Construction contracts comprise numerous documents, some of which are incorporated by reference. These documents include drawings and specifications on traditional design-bid-build projects and design criteria on design-build projects. Design documents themselves might incorporate even more contract documents by reference. The documents sometimes become a series of overlapping requirements—puzzle pieces that do not fit together neatly. Resolving design inconsistencies requires identification of the contract documents, determining whether the design criteria in the contract documents are in conflict, and, if so, deciding which criteria control. This common scenario is exemplified by a dispute decided in Jaynes Corporation, ASBCA No. 58288, 13-1 BCA ¶ 35,240.
Peeling the Layers of Contract Documents
The Corps of Engineers awarded Jaynes a firm fixed-price contract to design and build a Simulator and Academics Facility at Creech Air Force Base in Nevada. The work included the design and construction of a new pre-engineered building, site improvement, utilities, landscaping, roads/parking, and communications support for the project. The design criteria contained two sections addressing the requirements for finishing gypsum board (drywall), one of which applied a different design guideline than the other.
The first design criterion applied a local compatibility guideline to the design. The local guideline required adding an “orange peel” texture to gypsum-board walls prior to painting, indicative of a socalled Level 4 finish. This first design requirement stated that it provided the minimum requirement, that it must be met or exceeded, and that, if requirements conflict, the most stringent requirement must be utilized in the design and construction.
The second design criterion applied a different guideline specification, which required finishing all gypsum-board walls to a more stringent and more expensive Level 5. This second design requirement stated that it must be the minimum basis for quality and product installation and that, subject to the government’s approval, the contractor had to edit the guideline specification to conform to the specific minimum requirements of the design criteria. The second design criterion also stated that the first design criterion (the local design compatibility guideline) was intended to identify specific project requirements and that, in cases of conflict in the design criteria, the first design criterion would hold precedence over all other criteria mentioned or referenced.
The contractor submitted a 95% complete design that specified a Level 4 finish for the walls. The government directed the contractor to design and build the walls to the more stringent and expensive Level 5 finish. The contractor told the government it disagreed about the contract requirements and then submitted a 100% complete design specification that contained a Level 5 finish in accordance with the government’s direction. After the government approved the design, during construction the contractor once again questioned the government’s interpretation of the requirements. The government once again directed a Level 5 finish.
The contractor complied and requested an equitable adjustment for the increased cost of providing the higher-level finish. The contractor’s request was later submitted as a claim. The contracting officer decided that there was no change and denied the claim.
The contractor appealed the contracting officer’s decision to the Armed Services Board of Contract Appeals. The government argued that the second design criterion stated that its guideline specifications were the minimum basis for quality and product installation and, therefore, that a Level 5 finish was required. The board rejected the government’s argument because the government’s interpretation ignored the fact that the second design criterion itself stated that the first design criterion (requiring a Level 4 finish) took precedence in the event of a conflict. The ASBCA found that the design criteria were in conflict and held that the government directing the contractor to provide a Level 5 finish was a change to the contract. The board also rejected the government’s argument that the 100% final design required a Level 5 finish, noting that the contractor made that design change at the government’s direction.
The decision in Jaynes Corporation teaches important lessons. First, owners, contractors, and designers should consider the likelihood of design conflicts when drafting contract documents. Ambiguities and inconsistencies are often found in design documents. Order-of-precedence provisions are a useful means of resolving these issues. A related consideration is including a provision mandating compliance with the strictest design requirement among conflicting criteria. Owners and contractors should also consider whether the contract requires timely notice upon discovery of potential design conflicts and whether the contract shifts the risk of such conflicts to the contractor by obligating the contractor to review design documents to uncover conflicts prior to submitting a bid or a proposal.
Second, contractors should provide timely notice upon discovering potential design conflicts. If possible, contractors should provide notice of design conflicts discovered prior to submitting bids or proposals. Such notice might allow a clarifying amendment to the solicitation, which would mitigate both parties’ risk. Jaynes Corporation gave the government notice during the design phase of the project after Jaynes discovered the government’s interpretation of the design criteria led to a conflict. Jaynes notified the government of the design conflict again during the construction phase. The board concluded that the government directed the change during the design phase.