We recently wrote about design disclaimers here, but revisit the topic to further discuss how subtle language can transfer the entire risk for defective designs from the designer to the general contractor. Bidding contractors need to be aware that any language suggesting that a design may not be adequate for the item to function for its intended purpose may shift the entire risk of that design, including the costs to make the item function as intended, to the bidder.
Such was the unfortunate case for KiSKA Construction Corp., who was forced to expend double its lump-sum bid award to remedy a design defect that led to large-scale worksite flooding. KiSKA Constr. Corp. v. Washington Metropolitan Area Transit Authority, 321 F.3d 1151 (D.C. Cir. 2003). That $43 million loss turned on the seemingly innocuous phrase “additional dewatering wells may be required.” The court found that this language sufficiently disclaimed the designed dewatering wells’ ability to dewater the site. Aware of this clause, the court felt the bidding general contractor should have incorporated the risk of these design inadequacies into the bid price, and the contractor was forced to bear the costs of remedying the design deficiency.
The KiSKA case is even more troubling given that the owner likely included the disclaimer because it suspected its design was inadequate. American Subcontractors Association, Inc., Design Risk: Disclaimers of Plans and Information 3-4 (2008). The owner’s engineer had twice reported that no number of dewatering wells would be sufficient to prevent the job-site flooding. The engineer’s third report then suggested that 300 dewatering wells might be sufficient. Ultimately, the city’s design called for 62 dewatering wells, which they knew would be a vastly inadequate number to dewater the site. It is a safe assumption that this disclaimer was included to transfer the risk of deficient design to the bidder, and that plan ultimately worked to save the city $43 million.
Luckily for bidding contractors, there are minimum requirements for how explicitly a design disclaimer must be expressed to transfer the design risk. In a separate case, a different federal court refused to find that the owner disclaimed the design because the contract language did not “clearly alert the contractor that the design may contain substantive flaws requiring correction and approval before bidding.” White v. Edsall Constr. Co., 296 F.3d 1081, 1086 (Fed. Cir. 2002). There, the bidding contractor avoided assuming the design risk for a defectively designed door because the alleged disclaimer stated:
Canopy door details, arrangements, loads, attachments, supports, brackets, hardware, etc. must be verified by the contractor prior to bidding. Any conditions that will require changes from the plans must be communicated to the architect for his approval prior to bidding and all cost of those changes be included in the bid price.
Whereas KiSKA’s contract specifically stated that the design was possibly insufficient and defective to serve the purpose of preventing flooding, the language here was too generalized for the court to find that the design risk had shifted away from the designer. It merely required the bidder to verify the door’s general characteristics to ensure adequacy, but failed to suggest the door would not work for its purpose. Had the language claimed that the door may not function as designed, the matter would likely have been decided in the owner’s favor.
Comment: The narrower a design disclaimer is to a particular facet of a project, the more likely a bidding contractor needs to understand the adequacy of that design and what costs might be incurred if it proves defective. However, bidding contractors can take some solace that if an alleged disclaimer’s language does not suggest that the item as designed may not work for its intended purpose, the bidder will likely not bear the design risk. If language, however subtle, suggests an attempt to disclaim any piece of a design warranty, bidding contractors should be on high alert as to that term specifically, and should inquire with the designer to gather more information on why the language was included.