AGC is supporting Brightwater tunnel-project contractors Vinci/Parsons RCI/Frontier Kemper JV (VPFK) in a legal dispute with King County. At issue is the long-standing principle that an “implied warranty” comes with an owner-issued plans and specifications, and how it allocates risk on Washington construction projects if following those plans and specifications does not produce the desired or intended result. A lower-court ruling could be interpreted as shifting design responsibility away from the owner and onto the contractor. If upheld, that ruling could radically alter the landscape of construction contracting and impede the cost-effective procurement of public works construction projects in our state.
AGC Legal Affairs Committee members Mike Grace (Groff Murphy) and John Ahlers (Ahlers & Cressman) authored and filed an amicus brief in support of the JV’s request that the Washington Supreme Court review a lower court’s decision that favored King County. ABC, NECA and NUCA joined in the amicus filing.
For the project, King County‘s specifications directed VPFK to use a specific type of tunneling machine — a slurry tunnel-boring machine, or STBM — as opposed to another type of machine, an earth-pressure balance machine or EPBM. The STBM proved unsuitable for tunneling, given the project design and other specifications, preventing VPFK from completing its work in a timely fashion. King County ultimately removed a portion of the tunnel excavation work from VPFK’s contract and awarded it to another contractor. Contrary to its original project specifications and design, King County allowed that other contractor to complete the VPFK’s work with an EPBM.
After tunneling was complete, VPFK finished its contract. King County then sued VPFK for breach. VPFK counterclaimed, including a claim for breach of the implied warranty of specifications. The trial-level court granted King County’s motion for summary judgment, dismissing VPFK’s implied warranty counterclaim. As a result, at trial, VPFK was not allowed to present this argument at trial, i.e., that following King County’s plans and specifications did not produce the intended result and specifically that King County specified an inappropriate method (SBTM) and breached the implied warranty of specifications given the contract’s constraints and allotted timeframe.
In the amicus brief, Grace and Ahlers argue that the accuracy of plans and specifications provided by a project owner directly impacts a contractor’s bid to perform the work. Contractors confident in the accuracy of the owner’s plans and specifications are able to provide more accurate and refined pricing, and thus more competitive bids. This confidence, in large part, owes to the protection provided by an implied warranty that, when an owner issues the project plans and specifications, the owner bears the risk if the plans or specifications contain an error or omission or do not produce the desired result. In short, the implied warranty of plans and specifications is a key component of the traditional and expected allocation of risk among the parties to a construction contract that directly affects the contractor’s bid price.
Grace and Ahlers further argue that the lower court erroneously interpreted the implied warranty (known also as the Spearin Doctrine) in a constrained manner that improperly shifts design responsibility away from King County (the owner of the project) and onto VPFK (the contractor). They cite decades of case law to explain how the trial court’s decision was contrary to Washington law and the intent of design-bid-build construction contracts generally.
If allowed to stand, the lower court’s decision would diminish the benefits of competitive bidding, note Grace and Ahlers. If contractors cannot rely upon the implied warranty, they will have to ‘second-guess’ the accuracy of the plans and specifications at bid time and either (a) decline to bid the work; or (b) increase their bid price or use larger contingencies in their bid pricing to protect against the risk of unknown errors and omissions. This will, in turn, increase the cost of construction to project owners and, on public projects, the increased costs will ultimately be absorbed by taxpayers. If the contingencies do not eventuate, contractors could receive windfalls. In either event, the net result is that the savings competitive bidding is designed to produce will not be realized.
Grace and Ahlers continue that weakening the implied warranty that comes with owner-issued plans and specifications would dis-incentivize project owners (and designers) from providing plans and specifications free from error. Rather, project owners could pass the hidden risk of errors and omissions in the plans and specifications to contractors. Only those contractors financially capable of weathering such uncertainty or of making costly and unnecessary pre-bid analysis regarding the accuracy of the owner’s representations would participate in the bidding
Grace and Ahlers conclude: The Spearin Doctrine is grounded in policy and common-law principles that parties should be responsible for their own acts and for conditions uniquely within their control. Such control -ased risk allocation incentivizes all parties to work efficiently, reducing overall project costs and saving taxpayer money. Abandoning this longstanding doctrine and notion of common sense would work gross inequities and inefficiencies in the construction industry to the detriment of the citizens (taxpayers) of the State of Washington.