Carl J. Circo, Contract Theory and Contract Practice: Allocating Design Responsibility in the Construction Industry

58 Fla. L. Rev. 561 (2006) | | | |

INTRODUCTION :: How much does legal theory matter to lawyers who advise clients concerning building design and construction contracts? Theory thrives in contract literature, as philosophers and legal scholars search for justification, essence, coherence, and synthesis. Lawyers litigating contract cases also invoke and confront theory to develop a case, to attempt to persuade a court, to transform the application of the law to particular facts, or to account for the jurisprudence of a specific judge or court. But of what interest is legal theory to construction lawyers in their everyday practice?

This Article uses a current issue in construction and design contracts to explore that question. While the issue here is an inherently practical one, the analysis concludes that legal theory should matter a great deal to construction lawyers. It also muses on far-reaching consequences of legal theory important not only to the construction law bar and courts and arbitration panels deciding design liability disputes, but also to the professional and trade associations, insurers, and sureties that are the other key institutions influencing the liability environment for the construction industry. Perhaps those who address design and construction contracts without proper regard for legal theory may unwittingly tempt those institutions to abandon a contract response to commercial risk analysis in favor of a tort approach. Such abandonment, the argument concludes, could have most unfortunate jurisprudential and practical results. To begin, let us move from these abstractions to the extraordinarily practical environment of the contemporary construction industry.


Buildings must withstand hurricanes, earthquakes, fires, and even terrorist attacks. They must provide secure and appropriate living, shopping, and working environments, accommodate the disabled, use energy efficiently, take advantage of new forms of technology, meet demanding environmental standards, and facilitate data transmission and communications. A typical office building, shopping center, multi-family project, or manufacturing facility involves several highly specialized components and systems.

Under contemporary construction practices, it is often inefficient for the design professional or firm that provides an overall project design to retain responsibility for all critical aspects of project design. In an increasing number of projects, trade contractors, equipment and systems manufacturers and suppliers, component fabricators, and specialty consultants provide or arrange for important specialty designs. This collaboration raises significant questions within the construction industry and for the lawyers, insurers, and sureties who serve the industry. Who should be liable for design defects under these circumstances? More importantly, what principles, process, and authority should establish the rules for allocating, insuring and otherwise managing design liability?

Contract practices in the construction industry have not yet adapted to the trend toward shared-design projects. In the construction industry the two most common contract conventions, or project delivery systems, assume centralized responsibility for project design. In one of these conventions, the traditional design-bid-build system, the project owner or developer retains an architect or engineer to design the project and separately hires a builder to construct the project in accordance with that design. The traditional system divides the construction process into three distinct phases that proceed largely in a linear manner. These phases are project design, followed by solicitation of construction bids or proposals, and finally actual construction. When a project uses the design-bid-build system, the project owner enters into two main contracts for the project. First, the project owner (who may either be the intended user of the project or a developer) enters into a contract with an architect who converts the owner’s requirements and ideas for the project into detailed drawings and specifications. The owner then uses those plans to find an acceptable building contractor. Finally, the owner incorporates those detailed construction plans into a second contract, which is the construction contract with a building contractor who will, in turn, execute the plans. In the second common project delivery system, design-build, the owner or developer engages a single firm both to furnish the complete design and to build the project. Both systems presume that a single professional or firm working under a contract with the owner maintains ultimate design responsibility for substantially the entire project.

The practice of shared-design responsibility does not fall into either of these conventions. While the industry has noted the unique challenges that delegated and specialty designs present, industry responses to date fail to recognize that these practices raise new issues about the basis for imposing design liability. This failure results in part from inadequate attention to the controlling theories of liability. At the very least, legal theory must furnish the context to facilitate practical adjustments in contract practices.

This Article argues that the liability risks arising from contemporary shared- design practices should drive the lawyers, professional and trade associations, insurers, and sureties serving the construction industry toward innovative contract and risk management solutions. This new approach to allocating design liability must recognize that shared-design responsibility creates an interdependence among those who design and build project components, a relationship that requires a more comprehensive contract solution. What is just as important is that if the industry collectively fails to establish workable contract models, the courts will inevitably intervene with less efficient and less effective tort solutions.

As these introductory remarks suggest, the analysis here concerns itself with legal theory as well as with industry practices. This is so because shared-design practices create multi-party commercial relationships that test the boundaries between tort law and contract law. In the end, however, the inquiry here is a practical one that resorts only subtly to legal theory. To the extent that the practical argument here advances a theoretical one, it is that tort theory threatens to become a pervasive force in allocating liability arising from shared-design practices, yet a tort approach is inherently inferior to a contract approach for allocating liability for property damage and economic injury in light of the commercial relationships involved. As a result, the construction industry, with the enlightened assistance of lawyers representing industry participants, should evolve new contract conventions to address the unique liability issues that shared-design practices present. Not as an entirely incidental observation on long-extant scholarly ruminations, this Article supports contract as a dynamic force, at least for the continued vitality of the commercial construction industry.

Part II of this Article uses a hypothetical project to explore how shared-design responsibility affects the jurisprudence of design liability as well as how it colors the risk assessments and negotiating positions of distinct participants in the construction process. It suggests that the marketplace in which those participants operate provides a vibrant environment for a comprehensive, contract-based allocation of design liability. It also argues that the tort system is too unpredictable and uncontrollable to manage the important commercial relationships involved. Part III suggests some specific contract-based compromises that may emerge as participants seek common ground to allocate design liability in an industry that has evolved toward greater distribution of design activities. The simplest of those compromises may appear as new patterns in traditional, bilateral contracts to take into account the roles of those other than the contracting parties. The more comprehensive approaches, however, will require multi-party agreements among the interdependent participants; these may in turn facilitate new insurance products and other risk management techniques and may even bring fundamental changes to the dominant project delivery systems.

This entry was posted in Attorney Practice, Construction Law, Contract Law, Insurance Law, Tort Law, Uncategorized and tagged , , , , , , , , , , , , , , . Bookmark the permalink.