COURTHOUSE REPORTER SERIES: Twists And Turbines: A New York Case Highlights an Owner's Risk When Not Using Full-Wrap EPC Delivery

 New York State Thruway Auth. v. CHA Consulting, Inc., 165 N.Y.S.3d 832 (Albany Co., Sup. Ct. 2022).

This case involved a dispute over a wind turbine project. The root cause of the dispute was a bust between the “wind turbulence” at the site, and the wind turbulence that the turbines installed could withstand. Once the project was completed and commissioned, the overworked turbines prematurely failed.

The New York State Thruway Authority (the owner) sued CHA Consulting, Inc. (the designer), the Kadney Company (the general contractor), Vergnet (the turbine supplier), and two different site engineers: Prudent Engineering, and Ravi Engineering and Land Surveying (the engineers). The New York Supreme Court (New York’s trial court) dispatched all of the owner’s claims on summary judgment.

The designer, which had specified the wrong type of turbine, invoked New York’s three-year statute of limitations to defeat the owner’s professional negligence claim. The owner argued that the statute should run from the date of its acceptance of the work and issuance of a final certificate. But the statute makes clear that it runs from the professional’s “completion of performance under the contract.” With the designer out of the picture based on the timing of its work, the owner’s creative attempts to hold others responsible fell flat.

The general contractor defeated the owner’s claims because the designer specified the exact make and model of turbine, and the general contractor procured and installed those exact turbines. It was not the general contractor’s responsibility to verify that the turbines were suitable for the site, therefore the general contractor could not be held responsible. Even if the general contractor was somehow responsible for the verification, the owner accepted the general contractor’s work during inspection, and found it in general conformance with the contract plans and specifications.

The turbine supplier defeated the owner’s warranty claim because its warranty contained an exclusion when the site conditions were the cause of the issue. The owner argued that the turbine supplier should be estopped from taking advantage of the exclusion because it did not verify that the turbines were suitable for the site conditions. The Court disagreed, finding that the warranty did not create any duty for the turbine supplier to independently verify suitability. The various disclaimers in its contract were a further backstop against this argument.

The engineers defeated the owner’s claims because the Court found that their obligations were limited to confirming that the turbines supplied were the same as the turbines specified. The Court made this ruling primarily because the specification at issue was a “closed proprietary specification, with no substitutions allowed.” Had a less-detailed and more traditional performance specification been used, the engineers would have had greater responsibility to verify conformance.

In conclusion — it is not uncommon for an owner to separately contract with the major players on a construction project, as opposed to entering a full-wrap EPC agreement, but such an arrangement presents certain risks. Two of the most notable risks are scope gaps, and as demonstrated in this case, liability gaps. The designer in this dispute was able to avoid liability because its work was complete long enough before the problem was discovered that the statute of limitations had run, which left the owner without a party to pursue. A full-wrap EPC agreement would likely have allowed the owner to avoid this situation.

*This blog article was previously posted on the Troutman Pepper website.

Author Todd Heffner is an Associate with Troutman Pepper in its Atlanta office.  His practice covers construction matters, including in federal court and arbitration.