What is the distinction between a general contractor and a construction manager?
The answer turns on more than the labels used in the parties' construction contracts, the Mississippi Supreme Court recently held in Aladdin Construction Company, Inc. v John Hancock Life Insurance Company.
In 1999, John Hancock Life Insurance contracted with McMo, Inc. to provide "project management services" in connection with renovation of the Singing River Mall in Gautier, Mississippi. McMo then signed agreements with several contractors to perform the work required by the John Hancock-McMo contract
The agreements identified McMo as the "construction manager," but John Hancock paid McMo for the contractors' work and McMo was responsible for paying the contractors. John Hancock did not enter into agreements with the contractors.
John Hancock paid McMo for the contractors work but McMo diverted the payments to other uses. When McMo filed bankruptcy, the contractors sued John Hancock to collect what they were owed for their work.
The trial court dismissed the contractors' claims finding as a matter of law that McMo was acting as a general contractor not as a construction manager and that the contractors, as McMo's subcontractors, had no direct right of action against John Hancock.
The Mississippi Supreme Court reversed holding that the contractors were entitled to a trial over whether McMo had acted as the owner's agent and over whether the contractors were third party beneficiaries of the John Hancock-McMo contract.
The evidence supporting imposing liability on an agency theory included contractual language suggesting McMo was merely the conduit for payments to the contractors, received no mark up on the payments and was not licensed as a general contractor.
The evidence supporting imposing liability on a third party beneficiary theory included contractual provisions contemplating the hiring of the contractors and requiring John Hancock's approval of the contractors and the contemplation of the parties that the money to pay the contractors would be supplied by John Hancock.
Of moment, the decision does not indicate whether the John Hancock-McMo contract contained a third-party beneficiary disclaimer.
The opinion also does not discuss whether the John Hancock-McMo contract made McMo responsible for completing the project for a fixed price or a guaranteed maximum price. A construction manager required to complete the project for a fixed price is referred to in the trade as a "CM at risk." Here's a chart depicting the organization of a project when the construction manager is at risk. Here's a chart depicting the organization of a project when the construction manager is not at risk.
