Jr., supra at § 2:6, at 15. By replacing two entities with one, owners may reduce delays and focus responsibility on a single entity. See J. Sweet & M.M. Schneier, Legal Aspects of Architecture, Engineering and the Construction Process § 14.09E (9th ed. 2013) (Sweet & Schneier)
The construction management at risk method is available to public agencies for the "construction, reconstruction, installation, demolition, maintenance or repair of any building estimated to cost not less than [$5 million]." Id. at § 1. Similar to the design-bid-build method, the owner enters into separate contracts, one with the designer and one with the CMAR. Id. at § 3 (public agency must procure services of designer, who is "independent of the owner's project manager and [CMAR]," before submitting application to use construction management at risk method). However, in the construction management at risk method, the owner may contract with the CMAR before the design has been completed. Id. at § 7 (total dollar amount for CMAR services is based on design documents "which are no less developed than [sixty] per cent"). See Office of the Inspector General, Experience of Massachusetts Public Agencies with Construction Management at Risk Under M. G. L. c. 149A, at 9 (Oct. 2009) (OIG Report) (CMAR "selected during the design stage of the project"). By contracting during the design phase, the owner may "involve the [CMAR] in project planning and . . . benefit from the [CMAR's] expertise." Lewin & Schaub, Jr., supra at § 17:42, at 1226. See P.L. Bruner & P.J. O'Connor, Jr., On Construction Law, § 6:59 (2002) (Bruner & O'Connor, Jr.) (CMAR "provides preconstruction services tailored to introduce construction expertise into the design phase"). The CMAR provides its services in exchange for a guaranteed maximum price (GMP), representing the maximum amount that the owner will pay. See G. L. c. 149A, § 2; id. at § 7. Absent a change order, the CMAR is generally responsible for any costs that exceed the GMP. See Lewin & Schaub, Jr., supra at § 17:42, at 1227. b. Implied warranty of the designer's plans and specifications. We now consider whether the owner in a construction management at risk contract made pursuant to G. L. c. 149A impliedly warrants the sufficiency of the designer's plans and specifications. In design-bid-build projects, "[i]t is well established that where one party furnishes plans and specifications for a contractor to follow in a construction job, and the contractor in good faith
The relationship between the owner and the CMAR is different from the traditional relationship between the owner and the general contractor in a design-bid-build project. The act defines "construction management at risk" as
G. L. c. 149A, § 2. Unlike design-bid-build projects where the designer designs and the contractor builds, the CMAR may provide consultation regarding the design of the project and therefore may influence the project's final plans and specifications. See OIG Report, supra at 9 ("final design may reflect or incorporate substantial input from the [CMAR]"). Additionally, the CMAR agrees to a GMP and has the opportunity when negotiating the contract to consider the risk of incurring additional costs. See id. at 32 (construction management at risk contracts contain "CM Contingency," which is monetary amount intended to cover risk of "project costs that are not associated with scope changes or latent conditions encountered during the construction phase"). See also Bruner & O'Connor, Jr., supra at § 9:84, at 678 ("If . . . it can be clearly established that the contractor did or should have accounted for possible errors in the plans and specifications when pricing the work, then it appears inappropriate to hold the owner to this implied warranty standard").
As significant as these differences in relationship are, we are not persuaded that the relationships are so different that no implied warranty of the designer's plans and specifications should apply in construction management at risk contracts made pursuant to G. L. c. 149A and that the CMAR should bear all the additional costs caused by design defects. See OIG Report, supra at 12-13, 58 ("Owner-generated design changes and incomplete or flawed plans and specifications may . . . warrant change orders that increase the contract price" and "owner is also responsible for the cost of change orders, which increase the original GMP"). See also Hackenbrach, An Overview of Major Project Delivery Methods and Their Design Risk Allocation, in Shared Design § 3.01[C], at 3-11 (2011) (CMAR generally bears risk that actual costs to complete project may exceed price it has agreed upon with owner, "unless it can show that the costs increased due to owner-directed changes, the owner's actions or omissions, or other circumstances which the contract treats as within the owner's
Nor are we persuaded that the Legislature, when it enabled the construction management at risk method in public building projects by enacting G. L. c. 149A, intended to abolish the owner's implied warranty and to require the CMAR to bear the entirety of the risk arising from design defects. The statute states that the CMAR "may" provide "consultation" regarding the design but is not required to do so. Ordinarily, to "consult" means to discuss, give advice, or confer. See Milton v. Massachusetts Bay Transp. Auth., 356 Mass. 467, 474 n.8 (1969), quoting Webster's Third New International Dictionary 490 (1963) ("consult" defined as "to deliberate on," "discuss," "to ask advice of," "to take counsel," and "confer"). The possibility that the CMAR may consult regarding the building design does not suggest that the CMAR should be the guarantor against all design defects, even those that a reasonable CMAR would not have been able to detect. Although the statute requires a GMP for the CMAR's services, the GMP may be established when only sixty per cent of the design documents have been developed. The Legislature reasonably could not have intended that the CMAR, by agreeing to a GMP, would bear all the risk arising from the design when the CMAR may not have seen as much as forty per cent of the design
Although the owner's implied warranty applies in a public construction management at risk contract, the differences between the responsibilities of a general contractor in a design-bid-build project and those of a CMAR affect the scope of the implied warranty. The general contractor in a design-bid-build project may benefit from the implied warranty where it relied on the plans and specifications in good faith, but the CMAR may benefit from the implied warranty only where it has acted in good faith reliance on the design and acted reasonably in light of the CMAR's own design responsibilities. The CMAR's level of participation in the design phase of the project and the extent to which the contract delegates design responsibility to the CMAR may affect a fact finder's determination as to whether the CMAR's reliance was reasonable. The greater the CMAR's design responsibilities in the contract, the greater the CMAR's burden will be to show, when it seeks to establish the owner's liability under the implied warranty, that its reliance on the defective design was both reasonable and in good faith. See generally Sweet & Schneier, supra at § 14.04 ("all of the modern variations [on the design-bid-build method] have as a common denominator: a blurring of the lines of responsibility"). Therefore, the CMAR may recover damages caused by the breach of the implied warranty, but only if it satisfies its burden of proving that its reliance on the defective plans and specifications was
2. Express disclaimer of implied warranty. Having found that there is an implied warranty of the designer's plans and specifications in construction management at risk contracts made pursuant to G. L. c. 149A, we now consider whether the contract between DCAM and Gilbane expressly disclaims the owner's implied warranty. See Daniel O'Connell's Sons v. Commonwealth, 349 Mass. 642, 647-648 (1965) ("express disclaimer" of owner's responsibility for accuracy of geological data precluded liability based on contractor's reliance on such data); D. Federico Co. v. Commonwealth, 11 Mass.App.Ct. 248, 252 (1981) (implied warranty not recognized "where the contract terms specifically precluded warranty of, or reliance on" designer's quantity estimates). See also White v. Edsall Constr. Co., 296 F.3d 1081, 1085 (Fed. Cir. 2002) ("Only express and specific disclaimers suffice to overcome the implied warranty that accompanies design specifications"); Lewin & Schaub, Jr., supra at § 7:3, at 466 ("implied warranty [of design sufficiency] . . . may be mitigated by an express disclaimer of liability").
We find no express disclaimer of the implied warranty of the designer's plans and specifications in the contract between DCAM and Gilbane. We note that DCAM, on appeal, concedes that "the Superior Court's dismissal in this case does not negate principle that the owner remains liable to the [CMAR] for design changes, errors and omissions which flow from the work of the designer" and that "[i]f Gilbane is found liable to Coghlin and the liability flows from design issues rather than other aspects of [Gilbane's] responsibilities, then there would have to be an allocation of that liability between Gilbane, [DCAM] and the [D]esigner." DCAM and Gilbane agree that the contract does not impose full responsibility for design defects on Gilbane, and the contract supports their interpretation.
As the judge recognized, the contract delegates extensive responsibilities to Gilbane to "carefully study" and "carefully compare" all design-related documents; "take field measurements and verify field conditions," compare them to the designs, and "report to the Designer any questions, errors, inconsistencies, or omissions." Gilbane must "review" the designs "on a continuous basis" with a group of architects or engineers in order to "discover
Although Gilbane undertakes significant design-related obligations, there is no express abrogation of the implied warranty. See White, 296 F.3d at 1085, citing Spearin, 248 U.S. at 137 ("general disclaimers requiring the contractor to check plans and determine project requirements do not overcome the implied warranty, and thus do not shift the risk of design flaws to contractors who follow the specifications"). The contract instead states that the "recommendations and advice of [Gilbane] concerning design modifications and alternatives shall be subject to the review and approval of DCAM," and, the Designer "shall decide all questions which may arise as to the interpretation of the [designs] and as to the fulfillment of this Contract on the part of [Gilbane]." Such provisions show that the Designer and DCAM maintain authority and control over the Project's design. In comparison, when describing some of Gilbane's design-related responsibilities, the contract states:
In stating that Gilbane shall recommend alternative design-related solutions, without assuming "the Designer's responsibility for design," the plain language of the contract supports, rather than disclaims, the implied warranty.
Thus, in the absence of an express disclaimer, the owner's implied warranty of the designer's plans and specifications applies.
3. Indemnification provision. Section one of the indemnification provision of the contract provides in pertinent part:
Section two of the provision, titled "Designer's Actions," states:
The judge concluded that the indemnification provision required Gilbane to indemnify DCAM for "any liability" that might be imposed upon DCAM as a result of Gilbane's own third-party claims. Thus, according to the judge, Gilbane's third-party complaint created an impermissible "circuity of obligation," because Gilbane may not seek damages from DCAM when DCAM would have a right to be indemnified by Gilbane for those same damages. Furthermore, the judge rejected Gilbane's contention that section two excluded any obligation to indemnify, defend, and hold harmless DCAM for design defects, and found that section two only excused Gilbane from the obligation to indemnify, defend, and hold harmless the Designer, as one of DCAM's "agents [or] representatives."
The judge's reasoning was premised on his conclusion that Gilbane did not have the benefit of the implied warranty of the designer's plans and specifications. We instead interpret the indemnification provision in light of the implied warranty and conclude that, although broad in scope, the indemnification provision does not cover claims, damages, losses, and expenses arising out of the Designer's work, as opposed to Gilbane's design-related duties. Here, the contract states that the indemnification provision is triggered by claims, damages, losses, and expenses "arising out of or resulting from the performance of the Work," which we interpret to mean Gilbane's performance. See Bruner & O'Connor, Jr., supra at § 10:58 ("Nearly every indemnity provision contains language limiting the indemnitor's obligation to loss occasioned in some way or another to the activities or work of the indemnitor").
Furthermore, we conclude that section two of the indemnification provision exempts Gilbane of its obligations to defend, indemnify, or hold harmless both the Designer and DCAM for additional costs caused by design defects. The judge interpreted this section as exempting only the Designer from Gilbane's duties under section one of the indemnification provision. But where the owner, through the implied warranty, is legally responsible for the designer's plans and specifications, and where the CMAR has a contractual relationship with the owner but not the designer, the apparent purpose of this provision can be wholly accomplished only by interpreting it to include both the designer and the owner who impliedly warrants the designer's plans and specifications. See Key Constr., Inc. v. State Auto Prop. & Cas. Ins. Co., 551 F.Supp.2d 1266, 1268, 1270-1271 & n.2 (D. Kan. 2008) (applying Oklahoma law, subcontractor not required to indemnify contractor for losses or injuries caused by architect's plans and specifications, where indemnification provision stated that subcontractor's obligations "shall not extend to the liability of the Architect"). If we were to interpret section two as the judge did,
4. Third-party complaint. DCAM contends that, even if it may be found liable to Gilbane for defects in the Designer's work, the third-party complaint was properly dismissed, because Gilbane may only bring a claim against DCAM after Coghlin wins a judgment against Gilbane based at least in part on a finding of "liability" attributable to the Designer's work. According to DCAM, Gilbane's filing of a third-party complaint against DCAM is inconsistent with its duty to defend DCAM under the indemnification provision. It contends that compliance with that provision requires Gilbane first to defend against Coghlin's claims to final resolution. Pursuant to this argument, only if Gilbane is found liable to Coghlin, and that liability is attributable to the Designer's work, may Gilbane pursue a claim against DCAM.
Rule 14 of the Massachusetts Rules of Civil Procedure, as amended, 385 Mass. 1216 (1982), seeks to avoid the duplicative efforts that DCAM's interpretation would dictate, by allowing a defendant to file a third-party complaint against a party "who is or may be liable" to the defendant "for all or part of the plaintiff's claim against him." "Because Rule 14 expressly allows what is in effect anticipatory litigation, a third-party defendant may not and should not object on the grounds that the defendant's liability has not yet been established." Reporters' Notes to Rule 14, Mass. Ann. Laws Court Rules, Rules of Civil Procedure, at 335 (LexisNexis 2014-2015). Where the claims alleged do not trigger the indemnification provision, and a two-step procedure would run counter to the purposes of rule 14 and common practice in construction law, we shall not interpret the duty to defend or any
Conclusion. Because Gilbane's third-party complaint against DCAM plausibly states a claim for relief, we vacate the allowance of the motion to dismiss and the entry of judgment, and we remand the case to the Superior Court for further proceedings consistent with this opinion.
So ordered.