- Posted by John P. Ahlers
- On December 8, 2016
Implied warranties are warranties created by law, legislation, or courts. In the construction industry, one of the most prominent implied warranties is that owners who provide plans and specifications to their contractors impliedly warrant the adequacy of their plans and specifications.[i] That implied warranty had its beginning in the 1918 US Supreme Court decision of U.S. v. Spearin[ii] and is, therefore, popularly known as the Spearin Doctrine. Under the Spearin Doctrine, if the contractor completes the work in accordance with the owner’s plans and specifications, but there is a deficiency or failure, the owner, not the contractor, is responsible. When the owner breaches its implied warranty, in most instances, the contractor is entitled to additional compensation for extra work performed, delays experienced, and other additional expense or loss occasioned by the warranty breach. A recent case demonstrates that this implied warranty is not “immunity.” The contractor must still act reasonably and diligently, particularly when the contract provisions so require.
In the recent Fifth Circuit case of Dallas/Ft. Worth International Airport v. INet Airport Systems,[iii] the court, despite the implied warranty that existed, did not grant the contractor summary judgment on claims involving admitted plan deficiencies, since factual issues existed regarding the contractor’s cooperation and participation in the solution to the defects.
The owner in this case entered into a contract with INet (contractor) to install certain air handling units to heat and cool passenger boarding bridges and aircraft. The plans for the project included detailed drawings, the precise rooftop units and parts to be used, as well as approved manufacturer’s and performance requirements. The contractor was obligated to install the rooftop units, which were required to use an ethylene glycol water supplied by the owner.
An issue arose when the contractor expressed concern that the rooftop units specified in the plans might not function properly with the ethylene glycol mixture supplied by the owner’s existing piping system because the rooftop units might freeze. The contractor and owner never came to an agreement as to how to proceed. When the contractor failed to meet the substantial completion deadline, the owner failed to make payment on the construction contract, and the owner engaged another contractor to complete the project. The contractor sued and moved for summary judgment.
The contract’s general conditions required that the contractor:
- Inspect the plans and specifications and bring up discrepancies during the bidding process;
- Otherwise assume full responsibility for the compatibility of equipment and parts; and
- Fill in details necessary to complete the work as specified. The contractor assumed “sole responsibility” for the compliance of the contract documents and “full responsibility for satisfactory operation of all component parts of the mechanical system to assure compatibility of all equipment and performance of the integrated systems in accordance with the requirements of the specifications.”
The contract allowed the contractor to submit potential errors or discrepancies to the owner and obtain approval for changes in the design. The court emphasized that the contract provided for the parties to “agree upon how to adjust for the change,” and emphasized that the contractor had “duties that required [the contractor] to cooperate in finding a solution to any defects.”
The trial court determined that the case turned on which party first breached the contract and concluded that the contract placed the risk of defects in the design and specifications on the owner, that the owner had admitted the designs and specifications were defective, and that the owner, therefore, breached the contract by failing to acknowledge the defects and issue appropriate change orders. As a result, the District Court granted the contractor summary judgment and awarded damages and attorney’s fees to the contractor in the amount of $1.3 million. The owner appealed.
The Fifth Circuit Court of Appeals, finding there was no dispute that the plans and specifications were defective, focused on which party was responsible under the contract for the defective plans and specifications, and what the contract required of each party once the contractor alerted the owner to a defect that would prevent its performance.
The Fifth Circuit disagreed with the trial court, and while holding that the owner bore in part the risk of the defective plans and specifications, the contract allocated some of the duties to the contractor as well. Those duties included requiring that the contractor cooperate in finding a solution to the defects. The contract required that both parties participate in resolving defects. The court held that there was a material issue of fact as to whether the contractor had, in fact, lived up to its obligation to participate in the change remedy. Therefore, the court denied summary judgment and remanded the case for breach of contract claims to proceed to the trial court.
Comment: The lesson here is that although the implied warranty of the plans and specifications is well-settled law in most states, the warranty can be disclaimed or modified by contract. In this instance, the contract language specifically indicated that the contractor had full responsibility for the satisfactory operation of all the component parts of the mechanical system to ensure compatibility of all equipment and performance of the integrated systems in accordance with the requirements of the specifications. This court held that the contract language can override the warranty of the adequacy of the owner’s design. This holding is by no means universally adopted by all courts. For example, in Corporation of Presiding Bishop of Church of Jesus Christ of Latter Day Saints v. Cavanagh,[iv] a scope of work clause required the contractor to provide a “complete and satisfactory system.” The California Court of Appeals did not construe that provision as a warranty; rather, the court found that the provision simply stated the scope of the specified undertaking.[v]
[i] Weston v. New Bethel Baptist Church, 23 Wn. App. 747, 753, 598 P.2d 411 (1978).
[ii] United States v. Spearin, 248 U.S. 132, 169, 39 S.Ct. 59, 63 L.Ed. 166 (1918).
[iii] Dallas/Ft. Worth International Airport v. INet Airport Systems, 819 F.3d 245 (2016).
[iv] Corporation of Presiding Bishop of Church of Jesus Christ of Latter Day Saints v. Cavanagh, 217 Cal.App. 2nd 492, 32 Cal.Rptr. 144 (1963).