Construction Project Manager Authority: A Legal Case Study

Case Overview

A property owner decided that it would be a good investment to build a large suburban office building on unimproved land he currently owned. Because he had limited experience in construction, he hired a professional project management firm, CMI, to manage the project. While the owner was away for personal reasons, CMI exercised its authority to select an electrical contractor from three pre-authorized contractors. Upon the owner's return, he accused CMI of exceeding its authority by signing a contract with the electrical firm on his behalf.

Additional problems arose from contracts related to the electrical work on the suburban office project, including a request to retract a proposal and a misunderstanding about what a security deposit required of the contractors actually entailed. This analysis provides a brief background on the legal considerations that the owner, project manager, and electrical contractors are each facing in this scenario.

Project Management Contractual Agreements

There are several different forms of agreements that parties can use to establish a working relationship with a project manager on a construction project. The most common arrangement is one in which a project or construction manager acts in an advisory role to the owners or investors who have hired them. The case indicates that the owner signed an AIA form authorizing CMI as a construction manager with the authority to enter into negotiations with contractors on his behalf.

However, the case does not specify exactly which AIA contract was used, and there are several different contracts that the AIA offers. The AIA has been drafting contracts since 1888 and has become a widely used resource for individuals and companies seeking contracts related to construction, architecture, surveying, service work, and an array of related professions and professional arrangements (The American Institute of Architects, n.d.). The appeal of using a standardized approach to contractual agreements is that it can save a significant amount of time and money that would otherwise be spent on legal fees to draft such a contract from scratch. Furthermore, because AIA contracts are largely standardized, they can also improve understanding between parties who are already familiar with the documents. In routine agreements, standardized forms often produce fewer misunderstandings. However, this familiarity-based benefit did not appear to apply in this particular case.

AIA and CMAA Standard Contract Forms

Despite their advantages, standardized contracts carry notable disadvantages. One obvious drawback is that a standardized contract may not fit a unique or custom project that differs in significant ways from a typical construction arrangement. Even in routine agreements, customizations are often necessary to make the standard form fit the specific circumstances of a given project. Additionally, some observers have argued that standardized contracts are drafted in favor of the trade associations that prepare them. As one attorney explains (MacDonald, 2010):

"In considering whether a standard form contract is appropriate, and which one to use, you should keep in mind that because they have been developed by trade groups, the contract terms can, in subtle and not so subtle ways, favor the membership of that trade organization. For instance, the AIA documents are widely used and, in general, are well-balanced documents. However, the AIA contract documents provide a significant project role for the project architect, which may or may not fit your project delivery system."

Given that the owner acknowledged having little experience in the construction industry, it is reasonable to assume he may not have fully understood all of the provisions in the contract he signed.

CMI negotiated with three different electrical contractors using standard documents from the Construction Management Association of America (CMAA). Specifically, CMI prepared CMAA Document A-2 and attached CMAA Document A-3 to it, inserting the owner's name as owner in the first part of the form, typing his name at the end, and signing its own name as project manager. The CMAA describes these two documents as follows (CMAA, 2011):

• CMAA Document A-2: Standard Form of Contract Between Owner and Contractor
• CMAA Document A-3: General Conditions of the Construction Contract; Owner-Contractor Contract

Conclusion

This analysis has examined the legal considerations facing the owner, CMI, and the electrical contractors involved in this suburban office construction project. The central question — whether CMI exceeded its authority — ultimately hinges on the precise language of the original AIA agreement. Secondary disputes over drawing ownership, security deposit interpretation, and bid withdrawal rights are similarly governed by the specific terms of the applicable contractual documents. In each instance, the parties' rights and remedies can only be determined with reference to the governing agreements they signed.

References

CMAA. (2011). An owner's guide to construction program management. Retrieved from CMAA Net:

MacDonald. (2010, July 31). Understanding the pros and cons of standard form construction contracts. Retrieved from MacDonald Illig Attorneys: http://www.macdonaldillig.com/understanding-the-pros-and-cons-of-standard-form-construction-co.html

Procurement Notices. (2015, December 24). C.M.A.A RFP. Retrieved from Procurement Notices: http://procurement-notices.undp.org/view_file.cfm?doc_id=71297

The American Institute of Architects. (n.d.). Contractors. Retrieved from The American Institute of Architects: