Every day across the country, municipalities identify infrastructure projects necessary for the use and enjoyment of their citizens. Those projects could include new water or sewer systems, public facilities such as fire stations and police stations, and airports. The implementation of these projects, of course, can be quite complex.
Many municipalities have engineering and other departments that oversee these projects. Individual officials and local government agencies, however, usually do not have the expertise and the manpower to explore and determine the best and most efficient way to implement a particular project. As a result, a common occurrence in the construction industry is for an industry professional (usually an architecture or engineering firm) to be retained by a municipality to investigate and propose a particular project or set of projects. The same entity may then oversee the hiring and performance of the designers and contractors for that project or set of projects.
When a company is retained to develop the project scope for the municipality, the company has a simple directive: to identify the best project for the municipality within the confines of the parameters provided by the client. The goal of the retention is to create a partnership with the municipality that fosters an effective and cost-efficient project delivery, with the company acting almost as an extension of the municipality. The company works to protect the municipality’s interests in the project planning and design, and often the construction.
Similarly, when a company is retained to design a project for the municipality, the company’s obligations are straightforward: to design the project within the scope set forth in its contract. It is when these two tasks are intertwined that the company’s obligations to the client become problematic and complex.
When a designer is retained to design a project, the designer typically is responsible for performing its services within the standard of care. Not unexpectedly, its economic interests are likely divergent from those of its client. If that same company is also retained to create the scope of project, it is now obligated to look out for the best interests of the client, which can easily place it at odds with its own economic interests. That is what happened when Jacobs Engineering was retained by the City of Victorville, California.
When Responsibilities — and Roles — Collide
In 2002, the City of Victorville, California, retained Carter & Burgess (C&B; now a unit of Jacobs Engineering) to serve as the city’s engineer to determine the feasibility, and outline the development of, an electrical power plant. The object of the power plant was to create investment and entice companies to Victorville. The city also retained C&B to then design the power plant that C&B recommended the city build. It was this conflict that got C&B into trouble.
As the project proceeded, it ran into delays and cost overruns. Eventually, in 2006, the city cancelled the project. C&B sued the city for amounts it claimed it was owed. The city countersued C&B, claiming that C&B breached its contract, produced poor designs and failed to properly supervise the project development. After trial, the jury deliberated two and a half hours before it unanimously found C&B liable to the city for the full cost of the entire project. While the matter was pending on appeal, the parties settled, but the lessons remain.
To Avoid a Conflict, Identify It
To avoid the issues that led to the disastrous verdict against Jacobs, one should avoid taking on two potentially conflicting engagements. In the event a client wants to proceed in that manner, we recommend consulting with legal counsel. At a minimum, the client should be made aware (in writing) of the potential for a conflict in the engagements and the potential risks that the conflict can pose. You should also make sure that the client expressly acknowledges the conflict and that it waives the conflict.
Two independent individuals should be retained to lead each engagement, with each having a clear understanding of where their obligations lie. One issue that certainly did not help C&B was that fact that one person led both teams, commenting at one point that he would “wear both hats.”