In January of 2005, the Pennsylvania Supreme Court announced a revolutionary decision in Bilt-Rite Contractors, Inc. v. The Architectural Studio, making architects and design professionals directly liable to contractors who suffer additional costs due to reliance upon false information contained within the plans and specifications.
The Law Prior to Bilt-Rite.
Prior to Bilt-Rite, Pennsylvania law did not permit a contractor to sue an architect directly for errors made by the architect in the project plans and specifications absent personal injury or property damage. Instead, contractors who suffered purely monetary losses were required to sue up the construction chain; the contractor sued the owner, and the owner in turn sued the design professional. This was the result of two traditional legal hurdles: privity of contract and a recognized duty of care.
Historically, as in most cases today, a contractor has no direct contract with a design professional. In the absence of a direct contract linking the contractor to a design professional (i.e., privity of contract), Pennsylvania law prohibits a contractor from bringing a breach of contract action.
Unable to sue successfully under contract law, contractors were similarly precluded from suing design professionals for negligence (i.e., a civil wrong under tort law) where the loss was only monetary. This is because prior to Bilt-Rite, the law of Pennsylvania did not recognize any duty of care owed by the design professional to a contractor that would make the designer liable for the contractor's purely monetary injuries resulting from the designer's negligent errors in the plans and specifications.
How Did Bilt-Rite Change the Law?
To fully appreciate how and why the law changed, it is helpful to understand the facts in the Bilt-Rite case.
A. The Facts.
In Bilt-Rite, East Penn School District entered into a contract with The Architectural Studio ("TAS"), pursuant to which TAS provided architectural services for the design and construction of a new school in Lower Macungie Township, Lehigh County. The services included the preparation of plans, drawings and specifications to be submitted to contractors for the purpose of preparing bids for the construction of the new school. The School District solicited bids from contractors for all aspects of the project and included TAS's plans, drawings and specifications in the bid documents supplied to the contractors. Bilt-Rite Contractors, Inc. ("Bilt-Rite") submitted its bid for general construction work on the project and the School District awarded the general construction contract to Bilt-Rite, who was the lowest responsible bidder. Bilt-Rite subsequently entered into a contract with the School District that specifically referred to, and incorporated by reference, TAS's plans, drawings and specifications.
TAS's plans provided for the installation of an aluminum curtain wall system, sloped glazing system and metal support systems, all of which TAS expressly represented could be installed and constructed through the use of normal and reasonable construction means and methods, using standard construction design tables. Once construction commenced, however, Bilt-Rite discovered that the work including the aluminum curtain wall, sloped glazing and metal support systems could not be constructed using normal and reasonable construction methods, and instead required Bilt-Rite to employ special construction means, methods and design tables, resulting in substantially increased construction costs.
Bilt-Rite sued TAS directly, alleging that it had a right to rely upon the representations in TAS's plans and specifications, urging that TAS's representation that Bilt-Rite's work could be performed by normal and reasonable construction methods was a negligent misrepresentation.
B. The Court's Analysis.
Rather than focus on the fact that there was no contract between the contractor and the architect, the Pennsylvania Supreme Court re-examined the possibility that the design professional, along with others who provide services and/or information that they know will be relied upon by third parties in their business endeavors, owed a duty of care to those third parties in addition to the owner with whom it contracted. The Court determined that such a duty existed and cited favorably to a decision of the Court of Appeals of North Carolina:
"An architect, in the performance of his contract with his employer, is required to exercise the ability, skill, and care customarily used by architects upon such projects. ... Where breach of such contract results in foreseeable injury, economic or otherwise, to persons so situated by their economic relationship, and community of interests as to impose a duty of due care, we know of no reason why an architect cannot be held liable for such injury. Liability arises from the negligent breach of a common law duty of care flowing from the parties' working relationship. Accordingly, we hold that an architect in the absence of privity of contract may be sued by a general contractor or the subcontractors working on a construction project for economic loss foreseeably resulting from breach of an architect's common law duty of care in the performance of his contract with the owner."
What Is a Bilt-Rite Claim, and How Does One Prove It?
According to the Court, a contractor states a Bilt-Rite claim for negligent misrepresentation by alleging and proving the following:
(1) The defendant [design professional] is one who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary [money] interest, supplied false information for the guidance of the plaintiff [contractor] in its business transactions;
(2) The defendant failed to exercise reasonable care or competence in obtaining or communicating the information;
(3) The plaintiff was one of a limited group of persons for whose benefit and guidance the defendant intended to supply the information, or through whom the defendant intended the information to be supplied;
(4) The plaintiff relied upon the information in connection with a project or transaction that the defendant intended the plaintiff to rely upon the information, or on a similar transaction;
(5) The plaintiff justifiably relied upon the defendant's information; and
(6) The plaintiff suffered monetary loss as a result of its reliance.
While a narrow interpretation of the facts and law in Bilt-Rite might lead one to conclude that the information for which a design professional is liable is limited to the design information provided to the contractor as a basis for its bid, the Court's articulation of the elements of a Bilt-Rite claim for negligent misrepresentation suggests that a design professional may even be responsible for representations made later in time, e.g., during the construction phase.
Who Is Now at Risk?
The Bilt-Rite Court maintained that its negligent misrepresentation claim was "narrowly tailored" since it applied "only to those businesses which provide services and/or information that they know will be relied upon by third parties in their business endeavors...." That point notwithstanding, the Court's definition would appear to apply broadly to providers of construction services and information (e.g., architects, engineers, consultants), and has even been applied to suppliers of information and services outside of the construction industry in cases decided since Bilt-Rite.
Bilt-Rite has elevated design professionals and their consultants to a status at law, and to a degree of liability to third parties, long reserved for professionals such as attorneys, doctors, and holders of fiduciary obligations. By providing contractors an opportunity to sue design professionals directly, Bilt-Rite has intensified the design professional's need to exercise due care in carrying out his or her project obligations.
This article is for informational purposes only; it is not legal advice nor is it intended to substitute for legal advice.
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