Holloway Consulting has provided construction consulting and expert witness testimony in three Colorado construction cases involving A-111 contract disputes. In addition, we are currently involved in a number of cost-plus projects. The question arose, “Can the General Contractor be deemed a fiduciary under the A111 Agreement form?”

General Contractor Fiduciary Duty | Construction Consulting Experts

A construction general contractor entering into a Cost of the Work Plus a Fee Contract, either with or without a Guaranteed Maximum Price (“GMP”), may be tempted to approach the work much as she would under a fixed-price contract. However, the contractor would be well advised to fully understand the nature and requirements of the A111 contract, because her duties are considerably different than they would be under a fixed-price agreement. In fact, the contractor should be aware that courts have held the contractor to a higher standard of performance as compared to other types of contracts. This higher standard has been compared in some ways to that of a fiduciary.

WHAT IS FIDUCIARY DUTY?

A fiduciary relationship is understood to carry a duty of good faith and loyalty and the obligation to make full disclosure of all known information that is significant and material to the affairs of the party reposing the trust. This relationship commonly exists between parent and child, officer and shareholder, financial advisor and client. However, such a relationship can also be imposed if the relationship is one where there is a dominance existing between the parties. Industry experts agree that the relationship between a general contractor, experienced in construction cost-plus contracting, and an owner who is in the construction market once every twenty years or so is often one where the contractor is in a position to dominate key financial aspects of the contract.

If such a relationship exists between a contractor and owner, the owner has a right of rely upon the contractor to reasonably and prudently manage the object of the owner’s interest. The owner’s primary, if not exclusive, interest is understood to be the timely completion of the project, at or below the GMP budget, consistent with the other requirements of the contract.

THE CONTRACTOR’S UNIQUE DUTIES UNDER THE A111 CONTRACT

Under Article 3, the contractor accepts a relationship of trust and confidence established between her and the Owner. The contractor covenants with the Owner to furnish her best skill and judgment and to cooperate with the Architect in furthering the interests of the Owner. She agrees to furnish efficient business administration and supervision and to use her best efforts to furnish at all times an adequate supply of workmen and materials and to perform the work in the best way and in the most expeditious and economical manner consistent with the interests of the Owner.

The above A-111 standard form language is unique in the industry and has been the subject of several appellate decisions. A central question in these cases seems to be whether a relationship of trust and confidence, similar to a fiduciary relationship, exists in a cost plus contract, regardless of whether or not a clause similar to the one mentioned above from the A-111 agreement is contained in the contract documents. If so, the contractor may be held to a very high standard with regard to her duties under this contract.

Lump-sum contracts, such as AIA Form A-101, do not specify a contractual relationship of “trust and confidence” between owner and contractor. Moreover, under lump-sum contracts, the contractor is not obligated to disclose certain pricing and subcontract matters. Hypothetically, the contractor might even choose to use inefficient business administration so long as the owner’s interests are not adversely affected.

WHAT DO COURTS SAY?

In A.A. and E. B. Jones Company v. Boucher, Colo. App. 530 P.2d 974, the trial court found that the contractor had not dealt in good faith with the owner and had violated the relationship of trust and confidence.

The contract was a standard form, cost of the work plus a fee, with a GMP of $250,000, with executed change orders increasing the contract price to $534,071. The owners paid a total of $593,687.79 before ceasing payments. Although the owner’s payments exceeded the initial GMP, the court found that the owners had not waived their right to seek a refund of all payments in excess of the original $250,000 GMP.

Of particular interest is the fact that, although information was given to architect by the contractor concerning increased construction costs, the court found that such information did not constitute fulfillment of the contractor’s obligation to keep the owners informed of increased costs. The contractor’s actions in giving information to the architect also did not preclude a finding that the contractor had acted in bad faith.

The court found that there was no intentional relinquishment of rights by the owner because their remedy of discharging the contractor under the contract is permissive and the threat of foreclosure was adequate grounds not to invoke the remedy. The court also found that the doctrine of estoppel did not apply where the contractor had not acted in good faith toward the owner. The court found that the contractor did not notify the owner when she believed that the cost of work would exceed the GMP.

THE CONTRACTOR’S DUTIES TO THE OWNER

Based on our reading of the contract and this and other appellate decisions on cost plus contracts, and while we are not attorneys, the owner will have the right to rely upon the contractor to advise him clearly and immediately if the contractor regards any directive by either the owner or the architect as imposing upon her additional work such that an increase in the cost of the work can be anticipated, or, that the GMP would need to be increased. The owner will also have a right to rely upon the contractor to disclose all matters material to the owner’s affairs and advise him clearly and immediately based upon her professional expertise. Likewise, the owner is entitled to rely upon the contractor to use all reasonable efforts to provide competent work crews and material procurement.

THE OWNER’S REMEDIES

Under Colorado law, a fiduciary may be forced to relinquish all fees if found in breach of it duties to the client. While the question of whether or not the general contractor is a fiduciary is ultimately a matter for the courts to decide, the owner has immediate remedy through the audit provisions of the contract to determine the final (reimbursable) cost of the work and back-charge the contractor, if necessary.

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