Contractor's Reliance on Plans and Specifications

posted by Michael Fortney  |  Dec 31, 2009 1:09 PM in Construction Law

The Ohio Supreme Court recently limited a contractor’s ability to rely on the accuracy of plans and specifications provided by an owner.  In Dugan & Meyers Construction v. Ohio Dept. of Administrative Services, the Court significantly limited the scope of the implied warranty of plans and specifications created by the Spearin doctrine.  The Court also ruled that a contractor waives its claim for a time extension by not following the contract’s written notice procedures, despite the owner’s knowledge of the facts causing the delays.

Under the Spearin doctrine, established in 1918 by the United States Supreme Court, when a 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.”  Therefore, some courts have ruled that there is an “implied warranty” by the owner that a project’s plans and specifications are accurate and complete. 

In the Dugan & Meyers case, Dugan & Meyers was the lead contractor in a $20.9 million contract for the construction of several buildings at the college of business for The Ohio State University.  Construction progressed on schedule up to the interior phase of construction, where numerous errors, inaccuracies, and conflicts in the design documents caused the project to fall behind schedule.  

The designs were so poor that Dugan & Meyers issued over 700 requests for information, many of which produced no response.  In addition, the architect  issued over 250 field work orders and 85 architectural supplemental instructions.  When attempts to bring the project back on schedule failed, the owner terminated Dugan & Meyers, hired a replacement contractor, and assessed liquidated damages.  

Dugan & Meyers sued the owner for $3.4 million, damages resulting from the cost of work performed and for the mitigation of liquidated damages.  Dugan & Meyers argued that it is entitled to damages if the owner breached the implied warranty under the Spearin doctrine and that the owner should have extended the time for completion of the project rather than terminating the contract.

The Ohio Supreme Court rejected Dugan & Meyers claims.  The Court disregarded the defective plans and specifications and relied on two contract provisions – the no damage for delay clause and the notice requirement for contract extensions.  

The Court characterized Dugan & Meyers’ claims as flowing from the delay in completing the project due to plan changes rather than job-site conditions.  In doing so, the Court limited the Spearin doctrine to the accuracy of the owner’s affirmative statements regarding job-site conditions.  Because Dugan & Meyers’ breach claims did not involve differing job-site conditions, the Spearin doctrine was deemed inapplicable by the Court.

The Court also upheld the “no damage for delay” clause because the contract was executed prior to the enactment of Ohio’s Fairness in Contracting Law, making such provisions void as against public policy when the delay is caused by the owner.  The Ohio Supreme Court reasoned that because the contract provided that an extension of time was the sole remedy for delays experienced by the contractor, Dugan & Meyers had a means to address its delay issues.  

However, since Dugan & Meyers failed to comply with the notice requirement in the contract by submitting written extension requests, it waived the contractual remedy of time extensions.  The Court further ruled that Dugan & Meyers could not rely upon the university’s knowledge of the delay issues to excuse the failure to submit written extension requests. 

In addition to the limits to the Spearin doctrine, project owners will use the Dugan & Meyers decision to enforce strict notice provisions for claims and time extensions.  To guard against delay damage claims by an owner and preserve claims for extra costs, contractor’s must be aware of their  available contractual remedies and must comply with contractual notice provisions, regardless of an owner’s knowledge of the project status.  Contractors should fully document the damages it incurs as a result of delays, keeping records of job-site activities, direct costs and overhead costs experienced as a result of extended project work. 

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