Construction Contracts- some things to consider
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 and performance specifications and their legal implications will better enable you to draft a contract that suit your needs, and avoid entering into unfavorable construction contracts.
“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 cannot deviate from the provided specifications. “Performance specifications” simply 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 acceptable and 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 on the owner. 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 in the contractor’s 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 specifications. Today, the construction industry is increasingly using a newer process known as “design-build” project delivery that consolidates the traditional three-step delivery into one contract, with one contact—the contractor, or “design builder”—for all services involved in the project, causing some individuals to assume that the risk always falls on the contractor.
It is also typical to see hybrid specifications that include both design and performance features in today’s construction contracts, making it harder to determine how the specification should or will be classified by a court. 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. Additionally, some 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, in the article, Can the Spearin Doctrine Survive in a Design-Build World: Who Bears the Responsibility for Hybrid Specifications?, the authors note six factors that indicate that the Spearin implied warranty defense will most likely be applicable to relieve the contractor of liability: (1) complete design by owner, (2) superior knowledge and/or expertise by the owner of the site and other conditions, (3) a short period of time during which contractors can review and evaluate specifications, (4) a dispute that involves a contractor without represented/advertised experience, (5) no provisions in the contract requiring actual design of the involved component by the contractor, and (6) rigid control of and involvement by the owner in the construction process. Harold E. Hammersmith & Edward B. Lozowicki, Can the Spearin Doctrine Survive in a Design-Build World: Who Bears the Responsibility for Hybrid Specifications?, 2 J. Am. Col. Constr. Law. 123, supra note 7, at 124-128 (2008).
Ultimately, whether you are dealing with “design-bid-build” or “design-build” project delivery, the availability of the implied warranty under Spearin still rests primarily on one crucial determination: who has more control over the certain specification—the owner or the contractor.
Jillian is a licensed attorney in North Carolina and South Carolina and focuses her practice on construction litigation and general counsel work.