Cade Laverty – July 8, 2013
Can design-builders rely on owner supplied specifications if the design-builder also has the requirement to conduct its own independent investigation on those same specified conditions; NOPE, says the Court of Federal Claims.
In, Metcalf Constr. Co., Inc. v. United States, 107 Fed. Cl. 786 (Fed. Cl. 2012), a design-builder, Metcalf Construction Company (“Contractor”), sued the Navy to recover for alleged differing site conditions, among other claims, in connection with a Navy residential housing contract in Hawaii. The Navy asserted a counterclaim for liquidated damages based on the Contractor’s alleged failure to complete work in a timely manner. Following a bench trial, the Court of Federal Claims ruled that contractor was entitled to two extensions due to Navy’s breaches of contract. The parties then filed post-trial briefs on the issue of damages.
The parties’ contract required the Contractor to make an independent investigation of soil conditions. The Navy represented in the specifications, allegedly for bidding purposes only, that the soil conditions were slightly expansive. However, once excavation started and building commenced, the soils were found to be moderate to highly expansive. This greatly increased the cost of construction for the design-builder.
The Court found that the difference between the represented and actual soil conditions was not a differing site condition because the specifications also required the Contractor to perform its own soil test and expansive soils were common in the building locale. The case is notable because previous case law established that a design-builder can rely on the owner’s specifications, even if the contractor is to perform its own independent investigation. Typically, there are four requirements to recover on a differing site condition claim: 1) the government must make a representation with respect to the condition; 2) the actual conditions were not reasonably foreseeable; 3) the design-builder was entitled to rely on the representation; and 4) there is an actual changed condition. The Court reasoned that the requirement to conduct an independent investigation negated the representation and reliance factors of a differing site condition claim, and the design-builder was not entitled to recover for its differing site condition claim based upon the soil conditions.
With its holding, the Court seemingly disregarded established case law and greatly expanded the potential risk and warranty obligations imposed upon design-builders. The Court essentially found that risk that any soil condition or other differing site condition encountered is to be completely shouldered by the design-builder. Therefore, design-builders, and all other contractors working on federal projects, should be cautious when they place reliance upon owner supplied specifications. While classic Spearin Doctrine states that a contractor can rely on owner supplied plans and specifications, this case seems to state that a specification requiring a contractor to conduct its own independent investigation negates its ability to rely on the owner specifications. This case is currently under appeal and if the appellate court understands one of the preeminent fundamentals of construction law, it will likely be overturned.