Words: Paul Potts
The rise of Architect as Master Builder
In Ancient Rome those there was no translatable term for Architect, instead those who had the knowledge and skills to plan and direct the construction of a building were known as master builder or master mason or director of building. They acquired their skills apprenticing to another master builder or learning their skills from working in construction. The word architect did not enter the English language until the 1600s when it was derived from French, Greek and Latin terms for “master builder” and “director of works” and “master mason“. Until 1868 there were no schools of architecture in the United States, although Thomas Jefferson had proposed one at the University of Virginia in 1814.
Until the late 1800s (1870) solid masonry or stone was the principle structural building material, which made master masons central to the planning and construction of large buildings. About the time that masonry cavity wall construction replaced solid masonry and steel structure became necessary to build tall buildings, the American Institute of Architects (AIA) was founded in 1857 to elevate the standing and practice of architecture to the level of a profession. In 1868 the University of Illinois was among the first American institutions of higher learning to offer a curriculum in architecture.
With skyscraper building designs architects were required to have advanced knowledge of structural steel engineering, elevators, heating and ventilating and advanced electrical and lighting systems. It became necessary for architects to hire specialists in these disciplines as subcontractors (consultants). Architects remained central to the organization of these specialists, coordinating drawings and specifications of the separate disciplines, contracting with the owner for their combined services and overseeing construction at the work site. As buildings entered the Twentieth Century, Architects were perceived as prestigious master builders.
The Law of Privity Provided Iron-clad Defense Against claims of Negligence
The common law of privity —part of British colonial law that provided a framework for the law of privity in the United States—provided that as a general rule, a contract does not confer rights or impose obligations arising under it on any person except the parties to the contract. Justice Benjamin Cardozo, sitting on the New York Court of Appeals in 1932, but later a Supreme Court justice, described the law this way, “The Law of Privity provides that suits against parties to a contract for negligence in performance of the duties and obligations of the contract could only be brought by signatories to the contract, not by third party strangers.”1 So reliable was the privity defense that prior to the 1960s few architects or engineers carried liability insurance.1
The Sands Begin to shift: Increasing Financial Risk for Design Professionals
The Gradual Demise of Privity
The original intent of privity, a business friendly piece of legislation, was to protect professionals (attorneys, accountants and architects) from the prospect that a single negligent event could expose them to numerous claims brought by harmed bystanders 2. But, the law of privity was universally disliked for the injustice it wreaked on injured third parties even by the English jurists who wrote it. 3 In the latter half of the 20th century (1960 and onward), jurists in the United States began to slowly unwind the protections provided to professionals by privity defenses.
The gradual collapse of privity over the next 60-years exposed design professionals to increasing financial risk. The AIA, authors and publicists of the most frequently used construction contracting documents in the world, reacted by tinkering with the terms of the AIA owner-architect agreement and general conditions to diminish the architect’s role as the owner’s representative during construction. Thus, began the quibbling over the terms “inspection” or “observation. As a result, architecture has become as much a creature of the law as of art. See examples of modifications to the AIA agreement in the closing section of this article.
Courts Create More Risk for Design Professionals: The Economic Loss Rule (ELR)
The gradual loss of privity defense and the increasing financial risks from other changes in common law in the latter half of the 20th Century (1960 forward) was the beginning of the decline of the architect’s status as prestigious master builder. It was a role they no longer wanted.
The Economic Loss Rule
The Economic Loss Rule (ELR) developed in a California products liability ruling was an attempt to correct for inequities of privity. In Seeley vs White Motors (1965), the owner of a truck built by White Motors brought a suit against the manufacturer for damages to his business incurred while he waited for repairs to his truck to be completed (This is typical economic loss). The repairs were covered by the warranty, but the lost business profits were not, and the owner of the truck sued for his economic losses. The California Supreme Court enunciated a new rule in the case—the Economic Loss Rule —that prohibited parties in contract or third parties from suing parties in contract for purely economic losses (think delay of project in the construction context) except when there was bodily injury or ancillary property damage. Unfortunately for Mr. Seeley, while the Seeley court was attempting to expand protections for the general public with the Seeley decision, the court denied the truck owner’s financial recovery in the same finding because his was just an economic loss.
While it’s a bit difficult to follow, ELR increased the financial risk for design professionals by allowing third parties to sue for bodily injury and ancillary property damage due to negligence in performance of the architect’s duties, which wasn’t allowed under the original law of privity.
While the Economic Loss Rule (ELR) was more policy than law, it gave judges a legal opinion that maintained the boundary line between tort law and contract law but allowed recovery in tort for personal injury and property damage while still excluding recovery for purely economic losses. The economic loss rule was quickly adopted in jurisdictions across the country, but unfortunately owing to the fact the rule had been developed in a product liability case not a pure contract case it developed unevenly, and confusion reigned as multiple and sometimes contradictory interpretations emerged state by state.4
The American Law Institute
Common law in the United States develops independently state by state, sometimes leaving large gaps in the law and irreconcilable differences from one state to another. The American Law Institute (ALI), a society of 3000 or more jurists established in 1923, has as its purpose the clarification and simplification of United States common law and its adaptation to changing social needs.”5 The ALI does not make law, but its publications are widely read by the judiciary.
In response to inconsistent applications of the Economic Loss Rule (ELR), the ALI issued the Restatement of Torts Second in 1979 and the Restatement of Contracts Second in 1981. The Restatements Second of Tort and Contract were some of the most widely read and adopted provisions ever issued by the ALI society.6
Tort law proceeds from duties imposed by lawmakers and is intended to protect unsuspecting individuals from the unlawful acts of others (e.g. fraud, defamation or negligence) this contrasts with contract law where duties and obligations are created by signatories to the agreement. For a variety of reasons, until 1979, architects were exempt from tort litigation, while other professionals, such as certified public accountants and attorneys, were not.
The Second Restatements affirmed the importance of the ELR in separating tort law from contract law but provided tort with the power to pierce the immunities of contract (privity) by providing exceptions to the economic loss rule. The ALI Second declared where a contract existed or was implied ……. the parties were limited in their pursuit of losses to the terms of the contract. However, the restatements defined two important exceptions to the ELR by which third parties could lay claims against parties in contract: (1) third-party beneficiaries and (2) negligent misinformation.
Third Party Beneficiaries in Contract
The principal of third party beneficiaries is difficult to explain and is not very important to our discussion, because “Third Party Exclusion clauses” in AIA owner-architect agreements are quite effective at preventing third parties from bringing claims against parties to contract.
The tort of Negligent Misinformation
In the Restatement of Torts Second: Section 552, “Information Negligently Supplied for The Guidance of Others,” the ALI Society described the tort of negligent misinformation as,
One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary losses if he fails to exercise reasonable care or competence in obtaining or communicating the information.
Since publication of Section 552 in 1979, claims for negligent misinformation brought by contractors against architects have become the most common exception to the economic loss rule.7
For example, in Guardian Construction Co. vs. Tetra Tech Richardson, Inc. (1990 Delaware) the court denied the defendant architect’s request for summary judgement based on lack of privity. The court concluded:8
For the foregoing reasons, the Court concludes that as to the Plaintiffs’ (contractor) claims that the negligently prepared project plans and specifications and the information conveyed at the pre-bid meeting were prepared and presented by TTR (the architect) for the use of a specific and limited class of potential users of which Plaintiffs (contractor) were known members, and because Plaintiffs were intended to and did rely to their detriment on that information in preparing their project bids, Plaintiffs’ negligence and negligent misrepresentation claims are cognizable despite the lack of contractual privity with TTR and the fact that Plaintiffs seek purely economic damages.
The AIA Attempts to Protect Its Members
To protect its members, the AIA responded to these developments in two ways: First, it enhanced its educational program, warning architects of the added financial risks. Second, in a series of reissues of the AIA standard forms of agreement and the general conditions the AIA modified provisions to minimize and more carefully define the architect’s contractual obligations to the owner during construction. While the modifications did reduce the responsibilities of the design professional in this way, the modifications could not provide protection from the tort of negligent misinformation.
AIA Modifies Owner-Architect Agreements
In 2009, AIA replaced the B141 CMa-1992 agreement with the B132- 2009 Standard Form of Agreement Between Owner and Architect, Construction Manager as Adviser Edition, and replaced the A201CMa-1992 General Conditions with A232- 2009 General Conditions of the Contract for Construction, Construction Manager as Adviser Edition. The 2009 documents reduced the architect’s responsibility in two significant areas: architect as owner’s representative and the standard of care required during site visits.
B141CMA Owner-Architect Agreement –1992 states:
Act as representative of the owner during construction: Paragraph 2.6.4 “The Architect shall be a representative of and shall advise and consult with the Owner during construction.”
Standard of care during site visits: Paragraph 2.6.5 “On the basis of on-site observations as an architect, the Architect shall keep the Owner informed of the progress and quality of the Work and shall endeavor to guard the Owner against defects and deficiencies in the Work.”
The 2009 Modifications
B132CMaOwnewr-Architect Agreement –2009 states:
Under the 2009 agreement, the architect is no longer the owner’s representative during construction unless agreed to in a separate document: Paragraph22.214.171.124 “The Architect shall advise and consult with the Owner and Construction Manager during the Construction Phase Services.” (Nothing about guarding the owner)
Standard of care during site visits: Paragraph 6.2.1 “On the basis of the site visits, the Architect shall keep Owner reasonably informed in writing about the progress and quality of the portion of the Work completed, and report to the Owner and the Construction Manager (1) known deviations from the Contract Documents and from the most recent construction schedule, and (2) defects and deficiencies observed in the Work.” (nothing about observing as an architect)
Summary of the above: In the 1992 edition, the architect had a central role in the administration of the contract. Terms regarding the architect’s duties and obligations to the owner during construction were quite specific: the architect is the owner’s representative and is charged with the responsibility to visit the site to endeavor to guard the owner against defects and deficiencies in the work.
In the 2009 agreement, the architect is no longer identified as the owner’s representative and is not required to endeavor to guard the owner against defects and deficiencies in the work (these services can be added back into the agreement for an extra fee). The architect is only required to report to the owner and the construction manager known deviations from the contract documents and defects and deficiencies observed in the work. This sets a lower standard for the architect. The terms of the 2009 agreement are written more to protect the architect in claims litigation than to protect the owner from defective workmanship and deficient products.
The architect’s withdrawal as the owner’s representative during construction has created a windfall for enterprising companies offering a range of accounting and construction services to the owner. Many of these services provided by third parties are simply shallow imitations of those formerly provided by architects, since they are provided by businesses without the same licensing responsibilities, acumen, knowledge and familiarity with the construction documents that architects can provide.
Design professionals were once free to participate in project construction to provide oversight and keep order without fear of claims developing as a result of their activities. But with the loss of privity defense and the exposure to tort law where they were once totally immune design professionals have reacted with predictable and understandable caution.
This article represents the research and opinions of the author and is intended for general information purposes only and does not constitute legal advice. Because the interpretation of common law varies from state to state the reader should consult with legal counsel familiar with the laws in their state.
- AIA Trust: The Architect’s Risk” Two legal doctrines – the economic-loss rule and contractual privity – shielded architects from liability. These defenses were so effective that, only a handful of decades ago, many architects did not carry professional liability insurance.
2 In 532 Madison Ave. Gourmet Foods v. Finlandia Ctr., 750 N.E.2d 1097 (N.Y. 2001), the New York Court of Appeals applied the Economic Loss Rule in cases involving construction disasters that resulted in streets being closed in the heart of Manhattan. Though nearby businesses were not physically damaged by the construction-related collapse, they either were evacuated and closed or were inaccessible to customers for long periods of time. The damages resulting were real and very substantial. However, the court held that a landowner did not have a common law “duty to protect an entire urban neighborhood against purely economic losses.” Id. at 1102.
3 To view the Contracts (Rights of Third Parties) Act 1999, visit https://en.wikipedia.org/wiki/Contracts_(Rights_of_Third_Parties)_Act_1999
- 4. See the Washington and Lee Law Review article “The Boundary-Line Function of the Economic Loss Rule” by Vincent R. Johnson for more information.
- 5. Wikipedia (American Law Institute).
- 6. Wikipedia The Restatement (Second) of the Law of Contracts.
- AIA Trust: Strangers No More? Trends in the Architect’s No Privity Defense.
- See the Guardian Construction Co. vs. Tetra Tech Richardson court case for more information