In early 2004, Manley Architectural Group (MAG) entered into
an architectural services agreement with Dr. Steven Santanello (Santanello) for
a $1.6 million, 5,800 s.f. home complete with stable and riding area, sitework,
pond, tennis court, and outdoor pool. During
contract formation, MAG also presented Santanello a cost savings option of utilizing
it as a construction manager (CM) during construction. This would be done lieu of Santanello hiring
a general contractor with Santanello holding all of the subcontracts. MAG’s CM services
would include, “work[ing] directly for [Santanello] bidding out to the subcontractors
and suppliers on your behalf and managing the entire construction process...Added
benefits are we have more involvement in the details from start to finish, you
have access to all of the subcontractor bids and we can make sure the
construction is performed properly.” Santanello elected for the CM option
presented by MAG.
During the course of construction, the barn project suffered
water infiltration problems at the roof as well as water level retention issues at the pond project. At that time Santanello
stopped paying progress invoices submitted by MAG. A number of years after construction was
finished, MAG filed suit against Santanello for breach of contract to which
Santanello filed a counterclaim for breach of contract based upon improperly
supervising the construction of the pond and barn.
A bench trial was held and the trial court found the CM
agreement did not make MAG a guarantor of the subcontractor’s work on the roof
and pond. Furthermore, it found Santanello was in privity with the
subcontractors and ultimately remained responsible for performance and
deficiencies in the work. But, it also
reasoned MAG had a responsibility to monitor the work and inform Santanello of
any non-conforming work.
The trial court ultimately found MAG was owed compensation by
Santanello for: 1) payments it made to subcontractors on MAG’s behalf, 2) unpaid
design fees, and 3) unpaid CM fees with total interest in the amount of
$224,270. The court then found MAG was
in breach as to monitoring of the roof installation at the barn awarding Santanello the cost of a
replacement roof with inflation in the amount of $160,000.
Each party cross-appealed with Santanello asserting error in the award
of payments to subcontractors and MAG claiming error in the award of the cost
of the roof (among other errors).
The Tenth Appellate District Court first analyzed the payments
MAG issued to subcontractors in the amount of $55,577. The Court pointed to MAG's statements that it paid the
subcontractors to keep them engaged and working so the project could be
completed. It "made the decision on its own to start to pay some of
these people just to get them back to finish the work." The Court found that MAG did not have the
authority to issue payments on the behalf of Santanello because in the CM arraignment
MAG suggested, Santanello was to act as the de facto general contractor and
hold all the subcontracts. The Court
further pointed to the fact that liens had been attached to the property by subcontractors and thus there was a remedy
for disputes between them and Santanello. Ultimately the Court reduced the damages
award to just the design and CM fees in the amount of $27,179.
The Court next reviewed MAG’s cross-assignment of error that
it was liable for the $160,000 cost for the barn roof. The Court examined the trial court’s definition
that MAG’s CM services do not require it to be the ultimate guarantor of the
work, but then the trial court ultimately required MAG to guarantee the roof
work by imposing all liability for leaks on it.
The Court again pointed to the record and MAG’s efforts to
identify and correct the defective work going so far as hiring additional roofing
companies and making structural changes to the work. The Court found these remedial actions satisfied MAG's CM responsibilities and since it was not responsible for the ultimate installation, it should not be held responsible for a new roof system. Accordingly the Court vacated the $160,000
damages award to Santanello.
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The author, Brendan Carter, Esq., is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA. He is a monthly contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.
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