WHAT TO DO WHEN THE PLANS AND SPECIFICATIONS ARE DEFICIENT?
By: Brian S. Case, Esq.
As set forth in Section III of these seminar materials, after a contractor’s bid is accepted and the contractor undertakes to perform the work under the scope of its bid, many times a contractor may discover errors or ambiguities in the plans and specifications upon which his bid is based. In California, this has led to a variety of theories or bases for recovery by contractors against owners as well as design professionals due to added costs caused by deficient plans and specifications.
This chapter will attempt to outline the scope of these problems as well as areas for additional compensation due to deficiencies in plans and specifications. It should be pointed out that deficiencies in plans and specifications must be distinguished from differing site conditions, which will be examined in Section VI following.
1.0 CONTRACTOR’S DUTY
Undoubtedly, since there is no such thing as a perfect set of design criteria, virtually every contractor has on occasion noticed, at one time or another, problems in the plans and specifications which are guiding its performance. These problems can range from meaningless clarifications to tremendous changes in the scope, timing, or manner of the contractor’s performance.
Very generally speaking, it is the responsibility of every contractor who is bidding upon a work of improvement to notify either the architect (and/or the engineer) or the owner of any material deficiencies the contractor notices in the plans and specifications prior to submitting his bid. John F. Miller Co. v. George Fichera Construction Corp (1979 Mass.) 388 N.E. 2d 1201.
Although there is an absence of a lot of authority on this concept in California this responsibility has been described as a “duty” by some [Vol.1, S. Stein, Construction Law Section 2.01 (2)(b), (Mathew Bender 1991)], and may have some basis in California as either an implied covenant or representation or even under the doctrine of mitigation of damages. See also Weichmann Engineers v. State Department of Public Works (1973) 31 Cal.App.3d 741; and Umpqha River Nav. Co. v. Crescent City (9th Cir., 1980) 618 F.2d 588. In fact, many contracts and requests for proposals expressly provide that the contractor is to inspect the property prior to bidding and to review the plans and specifications, noting any substantial problem. See American Institute of Architects Form Document A201, Article 4.3.6. See also Hunt, Construction Disputes Regarding Building Plans and Specifications, 9 CEB Real Property Law Reports 141 (October, 1986).
In most instances, a contractor who has discovered problems in plans and specifications will notify the architect and owner, preferably in writing, who upon determining the significance of the requested clarification, may publish an addendum to the plans and specifications upon which all contractors should include in their bid.
Although a general contractor probably maintains a responsibility to notify the owner/architect of errors of which it is “aware,” this responsibility should not require the contractor to guarantee that it has reviewed the plans and specifications with the same care that a design professional has or that it has guaranteed that no other errors exist. This issue of to what degree does the contractors responsibility extend, is probably a large contributing reason for many construction disputes surrounding projects that have resulted in litigation of design issues.
As will be seen below, owners and design professionals have attempted to place the burden as much as possible on contractors, and contractors and the courts have struggled to find a reasonable approach to this heavily disputed area. Suffice it to say that as of this point in time, there appears to be no California cases which place a burden or responsibility on the contractor to discover errors in the plans and specifications beyond those which are either known to him or those which a reasonably prudent contractor/bidder should have known.
2.0 OWNER’S WARRANTY OF ITS PLANS AND SPECIFICATIONS
As a general rule, despite a contractor’s bid being for a specific sum, owners of construction projects have been held liable for “extra work” necessitated by errors or ambiguities in plans and specifications. The general rule is based upon the notion that an owner warrants and represents that the project can be constructed in accordance with the plans and specifications as given to the contractor to bid upon. In California, claims for extra work due to errors or ambiguities in plans and specifications have been based upon theories of various theories of recovery.
In the case of Gogo v. Los Angeles County Flood Control District (1941) 45 Cal.App.2d 334, the court determined that a contractor who has reasonably relied upon plans and specifications to indicate conditions upon which his bid is based is entitled to recover the value of extra work necessitated by the conditions being other than as represented. The same conclusion was followed in Souza and McCue Construction Company v. Superior Court (1962) 57 Cal.2d 508, where the California Supreme Court utilized a theory of breach of an implied warranty of the correctness of plans and specifications which misled the contractor in furnishing its bid to perform the work.
As a result of the misrepresentation and implied warranty theories being applied against owners of construction projects, owners and their design professionals attempted to circumvent such conclusions by invoking assumption of the risk clauses in their requests for bids and contracts with general contractors. These defensive clauses generally required the contractor to familiarize itself with the site, materials, bidder information, and the like, and to require the contractor to conduct affirmative investigation of the conditions of the project as it related to the plans and specifications designed by the design professional.
There appear to be differing rulings from California courts in interpreting the contractor’s and owner’s rights and obligations under these clauses. However under careful scrutiny, these cases can be made consistent and the contractor and construction law practitioner should be aware of the differences in how the Courts will treat the parties based upon deficiencies in the plans and specifications.
For example, in Wunderlich v. State (1967) 65 Cal.2d 777, the Supreme Court held that where there is no actual misrepresentation of factual matters within the public entity’s knowledge and when both parties have equal access to the information which gave rise to the claim, the contractor may not claim in the face of an assumption of the risk clause that a misrepresentation or breach of warranty has been made. See also Jasper Construction, Inc. v. Foothill Junior College District (1979) 91 Cal.App.3d 1.
In that same year, the same Supreme Court concluded in E.H. Morrill Company v. State (1967) 65 Cal.2d 787, that although a contract contained an assumption of the risk clause, the conclusion would be different and the contractor was entitled to extra work compensation since there was sufficient facts to constitute some actual misrepresentation on behalf of the public entity that the contractor would not encounter the types of problems he encountered. See also Salinas v. Souza and McCue Construction Company (1967) 66 Cal.2d 217; Warner Construction Corp. v. Los Angeles (1970) 2 Cal.3d 285.
In the most recent case concerning this area, a California Court of Appeals has concluded that in addition to the express representations an owner makes as to the plans and specifications, an owner also impliedly warrants and represents that certain events will occur with respect to the contractor’s assumptions based upon the plans and specifications and that in the event those events do not occur, the owner may be subjected to extra work claims. Tonkin Construction Company v. County of Humboldt (1987) 188 Cal.App.3d 828.
In addition to theories of recovery for extra work due to misrepresentation or breach of express or implied warranty, owners may also be responsible for claims caused by deficient plans and specifications on other theories. One such theory, known as the cardinal change or excess change order or abandonment, has been expanded on very recently in California. The theory first was enunciated in California under the case of Daugherty Company v. Kimberly-Clarke Corp. (1971) 14 Cal.App.3d 151, as well as other federal cases which have been relied upon by the California authorities.
More recently, in the case of C. Norman Peterson Company v. Container Corp. of America (1985) 172 Cal.App.3d 628, the California Court of Appeals determined where there are changes of such a magnitude that the parties have basically abandoned the original contractual basis for the project contemplated by the parties, the contractor is entitled to recover the reasonable value of all the services, even though the amount of such damages has exceeded the original contract scope. See also State v. Guy F. Atkinson Company (1986) 187 Cal.App.3d 25.
In addition to a contractor’s claim against an owner for the deficient plans and specifications, a contractor may also have claims arising against the design professionals who are ultimately responsible for the design provided to the owner. These claims for economic damages many times take the character of negligence claims against either an architect or an engineer. It has also been held in California that an architect or engineer may be liable to a contractor on a third party beneficiary theory. Coac, Inc. v. Kennedy Engineers (1977) 67 Cal.App.3d 916.(1)
Based upon the above, there appears to exist multiple areas where a contractor may attempt to recoup its “extra work” costs caused by deficient design documents. Although the exact outcome will obviously depend on the particular circumstances of each case it is likely, (absent one of the limitations discussed below), that a contractor probably is entitled to additional compensation under most such circumstances.
3.0 LIMITATIONS ON DEFECTS IN DESIGN OR CONSTRUCTION
In California, it is also important to realize that there are limitations on the right to recover extra costs caused by deficient design documents. First, to the extent the contractor seeks recovery from a design professional based upon tort the contractor must offer expert testimony that the professional failed to meet its standard of care. Miller v. Los Angeles County Flood Controll Dist. (1973) 8 Cal.3d 689.
Second, even when the claim is merely against the owner the contract may provide time limitations for raising such claims which will be enforced in “most” instances. Finally, there are also statutory limits for claims or action due to defects in design or construction.
Pursuant to California Code of Civil Procedure Section 337.1, an action for damages from persons performing design or construction or other related services which is patently deficient is four years after the substantial completion of the work of improvement. A patent deficiency is one which is apparent by reasonable inspection. This limitation period must be contrasted with California Code of Civil Procedure Section 337.15 which provides that the statute of limitations for any latent deficiency must be brought within ten years from substantial completion of the project. Obviously, any deficiency which does meet the definition of “patent” must be by its nature “latent.” There are many cases interpreting these statutes including finding liability outside the limitation period where there has been some sort of “tolling” [Cascade Gardens Homeowners Association v. McKellar & Associates (1987) 194 Cal.App.3d 1252], because of the severe consequences of the statute of limiations, one must be careful in this area.
1. 1 In addition to common law theories of recovery as enunciated in the above case law authorities, there exists independent statutory remedies in some cases. For example where the design documents on a Local Public project did not disclose underground problems a contractor is entitled to recover for excess costs due to unforeseen obstacles. Public Contract Code, Section 7104. See also Section VI.
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