Fiduciary Responsibility in Construction

July 16, 2026

What general contractors need to know about contract language, project funds, cost-plus accounting, and state-specific duties.

Fiduciary Responsibility in Construction

This article is for general informational purposes only and is not legal advice. Construction law varies by contract, project, and jurisdiction. Consult qualified counsel about your specific circumstances.

“Fiduciary” is one of those words that gets used casually on a project and very precisely in a courtroom. An owner may say, “I trusted my contractor with the budget,” but trust in the everyday sense does not always create a legal fiduciary relationship.

That distinction matters. A fiduciary must generally put another party’s interests ahead of its own within the scope of the relationship. An ordinary general contractor, by contrast, is an independent business that owes the duties created by its contract and applicable law. Those obligations can already be substantial: perform the work, bill accurately, follow payment rules, account for reimbursable costs, protect statutory trust funds, and deal in good faith.

The practical question is therefore not simply, “Is a contractor a fiduciary?” It is:

What does the contract say?
What authority and discretion does the contractor actually exercise?
Is the contractor acting as the owner’s agent in any part of the project?
Does state law treat project receipts as trust funds?
Who is the alleged beneficiary: the owner, a subcontractor, a supplier, or someone else?

The usual rule for a general contractor

Most courts do not presume that every owner–contractor relationship is fiduciary. Commercial construction contracts are ordinarily negotiated at arm’s length, and the parties are expected to protect their interests in the agreement.

The line can change when the facts go beyond an ordinary construction contract. Courts and commentators commonly look at:

language accepting a “relationship of trust and confidence”;
promises to act primarily or exclusively in the owner’s interest;
authority to bind the owner or make decisions as the owner’s agent;
control over procurement, pricing, or project funds with little owner oversight;
a large gap in expertise combined with actual reliance by the owner; and
a relationship of special trust that existed before the construction contract.

The WilmerHale overview of fiduciary claims against construction and design professionals emphasizes that greater discretion, control, and agency-like authority make a fiduciary finding more likely. It also notes that jurisdictions disagree over whether standard “trust and confidence” language creates a true fiduciary duty, a heightened contractual duty, or no additional duty at all. A 2025 construction-law analysis of that language reaches the same practical conclusion: the words matter, but the real allocation of authority matters too.

For a GC, the safest operational approach is not to debate labels while the project is underway. Run the work so the record demonstrates accurate billing, authorized decisions, timely disclosure, and project-level accountability.

Cost plus contracts: transparency is part of the bargain

In a cost plus contract, the owner generally reimburses defined costs of the work and pays an agreed fee. The arrangement may be uncapped or may include a guaranteed maximum price. Either way, the contractor’s entitlement depends on what the contract defines as reimbursable.

Cost plus does not automatically mean fiduciary. In Goes v. Vogler, the Nebraska Supreme Court held that contractors do not owe fiduciary duties under cost-plus contracts as a matter of law beyond duties imposed by law and the contract. The court still recognized an implicit requirement that costs be reasonable and proper. A Construction Risk case note draws out the practical importance of the contract language in that decision.

The outcome was different in Maryland’s Jones v. J.H. Hiser Construction Co.. There, the contractor accepted a relationship of trust and confidence, promised to further the owners’ interests and perform economically, and agreed to keep detailed accounts. The court held that the contractor had a duty to track escalating costs and warn the owners in time. The superior knowledge of the contractor and the owners’ reliance also mattered.

The lesson is not that one state is always contractor-friendly and another is not. It is that the same “cost plus” label can sit on top of very different contractual duties.

A practical cost plus checklist

Before work starts, define:

which labor, material, equipment, insurance, bond, supervision, and general-condition costs are reimbursable;
which overhead belongs in the fee and cannot be billed again as a cost;
whether the fee applies to change orders, allowances, contingency, self-performed work, or subcontractor costs;
how discounts, rebates, refunds, credits, and purchasing incentives are treated;
the documentation required with each payment application;
the owner’s audit rights and the period for retaining records;
who approves buyout decisions, related-party work, and costs above estimates;
how often the contractor must update the estimate at completion; and
what happens when the forecast approaches or exceeds the owner’s budget or a GMP.

AIA’s description of its A102 cost-plus-with-GMP agreement highlights open-book accounting and actual cost of the work. Those ideas only become useful when project records connect each billed amount to the contract, commitment, invoice, change, and payment.

A clean monthly package should allow a reasonable reviewer to answer four questions quickly: What was committed? What has been billed? What has been paid? What is now forecast to complete the work?

CM at risk: one firm, two roles

Construction manager at risk—also called construction manager as constructor—usually combines preconstruction advice with responsibility for construction. AIA describes the CMc structure as merging the contractor and construction-manager functions in one entity, commonly with direct subcontracts and a GMP. The CM advises the owner during preconstruction, then assumes financial responsibility for delivery after the owner accepts the GMP proposal.

That two-phase structure creates a recurring legal and operational tension. During preconstruction, the CM may help shape scope, estimate alternatives, recommend procurement strategies, and evaluate trade bids. Those services can look advisory or agency-like. During construction, the same company is also a contracting party with its own fee, contingency positions, subcontractor relationships, schedule exposure, and risk under the GMP.

The contract should make the boundary visible. It should state:

when the CM is an adviser and when it is acting as constructor;
whether the CM can bind the owner, and if so, within what written limits;
how trade contractors are solicited, compared, selected, and disclosed;
how buyout savings, allowances, CM contingency, owner contingency, and shared savings are treated;
when related-party bidders or self-performed work are permitted;
what cost and schedule warnings must be provided during preconstruction; and
which obligations survive acceptance of the GMP.

Calling the delivery method “at risk” does not answer the fiduciary question. A GMP allocates cost risk; it does not erase duties created by advisory authority, contract language, or construction-fund statutes. Likewise, a promise to use skill and judgment for the owner’s benefit should not be treated as decorative prose. Have counsel reconcile that promise with the CM’s right to earn a fee, manage contingency, and protect its legitimate contractual interests.

State law can change the answer

State trust-fund, lien, licensing, and criminal statutes can impose duties even when the owner–GC contract does not create a general fiduciary relationship. These statutes differ sharply in who is a trustee, who is protected, what records are required, and what conduct creates civil, criminal, or licensing exposure.

New York: Article 3-A creates project-specific trusts

New York’s Lien Law is especially important for contractors handling project receipts. Article 3-A, Section 70 makes specified funds received by an owner, contractor, or subcontractor—and certain rights to receive those funds—assets of separate trusts. A contractor or subcontractor is the trustee of the trust tied to each contract or subcontract.

Section 71 identifies permitted trust purposes and beneficiaries, including claims of subcontractors, architects, engineers, surveyors, laborers, and material suppliers, along with specified taxes, benefits, bond premiums, and insurance premiums. This is a fiduciary responsibility to statutory beneficiaries even though the contractor may not owe the owner a general fiduciary duty.

New York also turns project accounting into a legal control. Section 75 requires books or records for each trust. Separate bank accounts are not always required, but the books must clearly allocate deposits and withdrawals among the separate trusts. Failure to keep the required records is presumptive evidence that received trust funds were used for a non-trust purpose. Section 79-a can treat specified misappropriation by a trustee—or an officer, director, or agent who participates—as larceny.

The beneficiary distinction is critical. In Ho v. Star Contractors, Inc., a New York appellate court held that homeowners lacked standing under Article 3-A to assert a fiduciary-duty claim against their contractor. By contrast, New York courts recognize a GC’s Article 3-A duties to subcontractor beneficiaries with respect to project funds. Older commentary asking whether New York construction managers might face broader fiduciary treatment, including Cohen Seglias’s discussion of the Tishman overbilling matter, should be read alongside this more recent authority.

For a New York GC, project-level receivable, payable, receipt, and disbursement records are not merely good bookkeeping. They are part of statutory compliance.

Texas: construction payments are trust funds

Texas Property Code Chapter 162 expressly treats qualifying construction payments as trust funds. A contractor, subcontractor, or officer, director, or agent who receives or controls the funds may be a trustee; artisans, laborers, mechanics, contractors, subcontractors, and material suppliers may be beneficiaries.

Texas also expressly addresses a contractor’s fee. A reasonable fee specified in a written contract can fall outside trust funds when the statutory conditions are met and the fee is earned under the contract. That makes clear drafting and accurate earned-fee calculations important. Do not assume that the company form insulates an individual who controls project receipts; the chapter reaches specified people acting for the contractor and provides civil and criminal consequences for misapplication.

California: focus on wrongful diversion

California does not use the same broad statutory construction-trust framework described above for New York and Texas. Instead, California Penal Code Section 484b makes it a public offense to receive funds for construction labor, services, materials, or equipment and then willfully fail to apply them for that purpose while wrongfully diverting them elsewhere.

The terminology differs, but the operational control is familiar: connect receipts to the work for which they were provided, keep support for payments, and do not use one project’s receipts in a way that leaves the promised work or project creditors unpaid.

Florida: amounts already due receive statutory priority

Florida Statutes Section 713.345 requires a recipient of payment for improving real property to apply the portion needed to pay amounts then due for prior labor, services, and materials. The statute preserves withholding allowed by contract or based on a bona fide dispute, while knowing and intentional misapplication can bring criminal penalties and contractor-license consequences.

That “then due” language makes payment status important. A GC should document legitimate disputes when they arise, identify what is undisputed, and avoid letting an internal approval delay become indistinguishable from intentional nonpayment.

Nebraska and Maryland: contract wording changes cost plus duties

Nebraska’s Goes decision and Maryland’s Jones decision provide a useful pair. Nebraska declined to impose fiduciary status from a cost-plus arrangement alone. Maryland found heightened duties where the written agreement expressly created trust and confidence, required economical performance in the owners’ interests, and required detailed accounts.

National templates are starting points, not fifty-state answers. Review the governing-law clause and the project state’s law before accepting, deleting, or rewriting fiduciary, agency, trust, accounting, and audit language.

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A control system for general contractors

Legal standards vary. The following controls are useful almost everywhere:

Keep every project legible. Track the owner contract, approved changes, commitments, invoices, payment applications, receipts, payments, and forecast by project and cost code.
Separate entitlement from cash receipt. An owner payment does not by itself establish that every billed amount was contractually earned, and a bank balance does not show which projects or beneficiaries have claims on it.
Document authority. Record who approved scope, buyout, contingency use, substitutions, related-party work, and changes to the forecast.
Reconcile before billing. Match billed cost to source documentation and contract eligibility. Resolve duplicates, credits, and rejected costs before they reach the owner.
Update the cost-to-complete forecast. Historical cost reports are not enough when the contract requires timely warning of overruns or budget pressure.
Pay and document downstream obligations. Track due dates, disputes, lien waivers, joint checks, retainage, and statutory trust beneficiaries.
Escalate exceptions early. A disputed cost, missing invoice, unapproved change, or projected overrun becomes harder to solve when it is hidden inside the next draw.
Retain the audit trail. Keep records for the contractual and statutory period, including approvals and the reason for unusual allocations.

The goal is not paperwork for its own sake. It is a project record that lets the GC, owner, and authorized reviewer understand what happened without reconstructing the job from email and memory.

What about other AEC professionals?

Architects, engineers, agency construction managers, owner’s representatives, developers, and community-association boards can face different duties.

Design professionals are usually governed by their professional standard of care and contract, but some jurisdictions or agency relationships may add fiduciary obligations. An agency CM or owner’s representative with authority to negotiate or bind the owner can present a different analysis from a GC building for a price. Community-association boards may already owe fiduciary duties to the association; when addressing defects, they must balance timely repairs with preservation of evidence, as discussed in Becker’s remediation overview.

The GC still sits at the center of project execution: coordinating trades, schedule, quality, safety, cost, documentation, and communication. This overview of the general contractor’s role illustrates why owners often place substantial practical trust in the builder. But practical trust, professional care, contractual duties, statutory trusteeship, and common-law fiduciary status are related concepts—not interchangeable ones.

The takeaway

A general contractor is not automatically the owner’s fiduciary simply because the project is important, the owner relies on the contractor, or the agreement is cost plus. The answer turns on the contract, the contractor’s actual authority, the parties’ relationship, the identity of the claimed beneficiary, and state law.

For contractors, three habits reduce the uncertainty:

negotiate “trust,” “confidence,” “best interest,” and agency language deliberately;
maintain project-level accounting that can prove where each receipt and payment belongs; and
obtain state-specific legal advice before a dispute—not after project records have become the dispute.

Good project controls cannot eliminate every legal risk. They can make the contractor’s compliance, candor, and decision-making visible, which is often the most valuable evidence available.