By: Dirk Haire Partner, Adam Hamilton Associate, and Dana Molinari Associate, Fox Rothschild LLP.
A common misconception by many government officials is that a design-builder is always responsible for every design error or omission on a design-build project. This article examines the actual liability standard applied by the courts and boards of contract appeals when a design defect arises on a federal design-build project.
Background: Design-Build Contracts and the Spearin Doctrine
Design-build contracts combine the design and construction elements of a construction project into one contract. Design-build contracts often include two types of specifications: design and performance. Design specifications may set forth various parameters, such as precise measurements, tolerances, and materials. In doing so, the specifications create a fixed “roadmap” governing a contractor’s performance of the project. Performance specifications, on the other hand, set forth “operational characteristics” to achieve a particular objective or standard, but generally leave the details to the contractor.
When the government provides a contractor with design specifications, typically as a portion of the “bridging documents” included in the solicitation, it impliedly warrants that those specifications are free of defects and, if properly followed, will facilitate a successful project build. The concept of implied warranty is best known as the Spearin doctrine, which developed from the seminal US Supreme Court case United States v. Spearin, 248 U.S. 132 (1918). Under the Spearin doctrine, a contractor will not be held liable for defects in the government-provided specifications the contractor was required to follow. As a result, despite the nature of a design-build contract, the government remains responsible for the design specifications it provides to the bidding contractors in the design-build solicitation. This fact is not always understood by government contracting officials. Since most design-build contracts are a combination of both design and performance specifications, determining the type of specification that caused the design defect is a paramount consideration in determining design liability.
Application of the Spearin Doctrine to Design-Build Contracts
Contractors regularly exercise broad discretion with respect to the specifications in design-build contracts, meaning the Spearin doctrine will only apply if the government substantially participates in developing specifications in a way that takes discretion away from the contractor. As such, courts and boards will typically deny recovery in cases where the contractor “voluntarily” and substantially participated in drafting design specifications.
The sections below discuss cases of contractor success in recovering against the government using defective design theories of recovery, as well as an examples of cases where a contractors were unsuccessful.
A. Cases Involving Successful Defective Design and Specification Claims
Metcalf Const. Co. v. United States, 742 F.3d 984, 996 (Fed. Cir. 2014).
In Metcalf, the government provided erroneous soils reports which caused the contractor to incur over $4.8 million in soil excavation costs. Specifically, the government issued a revised request for proposals which provided a “soil reconnaissance report,” stating it was “for preliminary information only.” The report turned out to be wrong.
At the trial court level, the Court of Federal Claims (COFC) held that the government was not liable for the removal of expansion soil because its investigative soil report was for “preliminary information only.” On appeal, the Federal Circuit disagreed, holding that statement merely signaled “that the information might change,” not that the contractor would bear the risk if the “preliminary information turn[ed] out to be inaccurate.” Furthermore, none of the provisions requiring the contractor to check the work site as part of the design-build contract “expressly or implicitly” warned that the contractor could not rely on the government’s soil report or that the contractor bore the “risk of error” contained in the government’s soil report. Simply put, under Spearin, the government remained liable for its own design error under this design-build contract.
Drennon Constr. & Consulting, Inc., 13 B.C.A. (CCH) ¶ 35213 (Jan. 4, 2013)
In Drennon, the Civilian Board of Contract Appeals (CBCA) decided in favor of a contractor who claimed the government’s flawed geotechnical information caused it to incur unexpected costs when a hillside collapsed. The government argued that because of the design-build nature of the procurement, the contractor should be liable for the hill collapse that occurred during excavation. The CBCA disagreed, noting that the contractor’s design had to fall within the confines of its own engineering firm’s design, not the government-provided geotechnical information.
Drennon is an example of how an agency’s involvement in project design during the solicitation stage of a contract can be the basis of a Spearin defective design claim. Drennon also exposes the common misconception that the government bears no liability simply because the federal contract is design-build. Indeed, a contractor may prevail on a claim arising from a design-build contract if it can demonstrate that it incurred damages caused by defects in specifications provided by the government.
Appeals of — CDM Constructors, Inc., ASBCA No. 60454, 18-1 B.C.A. (CCH) ¶ 37190 (Oct. 24, 2018).
The contractor in CDM Constructors successfully argued that it was entitled to an equitable adjustment for costs it incurred as a result of defective specifications contained in the Army Corps of Engineers’ (“Corps”) concept drawings in a design-build contract. The Board concluded that, “by providing the concept drawings, the Corps warranted that satisfactory performance would result from adherence to those drawings.” Therefore, the Corps “breached that warranty” when it later rejected the contractor’s design that followed those concept drawings. The Corps argued that the drawings provided were not specifications because the contract did not require the contractor to comply with them. The Board rejected this argument, holding that these “concept drawings” were indeed specifications and the contractor had to rely on them in order to price its proposal.
The Corps further argued that the contractor’s reliance on the concept drawings was unreasonable because the drawings were inconsistent with directives in the contract. The Corps contended that the directives took precedence over concept drawings. The board, however, found the concept drawings to be consistent with the contractual requirements. Therefore, “[b]ecause the concept drawings were not trumped by inconsistent [contractual requirements], those drawings created an implied warranty that adherence to the drawings would result in satisfactory contract performance, which the Corps breached.”
B. Cases Involving Unsuccessful Defective Design Claims
In Re Lovering-Johnson, Inc., ASBCA No. 53902, 05-2 B.C.A. (CCH) ¶ 33126 (Nov. 17, 2005).
In Re Lovering-Johnson involved government-drafted preliminary drawings. The drawings at issue were of drainage piping that included the pipe sizes and language that “expressly indicated” that design concepts and information must be verified before development of final design by the contractor. The contractor failed to verify the government’s design concepts, which turned out to be defective. The CBCA rejected the contractor’s claim for failing to follow the contract requirements.
As demonstrated in In Re Lovering-Johnson, a Spearin claim is not viable where a contractor has assumed responsibility to develop aspects of the preliminary drawings and specifications for design elements.
Conclusion
The government will often try to avoid liability in design-build contracts by assigning much of the responsibility for concept design to the contractor. However, design-build contractors do not always bear the risk for design errors. When the government plays a substantial role in developing initial designs during the solicitation process, design-build contractors assume less risk of design error liability and have a greater chance to succeed in recovering additional costs associated with defective government-provided specifications.
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