Implied Warranty of the Design

Although rarely stated as such in the contract documents, the owner does have a broad series of contractual responsibilities. The owner’s failure to adequately execute these responsibilities can produce a recoverable claim.

This is the first blog post in a series on implied warranties in construction contracts. This post discusses the implied warranty that plans and specifications are sufficient and adequate for the purpose intended. The second post discusses the implied warranty that neither party to a contract will do anything to prevent, hinder, or delay performance thereof by the other party. The third post discusses the implied warranty that, on multi-prime projects, the owner or construction manager will coordinate the activities of the respective contractors to avoid disruptions.

For a variety of reasons, the once clear demarcation between owner/engineer and contractor regarding design and construction responsibilities is no longer so. A contractor who adheres to the plans and specifications but is unable to achieve the contractual end result will allege that the design was defective and/or deficient.

The owner and engineer, on the other hand, will claim that the contractor agreed to achieve certain performance criteria and that failure to do so constituted contractual nonconformance. One party or the other may be correct, depending on whether the specifications were ones of design or performance.

With the increasing pressures to minimize design costs, reduce A/E liability, and incorporate the latest technology, the shift to performance specifications has been dramatic. The dichotomy facing the construction specifier is how to lay out a detailed specification while simultaneously requiring specific performance for which the contractor has sole liability. The ability to achieve this goal is potentially unworkable. Surprisingly, the clearest definition acceptable to the industry has been set forth in a legal decision that noted:

A design specification is one in which there are stated precise measurements, tolerances, materials, in process and finished product tests, quality control and inspection, requirements and other information.

A performance specification is one in which performance characteristics are desired. In such specifications, design, measurements, etc., are not stated nor considered to be of importance so long as the performance requirements are met.¹

In addition to these extremes, when it is impractical or uneconomical to prepare a design or performance specification, a purchase description specification can be utilized as follows:

A purchase description specification outlines the minimum acceptable purchase description for a competitive procurement by use of a brand (or manufacturer’s) name and model or part number, followed by the words ‘or equal.’²

Each of these specification approaches allocates among the parties to the contract a different level of risk.

In general, design specifications provide:

For a completely specified item set forth in great detail allowing complete certainty as to end product
– however –
Exposure to the specifier to the extent that it retains liability and responsibility for design and related omissions, errors and deficiencies in the specifications and drawings.³

In effect, the use of a design specification places a contractor in a position of following the “cookbook” with the expectation that the prescribed end product will be the result. This premise founded a decision issued nearly 80 years ago that there was a breach of implied warranty when a contractor adhered to the plans and specifications but nonetheless failed to achieve the objective of the design.⁴ This decision clearly established that if a contractor were bound to build according to plans and specifications by the owner, the contractor would not be held responsible for the consequences of defects in the plans and specifications.

A variance to the “strict” design specification is that of a combined specification; that is, one that encompasses both detailed design requirements and required performance criteria. In this instance, a contractor may recover even if it did not achieve the required performance if it can be established that the failure was due to defects in the specified detailed design requirements:

When the Government specifies in detail the design and construction to be followed by the contractor in the manufacture of equipment and also specifies performance requirements for such equipment, and the contractor manufactures the equipment in a workmanlike manner in accordance with the Government design, but the equipment does not meet the performance requirements of the specifications, the contractor will not be denied compensation for the reason that it finally develops that the work done in accordance with the Government plans does not produce the intended results.⁵

A further variance in the area of a design specification occurs when the specified design criteria denotes minimum, but no maximum, dimensional or analogous design parameters in conjunction with the overall design requirements. In this instance, a shift in responsibility occurs from owner to contractor.

To reiterate, in the case of a design specification, liability rests with the owner because of the implied warranty that if the specifications are to be complied with, a satisfactory result should ensue. It is possible, however, to limit liability of the design warranty by expressly placing the prospective bidders on notice that errors exist or that the specifications are furnished for information only with no owner responsibility for their accuracy. Care must be exercised in this area since any ambiguity as to intent will be construed against the owner (as drafter of the specifications). An owner will not easily escape liability if the error is detectable only after exhaustive investigation. One court clearly stated this concept as follows:

Contractors are businessmen usually pressed for time and consciously seeking to underbid competitors. Consequently they estimate only those costs which they feel the contract terms will permit the Government to insist upon in the way of performance. They are not expected to ferret out hidden ambiguities or errors in the bid documents and are protected if they innocently construe in their own favor an ambiguity equally susceptible to another construction or overlook an error.⁶

At the other end of the spectrum lies the performance specification. In this situation, only the final result is specified without the inclusion of design criteria or parameters. Since the contractor has the general discretion as to the design, the contractor is considered to have assumed the risk of the design. Absent the circumstance wherein the prescribed performance constitutes an impossibility of performance, the contractor has the duty to achieve the end result:

Where, as here, the Government does not specify the way by which an item shall be manufactured, but rather leaves the manufacturing processes up to the contractor, the contractor is responsible for exercising a reasonable amount of expertise and know-how in manufacturing the item.⁷

Further, in the instance where minimum performance criteria are established, the contractor cannot rely on achieving the overall performance standards by strictly adhering to the “minimums”:

We believe that the very fact that the Government spoke in minimums would be reasonably understood to mean only that while there were minimums below which contractors could not go it was the responsibility of the contractor to select (a design) – at or above those minimums – that would produce a (product) that would pass the (performance) test.⁸

Along this line, an owner may elect to incorporate “some” design parameters within the context of a performance specification. Assuming these baseline parameters do not negate the ability of the contractor to achieve a satisfactory result, it will retain the risk of obtaining performance:

It was left to the contractor to use its own judgment, experience, and know-how in determining how to manufacture certain aspects of the cartridge. This plaintiff construes the contract too narrowly when it contends that it had only to meet the specifications set out in the contract. The fact is it had to go beyond those specifications as, for example, in the case of devising a method of gluing the flash tube to the disk. As to this limited aspect, the contract was more like a “performance” contract than a “design” specification and, as in a performance contract, the contractor must assume responsibility for the means and methods selected to achieve the end result … In short, it had the obligation to adopt and use a process of gluing that would achieve, in a workmanlike manner, a functional cartridge.⁹

The use of the purchase description specification in conjunction with the “or equal” option leads to controversy. As is quite common in the industry, an engineer will often canvass the manufacturing market, assess the availability, performance, and reliability of equipment and materials, and finally specify the item to be furnished. The engineer may specifically denote a particular manufactured product or specify around that product without expressly mentioning it specifically by name. In order to avoid problems with specifying proprietary, restrictive, and sole source items, the engineer will incorporate an “or equal” clause. This is particularly important in government contracts. For example, the following assessment must be made before the Environmental Protection Agency will approve a grant to a state or municipal agency for construction of a wastewater treatment facility:

… that no specification for bids in connection with such works shall be written in such a manner as to contain proprietary, exclusionary, or discriminatory requirements other than those based upon performance, unless such requirements are necessary to test or demonstrate a specific thing or to provide for necessary interchangeability of parts and equipment, or at least two brand names or trade names of comparable quality or utility are listed and are followed by the words “or equal.”¹⁰

In general, the equal need not be exactly the same as the item specified. The measure of equality will be if the equal provides all of the essential functions specified and reaches the same result as the specified name item. Material difference between the equal and the item specified creates a more complex picture. In general, the owner is afforded considerably more discretion in rejecting equals of a different material. This is because the mere performance similarity is insufficient to judge an equal. In this instance, reliability, durability, etc., enter into the weighing of equality.

Specified items and equal availability present opposite responsibilities. In general, a specified name brand item will place a warranty on the owner that the item is indeed commercially available. Since the owner actually specified the item by name, the owner is deemed to have more knowledge than the contractor concerning the item’s availability. Therefore, the risk of unavailability rests with the owner. The opposite holds true for the equal. Regarding the ability for an equal to adhere to the specifications, the risk is on the contractor.

The extent to which the owner wishes to clearly set forth a comprehensive design specification or opt for a performance specification is a matter of the willingness (or lack thereof) to accept the attendant risks. The use of a design specification allows the owner to have as-built drawings exactly as the as-bid plans. The risks, however, reside with the owner:

Ordinarily, defendant [owner] is entitled to make necessary changes, but where the change is necessitated by defective plans and specifications defendant must pay the entire resulting damage without any deduction for time to make changes, as would be the case if the redesign were necessitated by a changed condition or the like.¹¹

The use of performance specifications will greatly relieve the owner’s liability. However, except for achieving specific performance criteria, the owner will have little control over the end product. This fact alone will often negate the willingness to employ performance specifications.

¹    AERODEX, Inc., ASBCA 7121 BCA ¶ 3492 (1962).

²    Id.

³    Id.

⁴    United States v. Spearin, 248 U.S. 132 (1918).

⁵    General Precision, Inc., ASBCA 12078 70-1 BCA ¶ 8144 (1970).

⁶    Bromley Contracting Company, ASBCA 14884, 16045 72-1 BCA ¶ 9252 (1972).

⁷    Monitor Plastics Company, ASBCA 14447 72-2 BCA ¶ 9626 (1972).

⁸    Sarkisian Brothers, Inc., PSBCA 408 78-1 BCA ¶ 13,076 (1978).

⁹   Penguin Industries, Inc., vs. United States, 530 F.2d.934 (1976).

¹⁰   33 USC 1284(a)(6).

¹¹   33 USC 1284(a)(6).

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