Defective and Deficient Contract Documents: An Introduction

This is the first post in a seven-part series that discusses defective and deficient contract document claims.

If the owner of an engineering and construction project first contracts with an engineering or architectural firm to prepare specifications, construction drawings, and other contract documents, then hires a construction contractor to build the project, the owner carries an implied warranty that 1) the specifications, construction drawings, and other contract documents that it furnishes to the construction contractor are accurate, and 2) following such specifications and drawings will result in an acceptable product. Likewise, contractors impliedly warrant the adequacy of the plans and specifications that they require subcontractors to follow.¹ The implied warranty applies to design specifications—for example, materials, dimensions, tolerances, and other directions on how to perform the work. However, implied warranty does not extend to performance specifications.²

Specifications and drawings can be defective because of the following: error or omission, incompleteness, inadequate detail or description, conflicts, incompatibility or inconsistency, insufficient legibility or coordination to permit satisfactory construction, inability to use the particular materials or procedures specified, commercial unavailability of a specified item, misleading provisions, misrepresentation of soil conditions, misrepresentation of availability of construction water, understating of quantities to be excavated, providing inadequate space for debris disposal, structural design flaws such as bolts too small to meet loads, or other similar problems. However, specifications do not have to be perfect; a reasonable number of errors are acceptable if the specifications are prepared with a reasonable standard of care and are of average quality as judged by industry practice.³

Examples of breach of suitability of specifications include but are not limited to the following:

• Design of a heating system that is insufficient for a building’s needs.
• Specification of roof insulation that violates local building codes.
• Specification of foundation piles or pile driving methods that provide an inadequate foundation for a building.
• Specification of a steam boiler and piping system that provides an inadequate amount, pressure, or temperature of steam.
• Gravel from designated pits found to be unsuitable.⁴
• An architect falsely warranting that a foundation and mooring system is “adequate and sufficient for the purposes for which it was intended.”⁵

However, a “contractor is not free to comply with obviously defective plans and specifications that the contractor should know may create unreasonably dangerous conditions. Rather, a contractor is expected to act reasonably under the particular circumstances in order to avoid accidents.”⁶ Thus, following an owner’s plans and specifications may not, in and of itself, protect a contractor from liability if the contractor should have been aware that following the plans and specifications would result in an unreasonably hazardous condition. Also, if the quantities are represented as only estimates, then the contractor may not be able to recover if those estimates turn out to be too low.⁷

Defective plans and specifications can cause a contractor to perform extra work to correct the defect, delay the contractor while the owner determines how to correct the defect, disrupt the contractor’s work by forcing the contractor to resequence its work to avoid the affected area until the owner decides what to do, or all the above. The contractor may be able to recover costs that result from these problems. It may also be able to recover damages against the owner for costs resulting from the difficulty of achieving the construction methods in the owner’s plans and specifications. This includes costs of additional materials, equipment, labor, and other damages, including lost profit, resulting from delay. A contractor submitting a lower bid than it otherwise would have but for the defective specifications may also be able to recover its increased costs.⁸

The contractor may also be protected against liability resulting from defective construction if it followed the owner’s drawings and specifications without deviation. The contractor’s defense against consequential or liquidated damages due to delays or against personal injury damages due to failures is often based on defective plans and specifications. Recovery of damages may not necessarily depend on the owner’s affirmative misrepresentation or concealment of material facts in the plans and specifications.⁹ Also, claims against architects by those who are in privity of contract may be limited by the terms of the contract or by the economic loss rule.¹⁰

A defective specification also may breach the implied warranty that the contractor will be able to perform the contract in the specified time. In such cases, the contractor may recover its damages and extended overhead costs due to delays and related impacts. This breach cannot be cured by noncompensable time extensions or by the owner refraining from enforcing liquidated damages.

To recover costs resulting from defective and deficient specifications, drawings, and other contract documents supplied by the owner, a contractor may need to demonstrate that these documents contain representations that materially differed from those actually encountered, the contractor justifiably relied upon those representations, and the actual conditions increased the cost of performing the work.

The following topics will be discussed in future blog posts on this entitlement issue:

• The Spearin Doctrine;
• Other legal underpinnings of the contractor’s entitlement to recover its increased costs as a result of defective and deficient contract documents;
• The owner’s defenses against Spearin;
• The owner’s failure to disclose vital information to the contractor;
• Contractual time limits may not be an adequate defense against extra work claims due to drawing revisions; and
• Options for mitigation.

¹    See, e.g., Handle Constr. Co., Inc. v. Norcon, Inc., 264 P.3d 367, 370-71 (Alaska 2011); Also see Murdock-Bryant Constr., Inc. v. Pearson, 146 Ariz. 48, 703 P.2d 1197 (1985), where the owner was held liable for the subcontractor’s damages.

²    See, e.g., Southern New Eng. Contracting Co., 165 Conn. at 656; D’Esopo & Co. v. Bleiler, 13 Conn. App. 621, 624, 538 A.2d 719 (1988); W.M. Schlosser Co., 41 D.C. Reg. 3528; District of Columbia v. District of Columbia Contract Appeals Bd., 145 A.3d 523, 536 (D.C. 2016); Willamette Crushing Co. v. State, 188 Ariz. 79, 932 P.2d 1350 (App. 1997); Utility Contractors, Inc. v. United States, 8 Cl. Ct. 42 (Cl. Ct. 1985).

³    See, e.g., John McShain, Inc. v. United States, 412 F.2d 1281, 1283 (Ct. Cl. 1969). Notwithstanding the potential that the owner may have a tort remedy for design malpractice, the standard of care by which design professionals’ conduct is measured in assessing their liability in either contract or tort must be determined. In the absence of express contractual warranties or stipulations imposing a different standard of care, proof of negligence has traditionally been required as a basis for the imposition of liability in damages upon design professionals. In performing the design work, the engineer’s duty is to exercise such care, skill, and diligence as people engaged in that profession ordinarily exercise under like circumstances. The engineer is not a guarantor that the contractors would perform their work properly in all respects. See, e.g., Pastorelli v. Associated Eng’rs, Inc., 176 F. Supp. 159, 166 (D.R.I. 1959) (quoting Cowles v. City of Minneapolis, 128 Minn. 452, 151 N.W. 184, 185 (1915)).

⁴    See, e.g., Haggart Construction Co. v. State Highway Commission, 149 Mont. 422, 427 P.2d 686 (1967).

⁵    See, e.g., Anthony’s Pier Four, Inc., 396 Mass. at 818-19 (reversing summary judgment on plaintiff’s claims for breach of express warranty, but upholding summary judgment against plaintiff’s claims for breach of implied warranty).

⁶    See, e.g., McFadden v. Ten-T Corp., 529 So. 2d 192 (Ala. 1988).

⁷    See, e.g., Clark-Fitzpatrick, Inc./Franki Foundation Co. v. Gill, 652 A.2d 440 (R.I. 1994).

⁸    See, e.g., Ida Grove Roofing and Improvement, Inc. v. City of Storm Lake, 378 N.W.2d 313 (Iowa Ct. App. 1985).

⁹    See, e.g., Los Angeles Unified Sch. Dist. v. Great American Ins. Co., 49 Cal.4th 739, 752-53, 112 Cal. Rptr. 3d 230 (2010).

¹⁰   See, e.g., 1800 Ocotillo, LLC v. WLB Group, Inc., 219 Ariz. 200, 196 P.3d 222 (2008) (court allows enforcement of absolute limitation of liability clause); Flagstaff Affordable Hous., Ltd. P’ship v. Design Alliance, Inc., 223 Ariz. 320, 223 P.3d 664 (2010) (court limits professional’s liability to party in privity of contract to economic losses).

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