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May 2nd, 2017
construction
NEW YORK APPELLATE COURT FINDS CONTRACTOR NOT LIABLE FOR DEFECTS WHEN FOLLOWING OWNER’S INSTRUCTIONS UNDER DESIGN SPECIFICATION CONTRACT

In CGM Const., Inc. v. Sydor, 42 N.Y.S.3d 407 (N.Y. App. Div. 2016), the New York Supreme Court, Appellate Division for the Third Department, held a contractor was not liable for alleged inadequate work performed on the owner’s property, because the contractor followed the owner’s instructions when performing the work.  The Court found the contract was a design specification contract, which allows a contractor not to be held liable for defects when the contractor follows the plans and specifications provided.

Plaintiff CGM Construction, Inc. (“CGM”) contracted with the owner of a historical building (“the Owner”) to perform renovations.  The contract called for payment on “a time and material basis” and required a $13,500 retainer fee from the Owner.  CGM began work and submitted invoices to the Owner after work was performed.  The Owner, however, stopped paying the invoices in July 2009, at which time CGM stopped work on the renovations. 

CGM filed an action to recover the unpaid balance and the Owner filed a counterclaim alleging damages for work not completed in a “workman-like manner.”  The New York Supreme Court found that CGM was entitled to recover the balance owed for the labor performed and materials used during renovations, but the Court reduced CGM’s damages by the costs associated with the repair of the alleged inadequate work.  Both CGM and the Owner appealed the court’s judgment.

The Appellate Division reversed. The Appellate Court determined the contract between CGM and the Owner was a design specification contract. In contrast, a performance specification contract allows a contractor the freedom to choose the materials and methods to achieve a specified result, but retains responsibility for defects in the materials and design. 

The Appellate Court noted the contract did not expressly state it was a design specification contract, but evidence of specific contract requirements (such as written approval from the owner for all subcontractors, along with the abandonment by the owner of plans and specifications drawn by an architect) showed the contract was a design specification contract.  The evidence also showed the Owner instructed CGM to use a specific material, even though CGM recommended using a different material.  The Appellate Court found the contract was a design specification contract and CGM followed the Owner’s instructions.

The Court’s decision in this case limits a contractor’s liability for defective work performed under a design specification contract.  Contractors need to fully understand whether a contract is a design specification or performance specification contract so they know who will bear responsibility for any defects in the materials, methods, and design.

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