Is there a doctrine in the house? (Part 2)

rmassey

The Spearin Doctrine: Public owners do not shed all design risk by contracting for design-build if there are specified criteria upon which the design-builder is to rely.

On government projects you may sometimes hear a lawyer or contractor talk about implied warranties and “the Spearin Doctrine,” and wonder what the heck they are talking about. The name comes from a contractor named George B. Spearin who, in 1905, contracted with the U.S. government to build a dry dock at the Brooklyn Navy Yard.

Unbeknown to Mr. Spearin was a concealed structure on the site which caused internal pressure to build inside a new sewer line, breaking the line and flooding the construction site after a heavy rainstorm. Spearin had visited the site prior to bidding, but was not told by the government that the site was prone to flooding, nor about the hidden structure. Mr. Spearin was upset over the delays and damage, and he wrote a stern letter to the Navy Secretary.

“We know now beyond a shadow of a doubt that this sewer is insufficient in size and strength for the work that it must do, and that it will be a constant menace to my plant, to the dry dock itself, and to the government’s surrounding property,” he wrote. “I am therefore unwilling to resume work until this menace has been removed.”

The estimated cost of restoring the sewer was only $3,875, but the government insisted that the responsibility for remedying existing conditions rested solely with the contractor. After 15 months of investigation “and fruitless correspondence,” the Navy Secretary terminated Mr. Spearin’s contract and hired other contractors to finish the work under “radically changed” plans, to remove all risk of the sewer line breaking again. Spearin sued the government for $250,767, which included the unpaid contract balance plus his lost profits. The government rejected the claim and offered just $7,908. The Court of Claims awarded Mr. Spearin $141,181, including lost profits and both parties appealed to the U.S. Supreme Court.

The Spearin Doctrine and the implied warranty. In its landmark decision, the U.S. Supreme Court held in December 1918 (more than 12 years after the sewer line broke) that “if the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications.”

Explaining that the government’s actions constituted an implied warranty, the Court continued, “[T]he insertion of the articles prescribing the character, dimensions, and location of the sewer imported a warranty that if the specifications were complied with, the sewer would be adequate. This implied warranty is not overcome by the general clauses requiring the contractor to examine the site, to check up the plans, and to assume responsibility for the work until completion and acceptance.”

Today, lawyers call this the Spearin Doctrine which – when a governmental entity includes detailed specifications in a contract, it warrants that:

  1. If the contractor follows those specifications, the resultant product will not be defective or unsafe.
  2. If the resultant product proves defective or unsafe, the contractor will not be liable for the consequences.

The doctrine and its application. Despite its age, the doctrine is still quite relevant today. That old 1918 Supreme Court case has been cited more than 2,900 times by federal and state courts in construction cases dealing with defective plans or specifications. In fact, the Spearin Doctrine was adopted as law in Missouri just last year. The government’s implied warranty is that the plans and specifications are “reasonably accurate,” free from significant defects, though not perfect. Plans and specifications are considered “defective” if they are “so faulty as to prevent, or unreasonably delay, completion of the contract performance.” When the implied warranty is breached, the contractor is entitled to recover all of the costs proximately flowing from the breach. Compensable costs may include delays that result from dealing with the defective design.

Duty to inquire. Despite the government’s warranty, a bidder with knowledge of design defects cannot remain silent, hoping to make a claim under the Spearin Doctrine. The courts have held that the implied warranty does not eliminate the contractor’s duty to investigate or inquire about a “patent” (or obvious) ambiguity, inconsistency, or mistake when the contractor recognized or should have recognized an error in the specifications or drawings. This duty requires contractors to clarify patent ambiguities, but does not require them “to ferret out hidden or subtle errors in the specifications,” one court stated. “Contractors are not expected to exercise clairvoyance in spotting hidden ambiguities in the bid documents, and they are protected if they innocently construe in their own favor an ambiguity equally susceptible to another construction,” that court said.

Performance specifications. Courts often distinguish between design specifications and performance specifications. The distinction is important because the Spearin implied warranty doctrine does not extend to performance specifications which “merely set forth an objective without specifying the method of obtaining the objective.” If the defect is in design specifications, however, the contractor must fully comply with – and follow – the design specifications, although faulty, to receive the protections of the Spearin implied warranty.

In today’s era of design-build and government projects where the public owner provides “bridging documents,” consisting of preliminary outline specifications and partial design, the Spearin warranty would still apply to the extent that the design-builder is required to use faulty information, even if only preliminary. For this reason, public owners need to understand that they do not completely shed all design risk by contracting for design-build if there are specified design criteria upon which the design-builder is to rely.

So, the next time you hear someone mention the Spearin Doctrine, you can tell them the sad story of George Spearin, and how it took him 12 years of litigation, all the way to the U.S. Supreme Court, to get his money!

William Quatman, Esq., is general counsel and senior vice president at Burns & McDonnell Engineering Co. He can be reached at bquatman@burnsmcd.com.

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