The failure of an owner to provide an accurate estimation of a project’s physical size, especially where the size is underestimated and the contractor’s scope of work must therefore increase, is a rarely discussed form of a “design defect”. Often, the owner’s liability for such incorrect project size information is limited, verifying the attributes of the project site upon the contractor – forcing the contractor to bear the risk of a bad estimate. For example, in federal contracting, the government may assert that the Site Investigation and Conditions Affecting the Work clause (FAR § 52.236-3) obligates the contractor to reasonably ascertain the site conditions before submitting its proposal or bid.
But, what about the case where an express provision obligating the contractor to verify the size of the project site is not included in the solicitation? In that case, particularly in government contracting, the courts and boards have developed a long line of case law that protects the contractor who reasonably relies on defective information supplied by the owner, whether in design documents or in other representations regarding the work to be performed. Specifically, in United States v. Spearin, 248 U.S. 132 (1918) the United States Supreme Court established what is now known as the Spearin doctrine. This landmark construction law case held that an owner impliedly warrants the sufficiency or constructability of the information, plans, and specifications which it provides to a contractor. In other words, under the Spearin doctrine, the contractor does not bear the risk of additional cost or delay which results solely from insufficiencies or defects in the owner-provided information, plans and specifications.
The Supreme Court wrote:
Where one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to additional compensation, because unforeseen difficulties are encountered. Thus, one who undertakes to erect a structure upon a particular site assumes ordinarily the risk of subsidence of the soil. But if the 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. . . . [T]he contractor should be relieved, if he was misled by erroneous statements in the specifications.
Thus, it is generally well accepted that absent some sort of clear burden shifting contract clause, giving the contractor the opportunity and obligation to verify site conditions, the contractor may rely on the owner’s representations as if they were warranted by the owner.
Understated Size of Project
This dynamic is well-represented in the recent government contracting decision of BECO Construction Co., Inc., ASBCA No. 57483, 11-2 BCA ¶ 34,817. BECO involved a federal land reclamation project in Montana where the goal was to remove 14,000 tons of mill tailings on what the government’s Request for Quotations (“RFQ”) stated was a land area of approximately 2.7 acres. The RFQ included two drawings entitled “Thistle Site Orientation Map” and “Thistle Site Scope of Work,” each of which included the disclaimer that they were “intended for display purposes only” and that “[n]o warranty is made by the [government] as to the accuracy, reliability, or completeness of these data for individual or aggregate use with other data, or for purposes not intended by the [government].”
The RFQ did not incorporate the “Site Investigation and Conditions Affecting the Work” clause. The government itself did not measure the site. Rather, it determined the size of the project site from aerial maps and existing drawings. While the government estimated a site exceeding 5 acres prior to issuing the RFQ, that estimate was not provided to the bidders.
When preparing its quotation for the project, BECO Construction Co., Inc. (“BECO”), priced its work based on the 2.7 acre figure contained in the government’s RFQ. Shortly after receiving the Notice to Proceed, BECO determined the actual project site was at least 4 acres and promptly requested an additive change order from the government to compensate for the additional work not contemplated in the RFQ. The government denied this request outright. BECO proceeded to complete the work necessary for the larger site and again sought an adjustment in the contract price from the government. Having received yet another denial, the contractor ultimately asserted a claim for a contract price adjustment to compensate for its additional, uncontemplated work based on what it called the government’s “constructive change” of the parties’ contract.
In review of these facts, the ASBCA first noted that it is “well established that where the government makes positive statements in the specifications or drawings for the guidance of bidders, a contractor has the right to rely on them regardless of contractual provisions requiring the contractor to make investigations.” Further, the board noted that “[w]hen a contract specification understated the acreage of work to be performed, and the contractor relied on and was misled by the specified acreage, it was entitled to an equitable adjustment for the added work it performed.” Absent a solicitation provision requiring the bidders to verify and measure the project site, the ASBCA found that the contractor was clearly misled by the 2.7 acre figure in the RFQ. Even though BECO subsequently determined the inaccuracy of the 2.7 acre number, the contractor had no pre-contractual duty to verify the site’s size prior to submitting its quotation. Moreover, the fact that the government apparently knew the size of the project was almost double that listed in the RFQ bolstered the contractor’s position by making the government appear somewhat duplicitous in its dealings on the project. In the end, the ASBCA treated the government’s so-called “misleading” RFQ as having the same effect as a written change order entitling the contractor to the full cost of its expanded work.
BECO illustrates the effect of the Spearin doctrine well with regard to erroneous project size information supplied by a project owner. In such a case, absent contract terms requiring otherwise, the contractor may generally rely on the owner’s information as being sufficient to price and perform the work requested. Where the contractor is misled, a corrective price adjustment is warranted. In light of this decision, contractors should always be aware of their obligations with regard to site inspection and project size verification. Where the contractor has no burden, it can generally proceed to perform the required scope of work, even if performance means going over and above the contract price, as the contractor will likely be protected by the Spearin doctrine’s implied warranty if it reasonably relied on the data provided to it. That said, a contractor’s diligent, independent inspection of issues related to the project’s size will often reveal inaccuracies earlier in the process, and provide the parties with additional time to resolve any dispute prior to the contractor bearing additional, uncompensated costs to complete the project and prior to the initiation of any formal dispute resolution proceeding.