• Spearin & Design-Build Contracts
  • September 26, 2013 | Author: Steven J. Stuart
  • Law Firm: Smith, Currie & Hancock LLP - Atlanta Office
  • How does the Spearin doctrine apply in a design-build context? A design-build contract can transfer the risk of faulty design from the owner to the design-builder. To the extent that the contractor supplies the plans and specifications, it, not the owner, impliedly warrants their adequacy and sufficiency. Thus, an owner may assert that it is shielded from any Spearin liability when the design results in cost overruns or does not work.

    Recently, the Civilian Board of Contract Appeals rejected this very argument in Drennon Constr. & Consulting, Inc., v. Department of the Interior, CBCA No. 2391, 13-1 BCA ¶ 35,213. The decision highlights that even within the context of a design-build project, the contractor may recover based on the Spearin doctrine’s implied warranty of plans and specifications and the owner’s control over elements of the design

    Factual Background
    The Department of the Interior’s Bureau of Land Management (BLM) contracted with an engineering firm (USKH) to provide project documents, drawings, and specifications for a road widening project. USKH’s design included a twenty-foot wide road between a river and a hill with a three-foot shoulder. The hillside would be excavated to widen the road, and an “approximate” nine-foot gabion (a rock-filled basket or cage) wall would be constructed to restrain the hillside from falling onto the road. As the design-builder of the gabion wall, the contractor was responsible for the survey, design, layout, and construction of the wall. USKH estimated that 420 cubic yards of gabions would be needed.

    USKH also provided a geotechnical report and indicated that the hill, which the contractor would need to excavate, was an esker - a ridge of assorted stratified sand and gravel. Seven of the eight soil borings taken from under the existing road contained silt, and the percentage of fines in the borings ranged from 5.1% to 10.7%. The report indicated that the esker was composed of similar soils. Though, the report also “hedged” by describing eskers as non-cohesive. The report indicated that sloughing may occur if the esker were subjected to equipment vibrations. However, the report recommended a hoe-pack for compaction (which creates a significant amount of vibration). The report recommended site preparation and construction be done in “short sections,” although that term was not defined.

    USKH used a digital terrain model based on photogrammetric mapping provided by BLM. USKH notified BLM that the mapping was inaccurate at certain points, but due to limited funding, BLM opted to include what the board termed as “weasel words” in the solicitation to warn bidders of possible inaccuracies in the model. The solicitation also attempted to shift risk to the contractor by requiring a site survey prior to commencing any work.

    Drennon reviewed and relied on the project documents to submit its bid. However, due to snow cover, no site visit could be performed prior to bidding. Based on the geotechnical report, Drennon understood that the hill would stand if placed in a steepened condition. Drennon’s president testified that although he saw the word esker when bidding, he did not know the definition of the term.

    Following award, Drennon surveyed the site and found that the road could not be built based on the contract drawings. A fifteen-foot gabion wall would be required rather than the “approximate” ninefoot wall described in the solicitation, necessitating significant excavation to shift the road into the hillside. Due to the site conditions, USKH approved Drennon’s fifteen-foot wall design. Drennon incurred significant additional costs due to the required larger wall.

    Drennon also incurred significant costs due to the soil sliding down the hill during excavation. In response, USKH argued that Drennon failed to follow the recommendation to work in short sections. Drennon continued with its efforts but eventually stopped due to safety concerns. USKH issued a stop work order, and Drennon sent a letter to BLM outlining its defective specifications and Type I differing site conditions claims.

    Drennon offered three alternate proposals as solutions, and BLM was “shocked” at the prices - all of which exceeded BLM’s project budget. BLM opted to scale-back the project from Drennon’s approved 778 cubic yard gabion wall plan to 108 cubic yards of gabions. Drennon submitted its gabion claim (consisting of the defective specifications and differing site condition claims) and suspension of work claim to the contracting officer. Contending that Drennon was the design-builder - ultimately responsible for its means and methods of performing work as well as the gabion wall design - the contracting officer denied the claims.

    The Board’s Analysis
    On appeal, the CBCA agreed with Drennon and concluded that while Drennon was the design-build contractor for the gabion wall, Drennon’s design had to fit within the confines of BLM’s entire project design, which was flawed. The board noted that Spearin liability attaches to design specifications and not performance specifications and affirmed that general disclaimers are insufficient to shift this implied warranty from the owner to the contractor.

    In the board’s opinion, the statement that a contractor site survey would be required “alerted bidders to the possibility that the design might have required a bit of tweaking, but cannot reasonably be read to impose on the contractor an obligation to construct the project in a manner significantly different from that envisioned in the contract.” The board also stated that the word “approximate” implies a reasonably accurate interpretation rather than “a mere estimate for which the Government need accept no responsibility.” The board found no evidence indicating that Drennon should have anticipated the project’s overall design defects.

    The defective design was compounded by the site conditions, and Drennon demonstrated the four elements of a differing site condition claim. First, the geotechnical report’s boring data, combined with the representation that such soils would be found in the hill, amounted to a site condition representation. Second, the actual site conditions were not foreseeable as snow had prevented a pre-bid site visit, and Drennon was not expected to understand the impact of the term “esker.” Third, the board found that Drennon relied upon the geotechnical report in submitting its bid. Fourth, Drennon demonstrated that the conditions materially differed from those represented. Notably, the geotechnical soil borings used small diameter sampling - which overstated the fines content and failed to account for larger soil particles. In reality, fines content ranged from 0.5% to 3.1% rather than 5.1% to 10.7%. The board found that even if Drennon had constructed the gabions in short sections - of 20 feet as argued by BLM’s expert - linking the gabions required more than 20 feet rendering BLM’s recommendation impossible.

    The board also rejected BLM’s argument that Drennon’s lack of written notice under the differing site conditions clause barred the claim due to BLM’s general awareness of the encountered conditions. Finally, the board found that any suspension of work due to defective specifications was per se unreasonable. Thus, Drennon was entitled to relief on both its gabion claim and suspension of work claim.

    Points to Remember
    The Drennon decision demonstrates that owner involvement during the solicitation phase for a “design-build” project may trigger Spearin liability for the owner. Specifically, the decision emphasizes that who had design control over a particular project feature is vital to resolving such liability. In Drennon, the contractor’s design fell within a subset of the owner’s overall project design. As the owner’s overall project design was flawed, it followed that Drennon’s wall design was also inherently flawed - through no fault of Drennon.

    Beyond recognizing that this application of the risk for a faulty design, parties to a design-build contract should also understand the impact of wellcrafted contractual disclaimers. General disclaimers, such as these in Drennon that alerted bidders of potential design inaccuracies, may not relieve a party of Spearin liability. In other circumstances however, well-drafted site inspection clauses and contract language specifically disclaiming contested information may help a party avoid liability under Spearin. The design-build contract provides an avenue for either party to shoulder Spearin liability. Without a carefully worded contract, a party may give up design control while remaining liable for design defects.