Certifying to Contractor Default

By Steven G.M. Stein, Esq. The author is a partner with Stein, Ray & Conway, a Chicago law firm devoted to the practice of design and construction law.

Throughout the administration of any construction project, a design professional is called upon in a wide variety of ways to render advice which will shape the project’s economic outcome for both the owner and the contractor. Examples of such advice include the issuance of certifications, interpretation of the contract documents and recommendations as to whether to accept or reject a contractor’s work. Perhaps the most dramatic example of advice with economic impact is when the design professional is asked to certify that grounds exist to terminate the contractor.

Opinions as to whether cause exists to terminate the contractor are fraught with risk for the design professional. To reduce this risk, a few guidelines should be followed.

Protect Yourself in the Contract

The risk to the design professional is least when the termination certification rests upon the duties owed by the design professional to his/her client. Therefore, a written contract which defines and confirms these duties is essential.

Attention must be given to both the design professional’s contract with the owner and to the General Conditions for the owner-contractor agreement. For example, in the owner-design firm contract, owners frequently request that language be modified to include a negligence standard. Below is a common redraft of paragraph 2.6.16 of the AIA B-141 contract provisions (1987 ed.) which owners attempt to put in their contracts with design professionals. (Similar language is used in the EJCDC document for engineers.)

"Interpretations and decisions of the Architect shall be consistent with the intent of and reasonably inferable from the Contract Documents and shall be in writing or in the form of drawings. When making such interpretations and initial decisions, the Architect shall endeavor to secure faithful performance by both Owner and Contractor, shall not show partiality to either and shall not be liable for results of interpretations or decisions not negligently rendered."

Do not agree to this provision. The change in language (the original language is "so rendered in good faith," rather than "not negligently rendered") robs the design professional of the quasi-judicial immunity he/she absolutely deserves.

Consider the Alternatives to Termination

When an owner requests that you render an opinion that just cause for termination exists, you may be of two minds on the subject of termination:

1. You recognize that sufficient cause does exist to terminate the Contractor; however
2. The project may best be served by keeping the contractor.

Consider suggesting that the owner supplement rather than replace the efforts of the contractor. Article 6 of AIA Document A201 (1987) and Article 13 of EJCDC 1910-8 (1996) make provision for the owner to use its own forces or other contractors to correct or complete parts of the project. Supplementing the work of the contractor — rather than terminating the contractor altogether — may be less disruptive of progress on the job and may reduce the magnitude of the economic impact upon the contractor. With the stakes lowered, the risk of a claim against you (from either the owner or the contractor) is reduced.

Craft Certification Opinion Carefully

The key word here is "opinion." Opinions cannot form the basis of a defamation or tortuous interference suit. In crafting the opinion, keep these points in mind.

The opinion certifying to just cause for termination should be based on observable facts subject to independent verification. It should be expressed in temperate terms, without inflammatory generalizations or characterizations and be consistent with the historical records and evaluations which have preceded the request.

Where possible, the factors supporting the opinion concerning termination should track the language used in the contract documents to describe the grounds for termination. For example, repeated delays may be described using the language of A201, 1 14.2.1 stating "the Contractor has persistently or repeatedly failed to supply enough properly skilled workers or proper materials."

As a general rule, all advice and communication with the owner or others which are critical of a contractor should not be offered gratuitously, but should be given in fulfillment of an expressed contractual duty or in response to an express documented request.

Model Opinion Letter

We offer the following as a suggested form letter concerning certification of just cause for termination under A201, 1 14.2.2:

To Owner:

Pursuant to paragraph 14-2.2 of the General Conditions of the Contract for Construction between Owner and Contractor (the "Contract"), and pursuant to paragraph 2.6.15 of the Standard Form Agreement between Owner and Architect (the "Agreement"), Owner requested Architect’s certification that just cause exists for Owner to terminate the employment of Contractor. In response to this request, it is our opinion that, in accordance with our understanding of the terms of the Contract, just cause exists for Owner to terminate the Contract.

Our opinion that just cause exists is based upon our finding that the Contractor... [example: has failed to coordinate and control its subcontractor and has persistently or repeatedly failed to supply enough properly skilled workers or proper materials to complete this project on schedule].

We cite the following additional facts in support of our opinion: 1 ...

These facts lead us to the opinion that just cause exists under the terms of the Contract Documents for Owner to terminate the employment of the Contractor.