On February 21, 2017, the Maryland Court of Appeals decided Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kahl, LLP, where a general contractor had sought to hold the design firm that developed the plans and specifications for a large public project liable for the economic losses that defects in their designs had allegedly caused the contractor to suffer. Significantly, the project was design-bid-build and the contractor did not have a contractual relationship directly with the designers. The question that the case presented was whether the “economic loss doctrine” precluded the contractor from suing them in tort. Siding with the designers, the court held that the doctrine does apply “to large-scale government construction projects such as this one,” and as a result, the contractor could not bring a tort action against the designers for its purely economic losses.
At the heart of the case was a contract between Balfour Beatty Infrastructure and the City of Baltimore for the construction of various upgrades to an existing water treatment plant. During construction, several significant defects in the plans and specifications for those upgrades came to the fore. The testing of denitrification cells revealed cracking and leaks directly attributable to their design. Pipe support systems also proved to be deficient in their design. Delays in the design work also increased the contractor’s cost of completing its work.
Hoping to recover the added cost meeting its obligations, the contractor filed claims against the city and continues to pursue those claims under the city’s administrative disputes resolution process. On January 6, 2014, the contractor also brought this action case against the designers.
At the outset, the Court of Appeals observed that the case law on the economic loss doctrine “varies widely.” The court explained that some states “apply the . . . doctrine to parties in the construction industry to bar tort claims for purely economic losses” while other states focus on the foreseeable fact that design-bid-build contractors will rely on the work that design firms perform and hold that such firms therefore owe such contractors a “duty in tort.”
In 2000, the Court of Appeals had held that accountants have such a duty to essentially anyone expected and intended to rely on their reports. Seeking to split the difference between the two lines of authority on the economic loss doctrine, the court expressly rejected a “categorical distinction” between accountants and design professionals but then refused to extend the accountants’ “duty” to the design professionals involved in this particular case.
The court’s reasons were two. The first was that a “complex web of contracts . . . typically undergirds a public construction project.” The second was that the court’s decision would have implications for “the public purse.” The court maintained that the parties to such a construction project “have sufficient opportunity to protect themselves . . . in negotiating [their] contracts.” The court also expressed a fear that “[i]mposing a tort duty on design professionals will likely correlate with an increase in project costs.”
While the case answers some questions, it raises others. The court was not confronted with evidence that the construction contractor did not, in fact, have an opportunity to negotiate the terms or conditions of its contract with the public owner. Nor did the court have to deal with evidence that requiring construction contractors to bear undue risk of defects in the plans and specifications for public projects would also have implications for “the public purse.”
What is clearer and more encouraging is that the court declined to make a “categorical” decision that design-bid-build contractors cannot, under any circumstances, hold designers liable for economic losses. In addition, in a footnote, that court expressly acknowledged “other considerations may apply” to private projects.
Last September, AGC of America, the Maryland Chapter and the General Building Contractors Association jointly filed a friend-of-the-court brief in the Maryland Court of Appeals in an effort to influence the outcome. That effort met with some but obviously not complete success.