Design Specifications v. Performance Specifications: Why Control Matters

 In Construction Law

Construction contracts necessarily involve large amounts of time, money, and work, making the allocation of risk in the contract important to those investing their efforts into the project. There are many aspects to consider when drafting or entering into a construction contract, but understanding design specifications, performance specifications and their legal implications, will better enable you to draft a contract that suits your needs and avoid entering into an unfavorable contract.

“Design specifications” describe in precise detail the materials to use and methods to employ when performing the work on a construction project, and the contractor must not deviate from the provided specifications. In contrast, “performance specifications” describe the final objective, and the contractor is expected to use his expertise to select the materials to use and methods to employ to achieve the stated objective.

Under the Spearin Doctrine, design specifications carry an implied warranty that if the provided specifications are followed, the outcome should be free from defects. The owner dictates what the contractor does and how the contractor does it, so the risk of the final product being unacceptable or defective falls back on the owner. In contrast, performance specifications do not carry this implied warranty, because the decisions that ultimately determine the success of the project (i.e. the materials and methods used) are left to the contractor’s discretion and control.

The evolution of the construction industry has brought uncertainty to the applicability of the implied warranty under Spearin. The construction industry traditionally functions through a three-step process known as “design-bid-build” project delivery, where (1) the specifications for contractors to bid on are designed; (2) contractors submit bids to the owner, based on the specifications provided; and (3) the chosen contractor completes the project according to the stated specifications. Today, the construction industry is increasingly using a newer process, known as “design-build” project delivery, which consolidates the traditional three-step delivery into one contract, with the contractor or “design builder” as the primary contact for all services involved in the project. This difference in the process causes some individuals to assume that the risk of the final product being unacceptable or defective necessarily falls back on the contractor in a “design-build” project, but that is not always the case.

In modern construction contracts, it is typical to see hybrid specifications that include both design and performance features, which make it difficult to determine how the specification should or will be classified by a court of law. Some courts have held that “brand name or equal substitute” specifications are performance specifications that shift the risk onto the contractor, even if the contractor elects to use the brand provided in the specification. Other courts have held that the implied warranty under Spearin cannot apply to incomplete specifications, concluding that incompleteness necessarily requires some discretion and control by the contractor.

However, certain factors may indicate that the Spearin implied warranty defense is more likely to be applicable to relieve the contractor of liability, and put the risk back on the owner. Some factors speak specifically to the owner or contractor’s representations and level of involvement in the project, such as—superior knowledge or expertise of the construction site and conditions by the owner, complete design by the owner, strict control over and constant involvement in the construction process by the owner, and disputes in which the contractor involved has not advertised or represented any specific level of experience in the work to be completed under the contract. Other factors speak specifically to the formation and contents of the contract, such as—allowing only a short period of time for contractors to review and evaluate the provided specifications, and contracts without provisions that require actual design of any involved component by the contractor.

Ultimately, all uncertainties aside, whichever process you are working with—“design-bid-build” or “design-build” project delivery—the availability of the Spearin implied warranty defense rests primarily on one crucial determination: who has more control over the certain specification—the owner or the contractor.

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