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Where a contractor had to revise the government’s design and expend additional time and expense to construct a door for a helicopter hangar, the government argued unsuccessfully that the contractor was barred by a general disclaimer from claiming entitlement to a change order for its extra costs. The specifications contained a general disclaimer advising prospective contractors to verify the government’s design prior to bidding the project. After contract award, the contractor discovered that the specified three-pick-point design for the heavy door would not work. It submitted its own design for a four-pick-point door that was accepted by the government. This resulted in modifications to the door and to trusses supporting the door. When the government refused to approve a change order, the contractor filed an action with the Armed Services Board of Contract Appeals. The Board held in favor of the contractor, and the government appealed to the Federal Circuit Court of Appeals.

The Court of Appeals affirmed the Board decision in favor of the contractor. The court explained that when the government provides a contractor with design specifications, such that the contractor is bound by them, there is an implied warranty that the specifications are free from design defects. [citing United States v. Spearin]. As further explained by the court, “This implied warranty attaches only to design specifications detailing the actual method of performance. It does not accompany performance specifications that merely set forth an objective without specifying the method of obtaining the objective. Because the implied warranty protects contractors who fully comply with the design specifications, the contractors are not responsible for the consequences of defects in the specified design.”

In this case, the government attempted to avoid the consequences of its implied warranty by shifting the risk to the contractor via a general disclaimer. But the court did not accept this. In fact, the court emphatically stated that general disclaimers that require a contractor to check plans and determine project requirements do not overcome the implied warranty. Only express and specific disclaimers will suffice, said the court, to overcome the implied warranty that accompanies design specifications. In the absence of such disclaimers, a contractor is entitled to any additional costs it reasonably incurs in producing satisfactory results.

Factors that influenced the court in favor of the contractor included the following: (1) the design of the government was defective but it was not a patent defect that could be readily discovered by a contractor prior to bidding the job. Contractors are not required to investigate to ferret out hidden or subtle errors in the specifications. (2) The government authored the specifications incorporating significant design characteristics that the contractor was required to follow and from which the contractor was not permitted by contract to deviate from without “approval of the Army’s architect.” “If the three-point-pick design had been merely a performance specification … [contractor] could have chosen any method of building a workable tilt-up canopy door, including a four-pick-point door design, and (3) Although the disclaimer at issue required the contractor to verify supports, attachments, and loads, it did not clearly alert the contractor that the design may contain substantive flaws, requiring correction and approval before bidding.

Although the general disclaimer did not overcome the implied warranty, it nevertheless had importance, said the court. It placed on the contractor the risk to check the accuracy of the physical details provided in the drawings by the government, “but not the design.” In summary, the court concluded that the design flaw at issue was hidden and the contractor had no obligation to ferret out the subtle flaw before bidding. The disclaimer placed responsibility on the contractor for verifying physical details, but it did obligate the contractor to “analyze the Government’s design to determine whether it will work for its intended purpose. Since the design details of the specifications created an implied warranty, and since the general disclaimer did not work to overcome that warranty, the contractor was entitled to recover its additional costs incurred in creating a design and constructing a door that worked for its intended purpose. White v. Edsall Construction Company, 296 F.3d 1081 (Fed. Cir. 2002).

Risk Management Note: This case serves as an excellent reminder that contractors are entitled to rely up design specifications and that project owners cannot avoid their implied warranty of design by attempting to include vague disclaimers or requirements that the contractor perform pre-bid investigations of its own. The court rightly explained the principles of the Spearin doctrine, holding the government responsible for the costs necessary to construct the door to an appropriate design. It is unfortunate to see an increasing number of project owners trying to get around the Spearin doctrine by using onerous contract language against their contractors. In the opinion of this editor, all parties to construction projects are better served by contract language that recognizes entitlement to a change order in circumstances similar to those described by the court in this case. Efforts by owners to shift the risk to the contractor will inevitably result in an increased number of cost contingencies added to the contractor’s bids, and will also logically result in more disputes and contractor claims. Prudent risk management calls for assigning the risk to the party that can best control the risk, and in this case that would appear to be the project owner.

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 5, No. 1 (Jan/Feb 2003).

Copyright 2003, ConstructionRIsk.com, LLC