Posted on 06 May 2016.
Two Cases in 2015 to Note
By Robert K. Cox
reprinted with permission from Williams Mullen Construction Industry News; Spring 2016 issue
The “Spearin Doctrine” and the implied warranty of project design, contract terms disclaiming the adequacy of the project design and clauses calling for the contractor to review the design for errors and omissions; the common thread is who will be liable for the costs and delay from defective design documents?
If you are an owner, engineer or contractor, you should take note of two rulings in 2015 on the issue of liability for project design: one, a federal court decision from Virginia finding the project owner’s contract terms were insufficient to disclaim the owner’s liability for defective design documents; and the second case, a Pennsylvania state court decision that the project architect could be liable to a project subcontractor for negligently including faulty information in the architect’s design documents.
THE PROJECT OWNER’S CONTRACT TERMS DID NOT DISCLAIM THE OWNER’S LIABILITY FOR FAULTY DESIGN DOCUMENTS
In Costello Construction Co. of Maryland, Inc. v. City of Charlottesville, 97 F. Supp. 3d 819 (W.D. Va. 2015), the defendant project owner, the City of Charlottesville, had contracted the plaintiff Costello Construction Co. to construct a new fire station for the City. Upon substantially completing construction, the contractor Costello filed a complaint in the U.S. District Court for the Western District of Virginia that included a claim for damages against the City for allegedly providing faulty plans and specifications to bid and construct the fire station. The contractor claimed the City, as the supplier of the design documents, impliedly warranted the adequacy of those design documents under the Spearin Doctrine; and the City breached that warranty by issuing design documents with purported errors and omissions.
The City defended with a motion to dismiss the contractor’s complaint, arguing that the terms of the parties’ contract provided that the construction documents were “complete and sufficient for bidding, negotiating, costing, pricing and construction of the Project,” and that the contractor had agreed to those terms. The City argued further that the contractor did not comply with the contract terms imposing on the contractor a “… continuing duty to review and evaluate the Construction Documents,” and to notify the City of problems the contractor discovered in the construction documents.
In its ruling, the federal court noted that a Virginia state court had already ruled that a public works owner could disclaim the implied warranty of the Spearin Doctrine with express contract language. The contract language addressed in that state court case required the contractor to “verify all … details shown on the drawings” and to “notify [the engineer] of all errors, omissions, conflicts, and discrepancies.”
In the Costello case, however, the federal court ruled the contract language did not amount to an express warranty by which the contractor affirmatively accepted the burden of any defects in the City’s design documents. Consequently, the federal court rejected the City’s reliance on its contract language as a defense. The litigation ultimately settled.
Whether the federal court came to the correct conclusion on the parties’ contract terms can be hotly debated. For this article, the significance is that, while a public works owner can disclaim the implied warranty of design adequacy under the Spearin Doctrine, the disclaiming owner must do so with express contract language that leaves no doubt the risk of design defects is shifted to the construction contractor.
PENNSYLVANIA STATE COURT FINDS PROJECT DESIGN CAN BE CONSTRUED AS REPRESENTATION BY ARCHITECT THAT PLANS AND SPECIFICATIONS, IF FOLLOWED, WILL RESULT IN A SUCCESSFUL PROJECT
Under current Pennsylvania law, an architect can be liable to a contractor or subcontractor for negligent misrepresentation claims when it is proven that the architect included faulty information in the project’s design documents. This liability is from the 2005 Pennsylvania Supreme Court decision in Bilt-Rite Contractors, Inc. v. The Architectural Studio, 581 Pa. 454, 866 A.2d 270 (2005).
In 2015, an intermediate Pennsylvania appellate court addressed whether there must be an explicit negligent misrepresentation of a specific fact, or whether the design itself is a representation that, if followed, the project could be constructed. In Gongloff Contracting, L.L.C. v. L. Robert Kimball & Associates, Architects and Engineers, Inc., 119 A.3d 1070 (Pa. Super. 2015), the plaintiff structural steel erector, a project subcontractor, sued the defendant architect alleging that the original roof design for the convocation center was inadequate to bear construction and in-situ loads, resulting in significant costs to the steel erector as it attempted to comply with the architect’s design. Ultimately, the architect acknowledged that the as-designed, long span trusses for the roof system were inadequate to accommodate construction loads and changes to the design were issued during construction.
The lower trial court, the initial forum, dismissed the steel erector’s claims against the architect, ruling the steel erector had failed to demonstrate that the architect had expressly or impliedly represented that the structure could safely sustain all required construction and in-situ loads. The intermediate appellate court reversed the ruling. After examining Pennsylvania law, the appellate court wrote:
“The design itself can be construed as a representation by the architect that the plans and specifications, if followed, will result in a successful project. If, however, construction in accordance with the design is either impossible or increases the contractor’s costs beyond those anticipated because of defects or false information included in the design, the specter of liability is raised against the design professional.” 119 A.3d at 1078.
The appellate court cautioned, however, that in order to avoid dismissal, it was not enough to simply claim negligent misrepresentation by faulty design; the steel erector still had to allege facts of some specificity substantiating its claim of faulty design. The court found the steel erector had made sufficient factual allegations and reversed the lower court ruling. The cost of defective design documents can be high, and the delay in correcting them can be lengthy. Consequently, liability for project design errors and omissions will continue to evolve as those who now bear the risk seek to shift that liability, and those who bear the cost and delay seek to assure their recovery.