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.
