The Economic Loss Rule in Construction Law

TheE conom icLo ssRu lein Cons truc tion Law 615
23.0  in TRod ucT ion
At common law, there were bright-line distinctions between civil actions
brought in contract and those brought in tort. Elements of proof were different,
as were recoverable damages. Proof of a tort was generally more burdensome—
requiring proof of a duty of care, foreseeability, “but for” and proximate causa-
tion, rather than simply a contract and a breach. At common law, contracting
parties were free to assign various risks between them, and such assignments
were generally upheld. If one commercial party was damaged by a contractual
partner’s act, the remedy was ex contractu. There was no tort recovery. This
separateness survives today in Article 2 of the Uniform Commercial Code.1 But
in many other areas of commerce, the distinctions and barriers between con-
tract and tort law can be as blurred as the colored glass in a kaleidoscope.
1. For buyers and sellers of goods, Article 2 of the Uniform Commercial Code codi es the
rules for contract formation, acceptance, rejection, cover, disclaimers, damages, and consequen-
tial and incidental damage waivers.
2 3
The Economic Loss Rule
in Construction Law
616 CO N S T RU C T I O N L A W
A construction project is a monumental mix of goods and services com-
bined to create a new and functioning edice. Whether a building, a water-
retaining structure, or a system to generate or distribute power, today’s projects
are often complex, requiring coordination among numerous participants who
have different expertise. Specialization in the furnishing of construction goods
and services permeates the construction industry. We still build with bricks
and mortar, but we rely upon sophisticated components installed by special-
ists using delivery systems with ever more complex risk allocations. Amenities
found in today’s starter houses make them complex structures in comparison
to the multistory ofce buildings of the 1930s.
As construction projects become more complex, they cost more. Owners,
like all consumers, don’t want to pay more.2 This puts pressure on construc-
tion design, especially the design of components. Cost concerns now lter into
the design of every construction material. And, because speed of installation
is a function of overall cost, price also affects components’ means and meth-
ods of application. Designers of construction components continually look for
ways to make products that cost less, are quicker and easier to install, pro-
vide a more desirable appearance, and perform better than last year’s mod-
els. A quantiable improvement in any of these characteristics will increase
market share. But as construction component design is revisited and revised
in the name of cost, performance characteristics are often affected. When the
performance criteria of components are materially altered, the performance of
major building systems may be compromised. The redundancies of conserva-
tive design that were de rigueur for buildings in decades past too often play
second ddle to the latest bells and whistles of convenience.
Then, too, the increasing complexity of buildings and components has chal-
lenged the architect’s role. Architects formerly were the arbiters of component
design and selection. This has changed. Product design, and more recently
system design, has devolved to component manufacturers. No longer is the
architect the project’s most knowledgeable leader. As observed by a leading
Columbia University professor, by the end of the 1970s, architects came to
know less and less about more and more until some were said “to know noth-
ing about everything.”3
2. Many off-the-shelf consumer goods decrease in price as availability increases. Consumers
of many goods—especially newer technology goods—have become accustomed to getting more
for the same price as last year, or even more for a lesser price.
is the architect capable of the expertise required by the court in Hubert v. Aiken, 2 N.Y.S. 711
(C.P. 1888), aff’d, 25 N.E. 954 (N.Y. 1890) (“he is an expert in carpentry, cements, mortar, in the
strength of materials . . . new conveniences . . .”).
The E conom ic Lo ss Ru le in  Cons truc tion  Law 617
The construction design landscape is evolving, and the designers in the
manufacturing sector are on the leading edge. Selection and coordination of
building components, long the province of design professionals, are in today’s
world being usurped by contractors and component manufacturers. Through
“value engineering” or outright design delegation,4 architects defer to com-
ponent designers. Indeed, contractor-led Design-Build arrangements often
relegate the architect to backroom subcontractor status. The ability to select
the component is accompanied by the responsibility to coordinate the cho-
sen products with the building’s structure and complementing systems. In this
area, design professionals hand off much of their former role, if not all of their
Specialization in the construction industry has also morphed the contractual
process. Virtually all projects have dozens of contractual arrangements. Spe-
cialized equipment must be furnished and installed by ever-more specialized
subcontractors and suppliers. The traditional Design-Bid-Build project delivery
method is but one of many available contractual vehicles. Owners can choose
among construction managers, multi-prime contractors, design-builders, joint
ventures, and so on—the ability to customize the construction process grows
every year.6 But there is one industry constant: there are more and more enti-
ties providing specialized goods and services. Subcontractors, suppliers, and
subconsultants abound, in ever-deepening Dante-esque circles.
The monumental complexity of a construction project has strained the law
of contracts. When something goes wrong on a construction site, or when the
completed edice doesn’t deliver, there are usually a number of entities with
a hand in the cause. Proper installation is the rst place to check, but it is
often not the entire story. Products that perform well in one setting may, for
4. The American Institute of Architects’ standard general conditions of the contract between
owner and contractor now explicitly allow the delegation of the architect’s design responsibility
to the contractor and its subcontractors. See American Institute of Architects, AIA A201–2007,
General Conditions of the Contract for Construction § 3.12.10 (2007).
5. Design professionals “of record” retain liability, especially to their clients, for adequate
and code-compliant design, whether the design professional performs the work or delegates it
§ 15.10(B) (4th ed. 1989). See also Johnson v. Salem Title Co., 425 P.2d 519 (Or. 1967) (struc-
tural engineering requirements were non-delegable, even to a professional engineer). The result
is different if the design professional never had the responsibility as part of its scope of services.
See Aleutian Constructors v. United States, 24 Cl. Ct. 372 (1991) (specications required contrac-
tor to design and build roof); Mudgett v. Marshall, 574 A.2d 867 (Me. 1990) (error of structural
engineer hired by Design-Build contractor not imputed to owner’s design professional not hired
to design building).
6. The American Institute of Architects’ Standard Form of Agreement Between Owner and
Architect, AIA Document B101–2007 (2007) [hereinafter AIA Document B101–2007], provides
owners a menu of architectural services from which to choose.

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