Project Management Institute

Shared liability of the project manager

PROJECT MANAGERS

Feature Editor: Mary Anne Nixon, JD

By: Mary Anne F. Nixon and *James A. Cornell

Although project managers are not normally trained in law, their day-today job activities require them to make decisions and take actions that can have significant legal impact for themselves and their companies. Today many companies routinely inform and train the managers of projects that may involve contracts about the details of their contracting policies. They are also including these managers in the initial design processes with architectural and engineering personnel. As this practice becomes more commonplace, the liability which has traditionally been allocated to the architect/engineer by standard industry practices is now having to be shared by the project manager as his responsibilities or shared duties overlap with those of the architect/engineer. Responsibility for these areas of liability can be left to chance, allowing a jury to decide after an injury or economic loss occurs, or they can be reasonably allocated areas of risk according to involvement rising from the actual duties or responsibilities. In the first instance, the results can be extremely costly, time consuming, and embarrassing to the project manager and the company. By contracting wisely, these expenses and embarrassments can be avoided. Although the scope of this article pertains to the architect/engineer and the project manager in the construction industry, the principles discussed can also be applied to other industries utilizing the services of project managers who interact with professionals in other fields while conducting various projects.

How, then, can the project manager best protect himself and his company in these activities? The key to this issue involves three steps: First, identify the areas in which liability can be incurred: (1) design and selection of materials, (2) cost and budget estimates, (3) safety and inspection of the final product, (4) scheduling and coordination, (5) supervision and ongoing inspection during construction process, and (6) certification of contractor payments. The scope of this article will be limited to the first of these areas of liability.

Second, after identification of the areas of liability has been made, allocation of risk for these areas must be contractually designated. The subject matter of this step is too extensive to be covered in this article and this topic will be addressed in a future issue.

Third, the project manager must understand the limits of his own knowledge and be prepared to obtain legal help when the situation demands a more detailed knowledge of the law. By becoming more familiar with the areas of liability as well as the knowledge of the complexity and the extent of this liability, the project manager and other professionals will be more inclined to seek early assistance of legal counsel.

DESIGN AND SELECTION OF MATERIALS

Before the advent of the project manager, architects were solely and principally responsible for developing the project design and the plans and specifications for its construction. These general responsibilities now entail, among other things, warranty of the design, any errors and omissions, the quality or ambiguity of the plan, and any applicable codes and regulations.

Under certain contractual arrangements, the project manager is responsible for reviewing the architect's design and the indicated schedule of construction materials. He adds expertise to the project with respect to his knowledge of government regulations, new technology, and construction costs. With the advent of this project manager, the architect's ultimate and sole responsibility in these areas of expertise is diluted to a shared liability.

Lawsuits against professionals and contract managers are becoming alarmingly more commonplace. The traditional standard applied to an individual's performance was based on the tort theory of negligence, i.e., performing with a reasonable standard of care. Thus, in order for negligence to be proven, it would need to be demonstrated that the manager failed to perform in accordance with the duty (as a reasonable manager would) defined in the contract and this failure would have to be established in court by expert testimony. Even though the end result of the services failed to meet expectations, the manager might not have performed the service negligently. Thus, there might be no basis for a claim.

Heretofore, professionals in the majority of jurisdictions have not been held to the higher standards in tort liability of strict liability usually reserved for those involved in the production of goods. Strict liability is often called “liability without fault” where the intention or negligence of parties involved is not at issue. However, in some states, recent cases have made inroads into the strict liability area on the theory that design professionals, for example, deal in an exact science, that exact results can and should be expected, and that a detailed professional report, design or plan is no different than the production of goods. As a result, these products should be governed by the same standards as those expected in the production of goods.

Additionally, the architect who specifies the use of a newly developed product such as sheathing materials, insulation materials, or interior finishes including carpeting, may find himself in the emerging area of liability for design professionals, that of product liability. Products resulting from new technology are available to provide lowered construction cost to the owner. When these products fail despite the efforts of the manufacturer, however, the architect who recommends them and the project manager who reviews design and oversees the installation of the product are being named in the ensuing legal actions. Even when the owner insists on using the product and agrees to release these professionals from claims resulting from that use, liability to third parties such as tenants or adjoining property owners may still be an issue.

Another possible legal issue arising from these same circumstances lies in negligence charges as discussed above. What is a reasonable investigation of the new product by the design professional? Is review of the existing literature and testing results sufficient, or must prior users also be interviewed before use of the product is authorized? Project managers need to be aware that in performing any of these responsibilities, conduct which could be deemed less than reasonable under the circumstances could give rise to charges of negligence by any party involved in the contract as well as injured third parties against the project manager, architect/engineer, or the development company.

The same behavior could also lead to liability under contract theories with allegations of breach of contract or breach of warranty. When a party fails to perform all or part of the duties under a contract, that party is in breach of contract, a concept familiar to most laypersons. Breach of warranty, however, is less familiar. This cause of action arises from the seller's assurances to the buyer that goods will meet certain standards. An implied warranty is one the law derives by implication from the nature of the transaction or the relative circumstances of the parties. A seller impliedly warrants the goods being sold are reasonably fit for normal use, the implied warranty of merchantability. When the seller knows the particular purpose for which a buyer will use the goods and knows the buyer is relying on the seller's skill and judgement to select suitable goods the implied warranty of fitness for a particular purpose arises. A contract between owner and architect/engineer can contain both of these implied warranties.

One example chosen from the many cases which now exist illustrating this point is Tamarac Development Co. v. Delamater, Freund & Assoc., 234 Kan. 618, 675 P2d 361 at 365. An architectural/engineering firm was held liable under a breach of implied warranty for failure to supervise and check the accuracy of the grading contractor's work for his conformance with the specified planned elevations. The original suit was brought on negligence charges, but was barred because of the statute of limitations. The plaintiff then brought suit and was successful in a breach of implied warranty action, which has the longer limitations period.

CONCLUSION

With increasing pressures of cost and time, new technology, novel designs, and new managerial and construction methods are being utilized as everyday tools in project management. With the use of these new methodologies comes a change in the standards of care required and the ensuing liability of the professionals involved. This ever-expanding liability of the design professional and project manager is keeping pace with expanded liability now present in all professional and business communities. A realistic appraisal of these risks must be undertaken with careful attention given to to limiting them.

*Co-author James A. Cornell is a graduate student enrolled in the Master of Project Management program at Western Carolina University. He received his Bachelor of Architecture from University of Arizona in 1980 and has eight years of experience with architectural and structual engineering firms.

REFERENCES:

1. “Addressing the Risks Associated with Construction Contracting,” Focus, March 1987, Volume 2, Number l, p.3.

2. LePatner, Barry B., “Current Issues and Emerging Trends in the Liability of Design Professionals,” Focus, March 1987, Volume 2, Number 1, p.5.

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This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

April 1989 pm network

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