When choosing a project delivery method for a water or wastewater project, it is imperative for the owner to understand the concept of the Spearin Doctrine and which party is accountable for the project design.
In 1918, the federal government hired a general contractor (Spearin) to build a dry dock in the Brooklyn Navy Yard. The project included the relocation of an existing sewer. The government provided the plans and specifications for the relocation of the sewer sections. A year after the sewer relocation, an undisclosed dam in a connecting sewer failed and flooded the dry-dock area. The government attempted to hold Spearin accountable for the damages and to force Spearin to repair the damages at the contractor’s expense. Spearin disagreed. In a subsequent lawsuit, the court ruled that the owner created an implied warranty; if the general contractor complied with the owner-provided plans and specifications, then the relocated sewer would have been adequate. The Supreme Court wrote:
“Where one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to additional compensation, because unforeseen difficulties are encountered. Thus one who undertakes to erect a structure upon a particular site, assumes ordinarily the risk of subsidence of the soil. But 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. This responsibility of the owner is not overcome by the usual clauses requiring builders to visit the site, to check the plans, and to inform themselves of the requirements of the work…the contractor should be relieved, if he was misled by erroneous statements in the specifications.”
In the 100-plus years since the original Spearin court case, numerous federal and state courts have refined the Spearin Doctrine to include two specific owner-implied warranties. The first implied warranty is that the plans and specifications are accurate, and the second implied warranty is that the plans and specifications are suitable for their intended purpose.
How does the Spearin Doctrine affect an owner today? To answer the question, let’s first consider the traditional design-bid-build project delivery method. In its simplest form, the owner holds two independent contracts — one with a design professional to design the project and a second contract with a general contractor to build the project. The general contractor’s warranty in an industry-standard design-bid-build contract states “that all work will be in accordance with the contract documents and will not be defective.” Note that the general contractor does not warrant that the completed work meets the owner’s intended purpose, only that the contractor built the project according to the plans and specifications.
So, what about the owner’s design professional contract? This is where we introduce the concept of standard of care. Under most state laws, design professionals are not expected to produce a perfect design, nor do they warrant the design to be error free. To do so in most cases would be uninsurable. Instead, design professionals must adhere to a standard of care “that all design professional services performed to execute the work shall be the care and skill ordinarily used by members of the design profession practicing under similar conditions at the same time and same locality of the project.” Simply put, the design professional does not warrant the adequacy of the design, but under the Spearin Doctrine, the owner warrants the adequacy of the plans and specifications to the contractor. If the completed project does not meet the owner’s intended purpose, the owner is often left in a complicated finger-pointing exercise between the design professional and the general contractor. If the owner can show that the construction work is defective, i.e., not in accordance with the plans and specifications, then the general contractor is responsible for correcting the work at his expense. However, if the design is defective, the owner must provide the general contractor an equitable adjustment in the contract cost and/or contract time for any corrective work.
How does Spearin play out in collaborative-delivery methods as compared to design-bid-build methods? Let’s start by addressing construction management at-risk (CMAR). In the CMAR delivery method, the owner still holds two separate contracts — one with a design professional to design the project and a second contract with a construction manager (CM) to build the project. Unlike the general contractor who is hired after the design is complete, the best practice is to hire the CM early in the design process and to involve the CM in the development of the final design. The CM routinely participates in design reviews, biddability reviews, and constructability reviews as the design progresses. This collaborative approach can certainly reduce design problems, schedule concerns, and budget issues. However, it is important to note that the CM is not the designer of record, and a constructability review is not the same as a peer review. This concept was demonstrated in the recent court case of Coghlin Electrical Contractors, Inc. v. Gilbane Building Company. Supreme Judicial Court of Massachusetts (2015). Gilbane was the construction manager on a public hospital project, and Coghlin Electrical was a Gilbane subcontractor. Coghlin claimed their 49 percent increase in labor costs for the electrical work were largely due to errors and omissions in the owner-furnished design. Gilbane pursued recovery from the owner for the losses incurred by Coghlin. The owner argued that Gilbane’s involvement during the design eliminated their ability to benefit from an implied warranty of the design. The trial court agreed with the owner’s position, but the Massachusetts Supreme Judicial Court reversed the lower court’s decision, holding that the owner continues to impliedly warrant the design under CMAR. The bottom line is in both design-bid-build and CMAR project delivery methods, the owner warrants the accuracy and sufficiency of the plans and specifications.
So, who warrants the accuracy and sufficiency of the plans and specifications in a design-build project? The answer is “it depends,” and this is largely driven by the type of design-build contract selected by the owner. Unlike design-bid-build and CMAR projects, the owner holds only one contract on a design-build project. This inevitably creates fewer conflicts for the owner. The procurement of fixed-price design-build and progressive design-build contracts both begin with an owner request for proposal (RFP). In developing the RFP, the owner will define their project essentials using either performance-based requirements or prescriptive requirements (design specifications). At this point, it is critical to note that the Spearin Doctrine applies to specifications, not to performance requirements, and that distinction determines which party warrants the adequacy of the design. Performance requirements are stated as expected outcomes, or an accepted performance standard or minimum result. As a best practice, progressive design-build contracts express the owner’s project needs using performance requirements. This provides the design-builder the maximum flexibility in meeting the owner’s objectives of cost, schedule, and desired project outcome.
By comparison, prescriptive requirements dictate exactly how a system or project will be built. Fixed-price design-build contracts are nearly always based on prescriptive requirements in the RFP. Otherwise, the design-builder would be unable to price the work in the absence of a complete design. The trade-off is that when prescriptive requirements are included in the RFP, the owner assumes the risk for the accuracy of the requirements. So as a general rule, in progressive design-build projects, the design-builder warrants the adequacy of the design; in fixed-price design-build projects, the owner retains the implied warranty under the Spearin Doctrine.
Owners who understand these concepts can make timely and informed decisions concerning contractual risk and the selection of the appropriate delivery method for their water or wastewater projects.