When an owner provides design plans and specifications for building a project, there is an implied warranty that if the contractor follows those plans and specifications, a satisfactory result will be produced. This principle is called the Spearin doctrine, which comes from the United States Supreme Court case United States v. Spearin.
Under the Spearin doctrine, if a contractor incurs additional costs due to the defective design of a project, the contractor may assert a defective specification claim, which may also be called a claim for breach of the implied warranty of design.
Generally, proving such a defective specification claim requires the contractor to show that the defective specification:
- was a design specification, not a performance specification;
- contained a latent (not obvious) error; and
- caused the contractor’s damages (e.g., additional construction costs).
Although it can be difficult to satisfy all three requirements, a recent Armed Services Board of Contract Appeals case–Appeal of KiewitPhelps–shows that it can be done.
In KiewitPhelps, a contractor was awarded a $524-million project for the construction of a one-million-square-foot building at a military base for the United States Air Force. At the time the project was awarded, the design was 100% complete and the contractor did not participate in the design of the project.
Part of the work at the project included the completion of a heating, ventilation, and air-conditioning (“HVAC”) system for the building. The contract specifications contained a highly detailed ductwork specification that the contractor and its HVAC subcontractor were required to follow.
During construction, mold was discovered in the fiberglass duct liner located within the HVAC. The contractor submitted a request for equitable adjustment seeking an additional $41 million and a 209-day time extension due to the mold because the design of the HVAC system was allegedly defective. The owner denied the contractor’s claim.
On appeal to the ASBCA, the contractor argued that it was not responsible for the mold because the contractor followed the owner’s ductwork specification as directed. As a result, the contractor contended that any mold was the result of a defective design of the HVAC system. The owner argued that the contractor’s HVAC subcontractor caused the mold because the subcontractor failed to adequately protect the lined duct and allowed the duct to be exposed to moisture.
The ASBCA noted that “when a contractor’s adherence to the government’s detailed specifications results in unsatisfactory performance, the design is considered defective, and the government is deemed to have breached [the] implied warranty [that the design, if followed, will produce a satisfactory result.]”
Design specification vs. performance specification
The ASBCA detailed the difference between a design specification and a performance specification. “Design specifications are specifications that explicitly state how the contract is to be performed and permit no deviations.” In contrast, “performance specifications specify the results to be obtained, but leave it to the contractor’s discretion as to how to achieve those results.” The implied warranty of design only applies to design specifications, so the owner is only liable for design defects that attach to design specifications.
The ASBCA concluded that the ductwork specification was a design specification due to the language of the specification and the conduct of the parties. The ASBCA focused on the fact that the ductwork design specified a mastic (i.e., duct sealant), but the design did not require the mastic to have any antimicrobial properties. The ASBCA also emphasized the fact that after the mold was discovered, the owner revoked its prior approval of the mastic used and required the contractor to use a mastic with antimicrobial properties.
Thus, the ASBCA found that the ductwork specification’s requirement was a design specification, and the owner impliedly warranted that that if the contractor complied with the specification, “a satisfactory result would ensue.” The ASBCA held that the ductwork specification was defective because the owner’s “decision to not require an antimicrobial mastic in its original design resulted in the mold growth, making the design defective.”
Latent vs. patent design defects
Despite proving that the ductwork specification was a defective design specification, the contractor had yet another hurdle to clear–the contractor had to show that the defective design was latent (i.e., not obvious). In that regard, the ASBCA wrote that:
[t]he Spearin doctrine’s implied warranty does not eliminate the contractor’s duty to investigate or inquire about a patent ambiguity, inconsistency, or mistake when the contractor recognized or should have recognized an error in the specifications. This duty requires contractors to clarify patent ambiguities or defects, but it does not require them to ferret out hidden or subtle errors in the specifications. A design defect is not sufficiently patent so as to trigger a duty to inquire unless the defect constitutes a major patent discrepancy, or obvious omission, or a drastic conflict in provisions that would have been glaring or obvious to a reasonable contractor.
The ASBCA then noted the absurdity of the owner’s position. The owner argued that the ductwork specification was not defective, “yet at the same time asserts that any defect in the design was patent as to trigger [the contractor]’s duty to inquire.”
The ASBCA concluded that nothing on the ductwork specification’s face would lead a reasonable contractor to conclude that the requirement to use the mastic specified would lead to mold growth. Consequently, the ASBCA concluded that the ductwork specification’s defect was latent and, thus, did not trigger the contractor’s duty to inquire further.
Causation–Did the mold use the defective mastic as a food source?
Although the contractor proved the ductwork specification was defective and the defect was latent, the contractor still had to show that the defective specification design caused the mold leading to the contractor’s damages. The biggest issue was what was the food source for the mold.
The ASBCA was persuaded that the mastic specified in the design was the food source for the mold, “which it followed ‘like ants following a line of honey’ throughout the duct system.” Thus, the ASBCA concluded that the contractor proved a causal link between the design defect and the resulting damage.
The ASBCA also rejected the owner’s argument that the HVAC subcontractor’s improper storage of the ductwork caused the mold to grow. The ASBCA reasoned that the owner had not provided evidence that the subcontractor’s outdoor storage of the ductwork allowed them to be subject to rain. Also, the ASBCA found that even if the poor storage caused the moisture in the installed ducts, there was no proof that the mold needed that moisture to thrive.
The ASBCA concluded (1) the design specification was defective because it failed to require an anti-microbial mastic, (2) the latent defect did not trigger the contractor’s duty to inquire, and (3) the contractor’s compliance with the specifications resulted in an unsatisfactory result (i.e., “mold growth in the project’s lined duct system”). As such, the ASBCA held that the owner “breached the implied warranty of specification.” The ASBCA returned the appeal to the parties for a determination of the amount of the contractor’s damages consistent with the ASBCA’s decision.
If the owner-provided plans and specifications for a project are defective, the owner (and ultimately, the designer) will be on the hook for any additional costs and time impacts to the contractor resulting from the defective design. While the contractor has many hurdles to clear to prove a defective design claim, the KiewitPhelps decision shows it can be done.
For more on these topics, follow me on LinkedIn.