NEW YORK APPELLATE COURT FINDS CONTRACTOR NOT LIABLE FOR DEFECTS WHEN FOLLOWING OWNER’S INSTRUCTIONS UNDER DESIGN SPECIFICATION CONTRACT
In CGM Const., Inc. v. Sydor, 42 N.Y.S.3d 407 (N.Y. App. Div. 2016), the New York Supreme Court, Appellate Division for the Third Department, held a contractor was not liable for alleged inadequate work performed on the owner’s property, because the contractor followed the owner’s instructions when performing the work. The Court found the contract was a design specification contract, which allows a contractor not to be held liable for defects when the contractor follows the plans and specifications provided.
Plaintiff CGM Construction, Inc. (“CGM”) contracted with the owner of a historical building (“the Owner”) to perform renovations. The contract called for payment on “a time and material basis” and required a $13,500 retainer fee from the Owner. CGM began work and submitted invoices to the Owner after work was performed. The Owner, however, stopped paying the invoices in July 2009, at which time CGM stopped work on the renovations.
CGM filed an action to recover the unpaid balance and the Owner filed a counterclaim alleging damages for work not completed in a “workman-like manner.” The New York Supreme Court found that CGM was entitled to recover the balance owed for the labor performed and materials used during renovations, but the Court reduced CGM’s damages by the costs associated with the repair of the alleged inadequate work. Both CGM and the Owner appealed the court’s judgment.
The Appellate Division reversed. The Appellate Court determined the contract between CGM and the Owner was a design specification contract. In contrast, a performance specification contract allows a contractor the freedom to choose the materials and methods to achieve a specified result, but retains responsibility for defects in the materials and design.
The Appellate Court noted the contract did not expressly state it was a design specification contract, but evidence of specific contract requirements (such as written approval from the owner for all subcontractors, along with the abandonment by the owner of plans and specifications drawn by an architect) showed the contract was a design specification contract. The evidence also showed the Owner instructed CGM to use a specific material, even though CGM recommended using a different material. The Appellate Court found the contract was a design specification contract and CGM followed the Owner’s instructions.
The Court’s decision in this case limits a contractor’s liability for defective work performed under a design specification contract. Contractors need to fully understand whether a contract is a design specification or performance specification contract so they know who will bear responsibility for any defects in the materials, methods, and design.
Contractor Not Liable for Costs to Correct Wooden Decking that was installed per the Design Specifications but was Inappropriate for the Climate and Location
Contractor installed pine wood decking renovating the front porch of a historical building. The project owner, who was also an architect, insisted on the use of pine despite the contractor’s “repeated recommendations to use a different material” such as vinyl flooring because pine was not a suitable choice for decking the northeast. The owner’s insistence on pine constituted a design specification. The court concluded, “Although the contract did not expressly state whether the parties entered into a performance or design specification contract, it is abundantly clear that the parties were working pursuant to a design specification agreement.” Since a design specification contract requires a contractor to use the materials selected by the owner, the contractor does not bear any responsibility if the design proves to be inadequate to achieve the intended result. CGM Construction, Inc. v. Sydor, 144 A.D.3d 1434, 42 N.Y.S.3d 407 (2016). This decision applied the Spearin Doctrine.
In analyzing the facts of the case and the law that would be applied to those facts, the court stated:
“We thus turn to the question of whether plaintiff is liable to defendant for the alleged defects in its work. In contrast to a performance specification contract, which affords a contractor the freedom to choose the materials and methods employed to achieve a specified result, a design specification contract requires a contractor to use the materials, methods and design dictated by the owner, without bearing any “responsibility if the design proves inadequate to achieve the intended result [citations omitted].” In other words, when there is a design specification contract, a contractor follows the architectural plans and specifications provided by an owner, and the contractor will not be responsible for the consequences of defects in such plans and specifications or be prevented from recovering contractually-agreed upon payments for work completed in compliance with them [citations omitted].”
Whether a construction contract is one of performance or design specification turns on the language of the contract as a whole, with consideration given to factors such as “the nature and degree of the contractor’s involvement in the specification process, and the degree to which the contractor is allowed to exercise discretion in carrying out its performance” [citations omitted].”
The court found that the contractor’s work was completed according to the owner’s instructions and the owner was, therefore, responsible for any defects that resulted from his design and could not escape payment of the balance owed the contractor for the completed work.