Defective and Deficient Contract Documents: Owner’s Defenses against Spearin

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

As discussed in the second post in this series, the owner’s implied warranty to provide accurate and suitable specifications and drawings has been well established by the Spearin case for over 100 years.¹ In certain situations, however, owners can avoid the impact of Spearin and related decisions by imposing limitations on the implied warranty. Defenses against Spearin are listed below:

• Disclaimers/assumption of risk
• Owner-provided information
• Contractor’s duty to report errors and ambiguities
• The contractor did not rely on the errors or ambiguities in preparing its bid
• Unjustified reliance on obvious errors or ambiguities
• Commercial impracticability
• Silence in specifications
• Contractor participates in the preparation of specifications
• Contractor uses its own method
• Minor errors
• Contractor deviates from plans and specifications
• Contractor did not protect its work

Several examples of such situations follow.

Disclaimers/Assumption of Risk
In specific situations, parties to a contract can agree to allocate a particular risk of failure or error. Thus, an owner may disclaim via clear, non-boilerplate, exculpatory language the usual warranty of its specifications and impose a specific risk on a contractor. For example, a contractor may agree to design and construct a facility for a particular purpose and result. In this case, the contractor typically “assumes the risks attending the performance of the contract, and must repair and make good any injury or defect which occurs or develops before the completed work has been delivered to the other party.”² Thus, the contractor, not the owner, is responsible for faulty design and an unsuitable product.

If such disclaimers are too general, however, they may not be enforced.³ Likewise, if the disclaimers do not clearly warn a contractor of specific problems that could be encountered, the disclaimers may not be enforced. If a contractor has been put on notice to include a price contingency in its bid, then clear and fair disclaimers may be enforced.⁴

Owner-Provided Information
An owner may provide information on soils conditions, subsurface reports and tests, etc., without making any positive factual representations. If a reasonable contractor would treat them as such and would have been compelled to rely upon them in preparing its bid, then they may be treated as factual. To recover damages, a contractor would have to show that it had no practical access to the underlying data, could not independently verify such data, was not warned that the information was unreliable, and was not advised to perform independent verification.

Thus, if a contractor does not conduct a reasonable site investigation⁵ or does not seek information that was known or should have been known to an experienced contractor,⁶ it is possible that a contractor may not be entitled to recover its increased costs even if the plans and specifications are defective. Some courts have held such disclaimers to be enforceable,⁷ barring a contractor’s claim, and others have barred such exculpatory clauses.⁸

Contractor’s Duty to Report Errors and Ambiguities
A contractor may be contractually obligated to report errors or ambiguities in specifications and drawings.⁹ If this requirement exists, a contractor’s failure to alert the owner to design problems before proceeding with the work may prohibit any claims for increased costs if the contractor proceeds with the work and then has to make changes to correct it later.¹⁰

The Contractor Did Not Rely on the Errors or Ambiguities in Preparing Its Bid
A contractor may need to demonstrate that its bid estimate costs were based on its interpretations of the specifications and drawings that later were determined to contain errors that caused the contractor to perform extra work.

Unjustified Reliance on Obvious Errors or Ambiguities
Typically, a contractor may recover its damages because of latent or hidden errors or ambiguities. However, if the errors or ambiguities are patent or obvious, a contractor may not recover its additional costs if it sought no clarification prior to contract award.¹¹ If a contractor knew or should have known about obvious errors or ambiguities, it should have notified the owner or stated exceptions in its bid. Otherwise, it is possible that the contractor may not be able to recover its increased costs as a result of the error.¹²

A contractor is obligated to conduct a reasonable and thorough site investigation in preparing its bid. A contractor cannot later complain it was misled by the specifications if a site visit would have made the problem obvious.

Commercial Impracticability
Although an owner may direct the method of contract performance, it has not created an implied warranty that a contractor can perform the method without difficulty. An owner only warrants that performance is possible for a reasonable, experienced contractor. A contractor’s claim for commercial impracticability is normally successful only if performance was achieved at unreasonably excessive cost.¹³

Silence in Specifications
As long as it is not withholding specific data on matters of substance, an owner may entirely omit from the specification any reference to a condition or requirement for a particular construction method.¹⁴ A contractor should then draw its own inferences, determine physical conditions, and devise its own construction methods. In this case, an owner is typically protected from liability if the cost of the contractor’s work is greater than anticipated.

Contractor Participates in the Preparation of Specifications
A contractor may not be able to recover for defects in the drawings and specifications if it prepared¹⁵ or helped to prepare such documents or proposed additions or substitutions that were eventually incorporated into the contract.

Contractor Uses Its Own Method
If a contractor has the option of selecting the construction method, but the owner hampers the use of the selected method, the contractor may be able to recover its damages. If a method is recommended, however, and the contractor ignores the owner’s advice and instead uses its own method, the contractor may not be able to recover its increased costs. Some contracts give the owner the right to change the contractor’s “method, manner or sequence of performing the Work.” An owner should be aware that such changes may increase the contractor’s cost or time of performance, and the contractor may request additional costs or time for this type of change.

Minor Errors
Most rulings have held that it is unrealistic to hold owners to a standard of absolute perfection; experienced contractors should include a contingency in their bid for minor errors.¹⁶ If a contractor’s problems are created by only minor inaccuracies or discrepancies in the drawings and specifications, such problems should normally be handled through the changes clause.

Contractor Deviates from Plans and Specifications
A contractor may not be able to recover its increased costs as a result of errors or ambiguities in the owner’s plans and specifications if it deviated from those plans and specifications.¹⁷ Even if an owner’s plans and specifications are clearly defective, if the contractor deviated from them, then courts may hold that the contractor assumes the risk of any deviation from the plans and guarantees the suitability of the result.

For example, a court upheld a contractor’s termination after a floor slab that it installed substantially cracked. Even though the court found that the government’s specifications were defective, the court found that the contractor was not entitled to any relief because it installed reinforcing steel under rather than in the slab as called for in the specifications.¹⁸

Contractor Did Not Protect Its Work
An owner’s implied warranty ordinarily covers only suitability of the drawings and specifications to ensure the structural integrity of the completed work. A contractor is not relieved of its responsibility of implementing sound methods of protecting its partially completed work from deterioration or collapse. If an owner, however, dictates specific methods of temporary support and protection, and these prove to be inadequate, the contractor may be able to recover its damages.

¹     See United States v. Spearin, 248 U.S. 132 (1918).

²     See Friederick v. Redwood County, 190 N.W. 801, 802 (Minn. 1922); see also McCree Co. v. State, 91 N.W.2d (Minn. 1958); Interstate Contracting Corp. v. City of Dallas, 407 F.3d 708, 2005 U.S. App. LEXIS 6981 (5th Cir. 2005).

³     See, e.g., Woodcrest Const. Co. v. U.S., 408 F.2d 395 (Ct. Cl. 1969).

⁴     See, e.g., Flippin Materials Co. v. United States, 312 F.2d 408 (160 Ct. Cl. 1963).

⁵     See, e.g., Conner Brothers Construction Co. v. United States, 65 Fed. Cl. 657, 2005 U.S. Claims LEXIS 159 (2005); Orlosky Inc. v. United States, 64 Fed Cl. 63, 2005 U.S. Claims LEXIS 28 (2005); McCormick Constr. Co. v. United States, 18 Cl Ct. 259 (1989); Clark v. United States, 5 Cl. Ct. 447 (1984); Umpqua River Navigation Co. v. Crescent City Harbor Dist., 618 F.2d 588 (9th Cir. 1990); Mojave Enterprises v. United States, 3 Cl. Ct. 353 (1983).

⁶     See, e.g., Hardwick Bros. Co. v. United States, 36 Fed. Cl. 347, (1996); J.F. Shea v. United States, 4 Cl. Ct. 46 (1983).

⁷     See, e.g., Wiechmann Eng’rs v. State Dep’t of Pub. Works, 31 Cal App. 3d 741, 107 Cal. Rptr. 529 (1973); Cook v. Oklahoma Bd. Of Pub. Affairs, 736 P2d 140 (Okla 1897).

⁸     See, e.g., Stenerson v. City of Kalispell, 193 Mont. 8, 629 P.2d 773 (1981); Jack B. Parson Constr. Co. v. State, 725 P.2d 614 (Utah 1986).

⁹     See, AIA document A201 (1997), Section 3.2.1.

¹⁰    See, e.g., Bethesda Lutheran Church v. Twin City Constr. Co., 356 N.W.2d 344 (Minn. Ct. App. 1984); Buchman Plumbing Co. v. Regents of the Univ. of Minn., 298 Minn. 328, 215 N.W.2d 479 (1974).

¹¹    See, e.g., Allied Contractors, Inc. v. United States, 254 U.S. 83 (1920); Fortec Constructors v. United States, 760 F.2d 1288 (Fed. Cir. 1985); L. W. Foster Sportswear Co. v. United States, 405 F.2d 1285 (Ct. Cl. 1969); NVT Techs., Inc. v. United States, 370 F.3d 1153 (Fed Cir 2004); H&M Moving Inc. v. United States, 499 F.2d 660 (Ct. Cl. 1974); Travelers Casualty & Surety of America v. United States, 74 Fed. Cl. 75 2006 U.S. Claims LEXIS 359 (Fed. Cl. 2006).

¹²    See, e.g., Unicorn Mgmt. Corp. v. United States, 375 F.2d 804 (Ct. Cl. 1967).

¹³    See, e.g., Intercontinental Mfg. Co. Inc. v United States, 4 Cl. Ct. 591 (1984).

¹⁴    See, e.g., Helene Curtis Industries, Inc. v. United States, 312 F.2d 774 (Ct. Cl. 1963).

¹⁵    See, e.g., Mobile Hous. Env’t v. Barton and Barton, 432 F. Supp. 1342 (D. Colo. 1977).

¹⁶    See, e.g., Wells Bros. Co. v. United States, 254 U.S. 83 (1920).

¹⁷    See, e.g., Al Johnson Construction Co. v. United States, 854 F.2d 467 (Fed. Cir. 1988); W.H. Lyman Constr. Co. v. Village of Gurnee, 475 N.E.2d 273 (111. App. Ct. 1985); Appeal of DeLaval Turbine, Inc., ASBCA No. 21,797, 78-2 BCA (CCH) ¶ 13,521 (Oct. 27, 1978).

¹⁸    See Mega Construction Co. v. United States, 29 Fed. Cl. 396.

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