BY EDWIN BAYÓ
Engineers and architects are sometimes retained by a client to perform observations during construction, make recommendations, and determine whether a contractor has successfully completed a project. In such cases, the engineer has a contract with the client to perform such services, but not with the contractor.
What happens if the client refuses to pay or terminates the contractor based upon the observations or recommendations of the engineer? Can the contractor sue the engineer alleging that the termination of the contract was the result of the engineer’s negligence in the observations or recommendations provided to the client?
It is a general rule of law that one party to a contract cannot sue a third party that is not part of the contract. However, in the case of professionals providing services, there is an exception.
In a famous Florida case (Moransais v. Heathman), a client requested a pre-purchase home inspection from an engineering company. The company assigned two engineers to perform the inspection. After the purchase, the homeowner discovered defects in the house that should have been identified by the engineers during the inspection. The homeowners sued the company and the engineers individually.
The engineers defended the suit by pointing out that the homeowners contracted with the company, not them personally. The court however determined that the engineers were providing professional services that were intended for the benefit of the company’s client, so the engineers owed them a duty of due care.
Florida cases have recognized that a general contractor that may foreseeably be injured or sustain an economic loss caused by the negligent performance of an architect’s contractual duty may have a cause of action against the architect, even though the contractor and the architect do not have a contract between them.
A subsequent line of cases has expanded on this principle. In order for the duty to apply there must exist “supervisory duties” or responsibilities and a “close nexus” between the architect and the contractor.
For example, if the supervising architect has the power to stop the work, then the architect has the “power of economic life or death over the contractor.” On the other hand, if the contract between the owner and the architect does not require the architect to perform supervisory duties, and the contractor is more removed from the architect, then there is no close nexus.
Even in the absence of the ultimate decision-making power (i.e., to stop the work), if the architect is broadly responsible for administration of the contract between the owner and the contractor, acts as the owner’s representative, and performs observational duties that are later used to certify payment to the contractor, a court may decide that the architect effectively controls the contractor’s fate, and therefore owes the contractor a duty of care.
A recent case (Uddin v. Singer) reaffirmed this principle. In that case, the architect argued that the architect did not have final decision-making authority. The court examined the contract between the client and the architect and found (among other things) that the architect had the authority to recommend work stoppage and that final payment to the contractor was contingent upon the architect’s certification. Even though the contract between the client and the architect declared there would be no duty to third parties, the court decided that was not controlling.
Although the cases discussed in this article involve architects, the principles would be the same in the case involving engineers under similar circumstances. It is a good idea to discuss this potential liability issue with your insurance company.
Although some exposure may be reduced by appropriate contract language, this will not be enough if the facts demonstrate supervisory control and the “close nexus” between the engineer and the contractor. Engineers providing such services to clients must be careful to ensure that the possible liability to a contractor does not influence their ethical obligation to the client.
Edwin Bayó is a former counsel to the Florida Board of Professional Engineers. He is a partner in Grossman, Furlow & Bayó. He is board certified in State and Federal Government and Administrative Practice by the Florida Bar.