By: Mark C. Kriss, Esq.
NYSSPE Legislative Counsel
In New York State the general contracting community has broadly used design build as an alternative to the traditional design-bid-build methodology for the development of private sector projects. Many general contractors offer project owners “one-stop-shopping” for both large and small-scale projects, by “hiring“ design professionals, PE or RA, rather than a project owner hiring a design professional. (Using a traditional design-bid-build methodology there would be separate contracts between, (i) an owner and a general contractor and, (ii) an owner and a design professional.) See Charlebois v. Weller Assocs, 72 N.Y.2d 587 (1988) and the cases decided in its wake.
Since Charlebois has been liberally interpreted, by the courts, to permit general contractors to offer design services, there has been virtually no enforcement of illegal practice laws against general contractors, by the NYS Attorney General, for the illegal practice of the design professions. Additionally, over the last decade the use of design build has grown substantially in the public sector and its acceptance in the public sphere has spilled over to the private sector. (The increased use of design build in the public sector has been the direct result of legislative changes.) General contractors feel confident that they are not going to face charges for illegal practice and they do not face professional misconduct charges since they are not licensed by the state. Further, NYS Education Department regulations concerning the practice of the design professions, and the impact of these regulations upon professional engineers and registered architects, is of little concern to contractors since they are not subject to these regulations.
Notwithstanding the view of the general contractor community, licensed professional engineers and registered architects have to exercise caution in entering into design build contracts. Care is required since the New York State Education Department (SED), which licenses and disciplines design professionals, has a different interpretation of the law and regulations wherein a design professional cannot, without qualification, “work for the general contractor” on design build projects. The only exception to this would be design services relating solely to the means and methods of construction (i.e. Temporary Shoring Design, etc.) or in cases where the general contractor also owns the project.
According to SED private sector design build contracts are permitted utilizing a three-way contract (Owner, Contractor and PE or RA) which specifically sets forth the scope of design services and the amount of consideration to be paid to the design professional. The general contractor cannot retain a portion of the fees allocated to design services. All three signatures can be set forth in a single contract document.
In practice three signature contracts are rarely used. However, an alternative has been widely utilized, to wit: (i) a contract between the owner and the general contractor, coupled with (ii) a second contract between the general contractor and the design professional. In this scenario the primary contract between the owner and the general contractor generally (i) details the construction services and materials to be provided by the general contractor, (ii) identifies the principal design firm (or firms) and (iii) sets forth the scope and cost for design services to be provided by the design firm(s).
In the second contract between the general contractor and the design professional the scope of design services to be provided and the consideration to be paid are detailed. Further, in a number of these contracts the general contractor is appointed to serve as the design professional’s agent to receive payment of all consideration paid by the owner for design services and to pay over all such consideration to the design professional.
In order to assure functionality, safety and durability of the project the design contract should afford the design professional unfettered access to the project owner at all times. It should also be made abundantly clear that the design professional’s duty to provide design services runs directly to the project owner. The absence of a clear delineation of the roles of the respective parties as outlined in the executed contracts and as stated above, including proper payment allocation, can create legal problems for the design professional. A design professional runs the risk of a prosecution for professional misconduct, respecting aiding and abetting illegal practice or improper fee splitting. Additionally, in instances where a licensee signs and seals documents not prepared by the PE or RA, or his or her employee(s) under the licensee’s direct supervision, the licensee must comply with Regents Rule section 29.3 (a) (3) pertaining to plan stamping.
While there may be different interpretations by the courts concerning the legal status and contractual obligations by all related parties, NYSSPE recommends that all design professionals follow current NYS Education Department regulations concerning the practice of the design professions. In accordance with these regulations, NYSSPE recommends the following:
If you are entering into a design build agreement between an owner, developer and yourself, it is important to ensure that the role you play is clearly identified, and that the contract document reflect that your professional obligations are to the project owner.
It is also recommended that any payments due to you be paid by the project owner and not the developer or contractor, unless they own the project. Fee splitting is one of the most common professional discipline issues design professionals may face when accepting payments from a contractor instead of the project owner. Please note this does not apply to means and methods. As noted above it is permissible for a contractor to hire a design professional for items such as temporary shoring while a construction project is being built.
NYSSPE is here to help you and protect your license. Please feel free to contact us with any questions you may have concerning this issue.
The foregoing has been prepared for general information purposes only. This article addresses the use of design build in the private sector in NYS and is intended to raise awareness about potential professional misconduct concerns of interest to professional engineers in NYS. The information presented is not specific legal advice, is subject to change without notice, and does not create an attorney-client relationship.
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