Volume 0, Issue Number 111 July  18, 2011



Contracts Bulletin #111 - It Ain't My Problem, Right? - Responding to Owner Defective Plans

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IT AIN’T MY PROBLEM . . . RIGHT? RESPONDING TO OWNER’S DEFECTIVE PLANS

Imagine: You win a bid to install a HVAC system in a commercial building. After beginning the installation, you find an error in the owner’s plans that you estimate will cost several thousand dollars to address.

The determination of who will pay the costs associated with the design defect will turn on the contract with the owner.

Implied Warranty

As a general rule, when an owner gives a contractor plans, the owner is providing an implied warranty that the design documents are accurate and free from defects. An “implied warranty” means that a term does not need to be expressly mentioned in the contract. In the construction context, an implied warranty protects contractors who fully comply with the owner’s design specifications. Due to the protection of the implied warranty, a contractor might feel insulated from liability for design problems. However, this sense of security might be misplaced if the construction contract shifts liability for design defects to the contractor.

Specific Plans

Courts will enforce a contract between parties unless the contract is unconscionable or against public policy. In the construction industry, courts hold where an owner provides a contractor with specific specifications, the “contract carries an implied warranty that the specifications are free from design defects.” General disclaimers “requiring the contractor to check plans and determine project requirements do not overcome the implied warranty, and thus do not shift the risk of design flaws to contractors who follow specifications.” “Contractors are not expected to exercise clairvoyance in spotting” defects. White v. Edsall Construction Co. Inc., 296 F.3d 1081, 1084-85 (Fed. Cir. 2002). Thus, unless there is an obvious defect (discussed below), a contractor will not be liable for failing to report defects.

A Contractor’s Duty Does Not Disappear

While contractors are not liable for subtle defects in an owner’s plans, courts have consistently held that a contractor cannot overlook obvious defects. A contractor still has a duty to investigate or inquire about a clear ambiguity, inconsistency, or mistake in the specifications or drawings.

What constitutes an “obvious defect” is difficult to define and is often subject to judicial interpretation. The general rule is that contractors must act professionally and bring to the attention of all parties defects that an experienced contractor would normally identify in reviewing the plans.

Costs of Correction

Unless a contract says otherwise, a contractor is entitled to be reimbursed for increased costs of construction when plans provided by an owner are defective or failed to meet code. ConsensusDOCS 750, Section 4.4 also provides that a subcontractor can seek recovery directly from an owner that provides faulty plans:

[t]o the extent the Owner provides a warranty regarding Owner-furnished information, the Subcontractor may prosecute a claim in the Contractor’s name for the use and benefit of the Subcontractor regarding breach of that warranty. The Subcontractor may ask to see information identified in the Agreement between Owner and Contractor that is included within the information the Owner warrants.

Thus, if the owner has responsibility for providing clear plans, and fails to meet its obligation, a subcontractor may recover its costs in fixing the problem.

Contractors Beware: Liability May Shift

While terms “implied” in contracts may provide some solace to contractors, the parties also have the ability to explicitly shift responsibility by the terms of the contracts between them. If a contractor has explicitly contractually agreed to assume responsibility for design specifications, the contractor is responsible for costs associated with errors. See e.g. Modern Continental South v. Fairfax County Water, 2006 WL 3775938 (Va. Cir. Ct. 2006).

Providing accurate engineering drawings is an arduous task. As a result, owners may delegate substantial design responsibilities to contractors. An example of a clause used to shift design responsibilities to contractors includes:

The drawings indicate the required size and points of termination of piping and ductwork, and suggest proper routes to conform to structure, avoid obstructions and preserve clearances. However, it is not intended that the drawings indicate all necessary offsets, and it shall be the responsibility of the contractor to make the installation in such a manner as to conform to the structure, avoid obstructions, preserve headroom, keep openings and passageways clear, and maintain required servicing clearances without further instructions or costs to the owner.

Such clauses place a substantial burden on contractors to engage in design and specification correction. This often results in an increased number of in-house shop drawings which are not reimbursable. Under these circumstances, the “normal” contractual duty has been shifted from the owner to the contractor. Therefore, contractors must be familiar with the terms of the contract before signing or risk liability for redesign costs.

Likewise, there is a presumption in AIA documents is that the contractor shall not be responsible for professional services, including architectural and engineering services. However, if the contractor undertakes this responsibility, it is held to a high standard under the terms of the contract. A201-2007 § 3.12.10 The Contractor shall not be required to provide professional services that constitute the practice of architecture or engineering unless such services are specifically required by the Contract Documents for a portion of the Work or unless the Contractor needs to provide such services in order to carry out the Contractor’s responsibilities for construction means, methods, techniques, sequences and procedures. The Contractor shall not be required to provide professional services in violation of applicable law. If professional design services or certificates by a design professional related to systems, materials or equipment are specifically required of the Contractor by the Contract Documents, the Owner and the Architect will specify all performance and design criteria that such services must satisfy. The Contractor shall cause such services or certifications to be provided by a properly licensed design professional, whose signature and seal shall appear on all drawings, calculations, specifications, certifications, Shop Drawings and other submittals prepared by such professional. Shop Drawings and other submittals related to the Work designed or certified by such professional, if prepared by others, shall bear such professional’s written approval when submitted to the Architect. The Owner and the Architect shall be entitled to rely upon the adequacy, accuracy and completeness of the services certifications and approvals performed or provided by such design professionals, provided the Owner and Architect have specified to the Contractor all performance and design criteria that such services must satisfy. Pursuant to this Section 3.12.10, the Architect will review, approve or take other appropriate action on submittals only for the limited purpose of checking for conformance with information given and the design concept expressed in the Contract Documents. The Contractor shall not be responsible for the adequacy of the performance and design criteria specified in the Contract Documents.

Building Information Modeling (BIM)

Building Information Modeling (BIM) promises real and lasting productivity gains through the collective effort of all parties to the construction process. BIM allows owners, architects, and contractors to identify and avoid conflicts during the design phase, rather than during construction when changes are more costly. But, who is liable for design defects in a BIM project?

Because BIM can add substantial value to projects, both the AIA and ConsensusDOCS have provided additional documents that address liability concerns.

AIA Document E202-2008, BIM Protocol Exhibit, defines the extent to which downstream model users, such as contractors, can use and rely on the model for scheduling, pricing, fabricating and construction. A specific party is assigned to manage the model during the project phase. Thus, a contractor would be responsible for redesign costs if assigned to oversee or manage the design.

ConsensusDOCS 301, the BIM Addendum, does not restructure contractual relationships on the BIM project, but does provide that each party is responsible for any contribution made to the building model. This document also places an affirmative duty on each party to use its best efforts to minimize risks. Parties are charged with promptly reporting any errors, inconsistencies, or omissions. Therefore, the contractor could be liable for faulty plans if involved in the designing phase.

While the goals and potential productivity gains of BIM are laudable, the legal liability for providing faulty plans remains unsettled. When a party inserts faulty plans into the BIM process it may (or may not) be liable depending upon the protocols agreed to between the parties, and the obligation of the party supervising the BIM process to check the work of parties making changes to the plans. While BIM contracting continues to evolve, parties, more than ever, must be keenly aware of their potential liability for providing, correcting, or modifying plans provided by owners or others.

Conclusion

HVAC contractors often receive inadequate, defective or incomplete plans. These erroneous plans either result from rushed design drawings or from an owner’s deliberate decision to shift responsibility for plans to the contractor. It is widely accepted that an owner provides the contractor with an implied warranty of the adequacy of design documents. However, contracts can also shift that responsibility to subcontractors, imposing substantial costs and exposure to liability. Thus, in the dynamic planning process that is currently sweeping the construction industry, it is more important than ever that a contractor carefully analyze all provisions of its contract before proceeding.

 

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