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DEFENSES FOR ALLEGATIONS OF CODE VIOLATIONS AND BREACH OF CONTRACT

 

A contractor may have several avenues to counter, or at least diminish, its potential liability against allegations of building code violations and breach of contract claims.   In order to build potential defenses for these allegations, a contractor will want to examine the underlying contract terms and specifications.   A builder, or owner, will also want to examine other individuals or entities with involvement in the project (such as the design and engineering professionals) for potential liability or as defenses to counter the allegations of unprofessional or defective construction.

The Allocation of Risk for Code Violations

One potential defense for a contractor is its reliance on the plans and specifications supplied by the owner.  When owners furnish plans to a contractor, the owner warrants that the plans and specifications are adequate to construct the project—including that the plans are in compliance with applicable building codes.[1]  However, this warranty only extends as far as the design specifications, which are defined as specifications that “precisely detail the manner in which the work is to be done.”[2]  In this situation, the contractor is still responsible for the performance of the work specified in the contract documents.[3]  Deciding whether a violation of building codes implicates the design provided and the design professional who created it or performance of the contractor can prove to be problematic.

This interplay can be seen in the Florida case opinion, Atlantic Nat. Bank v. Modular Age, Inc.[4]   In Modular Age, Atlantic National Bank provided funding for construction of a hotel.  The bank then sued the surety company of the general contractor for defective construction when the walls between rooms in the hotel were found to be noncompliant with building codes.  Specifically, the walls did not meet the fire rating for safety imposed by the building code.  The court framed the issue for the case by asking whether or not walls which meet the building code were a design requirement for which the architect was responsible, or were they a construction requirement, independent of design for which the building contractor was responsible.[5]  In Modular Age, the terms of the contract between the owner and the contractor stated:

The contractor shall secure and pay for all permits, governmental fees and licenses necessary for the proper execution and completion of the Work, which are applicable at the time the bids are received.  It is not the responsibility of the Contractor to make certain that the Drawings and Specifications are in accordance with applicable laws, statutes, building codes and regulations.[6]

The contract utilized was an American Institute of Architects (AIA) form.[7]  Even though the contractor had recommended the wall system that was utilized at the project, the Modular Age Court determined that this was a failure of the architect to include in the design the code-compliant specifications.  The Court stated:

[i]t is clearly the architect’s function and responsibility to design walls which will meet code requirements for one hour fire resistance rating between tenancies.  It is his responsibility to insure that the plans and specifications comply with the applicable building codes for the area where the structure is to be built.[8]

In its final analysis of the architect’s responsibility, the Modular Age Court, quoting Teufel v. Wienir,[9] concluded:

If an item is installed in accordance with the specifications of a Standard American Institute of Architects’ guaranty, the contractor is not liable if the item’s failure to function properly is due to its design being improper for intended use.[10]

The Modular Age opinion demonstrates how it is not always obvious on its face whether a code violation arises from a design flaw or a contractor error and in that it shows how contractual language can affect the allocation of risks relating to repairs necessitated by violations of applicable building codes.  The opinion also demonstrates that the answer to these questions will often include a fact-intensive analysis of the code violation, the underlying contract, and the project design in order to determine responsibility.

Allocating the Risk of Code Violations by Contract Terms

As demonstrated in the Modular Age opinion, often contractors will attempt to limit their responsibility concerning code violations by utilizing language in the underlying construction contract.  For example, many of the standard contract forms have language limiting the contractor’s responsibility.  One such example is the often utilized AIA A201 document, which states:

The Contractor is not required to ascertain that the Contract Documents are in accordance with applicable laws, statutes, ordinances, building codes, and rules and regulations, but any nonconformity discovered by or made known to the Contractor shall be reported promptly to the Architect.[11] 

This limitation of risk to the contractor for code violations can also be found in the AIA A201 contract form which states “[t]he Contractor shall not be responsible for the adequacy of the performance or design criteria required by the Contract Documents.[12]

The Associated General Contractors’ standard contract form (often referred to as the “AGC form”) contains similar limitation language protecting the contractor when it states:

If in the course of the performance of the [Contractor’s obligations] the Contractor discovers any errors, omissions or inconsistencies in the Contract Documents, the Contractor shall promptly report them to the Owner.  It is recognized, however, that the Contractor is not acting in the capacity of a licensed design professional, and that the Contractor’s examination is to facilitate construction and does not create an affirmative responsibility to detect errors, omissions or inconsistencies or to ascertain compliance with applicable laws, building codes or regulations.  Following receipt of written notice from the Contractor of defects, the Owner shall promptly inform the Contractor what action, if any, the Contractor shall take with regard to the defects.

The next paragraph of the AGC form further limits the contractor’s risk when it states:

The Contractor shall have no liability for errors, omissions or inconsistencies discovered unless the Contractor knowingly fails to report a recognized problem to the Owner.[13]

Under both the AIA and AGC forms, the contractor’s potential liability for code violations only occurs for knowingly failing to inform the owner of code violations discovered.  Additionally, the language of the AIA form also appears to transfer the contractor’s responsibility for performance criteria back to the architect, which could potentially provide additional protection to the contractor.  As seen in the Modular Age opinion, the contract form that was used is important, because it can significantly and materially alter the common law allocations of responsibility for code errors between the contractor and the owner’s architect.[14]

[1] Willamette Crushing Co. v. State, 188 Ariz. 79, 81, 932 P.2d 1350, 1352 (Ariz. App. 1997).

[2] Id.

[3] Id.

[4] Atlantic Nat. Bank v. Modular Age, Inc., 363 So. 2d 1152 (App. Fla. 1978).

[5] Id. at 1153

[6] Id. at 1155

[7] Id.

[8] Id.

[9] Teufel v. Wienir 411 P.2d 151 (Wash. 1966).

[10] Id.

[11] AIA, A201, ¶ 3.2.2.

[12] AIA, A201, ¶ 3.12.10.

[13] AGC Document No. 200, ¶¶ 3.3.2 and 3.3.3.

[14]  In design-build construction, the contractor is assuming responsibility for the architect’s design.   In this situation, the owner will have the right to hold the contractor responsible if the plans and specifications do not meet building codes.  However, the contractor it may still have a claim against the architect the contractor employed to design the project.

© 2016 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.