Assessing Defective Design Liability on Federal Design-Build Projects

Dirk Haire, Adam Hamilton and Dana Molinari | Fox Rothschild

A common misconception by many government officials is that a design-builder is always responsible for every design error or omission on a design-build project.  This article examines the actual liability standard applied by the courts and boards of contract appeals when a design defect arises on a federal design-build project.

Background: Design-Build Contracts and the Spearin Doctrine

Design-build contracts combine the design and construction elements of a construction project into one contract.  Design-build contracts often include two types of specifications: design and performance.  Design specifications may set forth various parameters, such as precise measurements, tolerances, and materials.  In doing so, the specifications create a fixed “roadmap” governing a contractor’s performance of the project.  Performance specifications, on the other hand, set forth “operational characteristics” to achieve a particular objective or standard, but generally leave the details to the contractor. 

When the government provides a contractor with design specifications, typically as a portion of the “bridging documents” included in the solicitation, it impliedly warrants that those specifications are free of defects and, if properly followed, will facilitate a successful project build.  The concept of implied warranty is best known as the Spearin doctrine, which developed from the seminal US Supreme Court case United States v. Spearin, 248 U.S. 132 (1918).  Under the Spearin doctrine, a contractor will not be held liable for defects in the government-provided specifications the contractor was required to follow.  As a result, despite the nature of a design-build contract, the government remains responsible for the design specifications it provides to the bidding contractors in the design-build solicitation.  This fact is not always understood by government contracting officials.  Since most design-build contracts are a combination of both design and performance specifications, determining the type of specification that caused the design defect is a paramount consideration in determining design liability. 

Application of the Spearin Doctrine to Design-Build Contracts

Contractors regularly exercise broad discretion with respect to the specifications in design-build contracts, meaning the Spearin doctrine will only apply if the government substantially participates in developing specifications in a way that takes discretion away from the contractor.  As such, courts and boards will typically deny recovery in cases where the contractor “voluntarily” and substantially participated in drafting design specifications. 

The sections below discuss cases of contractor success in recovering against the government using defective design theories of recovery, as well as an examples of cases where a contractors were unsuccessful.

A.        Cases Involving Successful Defective Design and Specification Claims

Metcalf Const. Co. v. United States, 742 F.3d 984, 996 (Fed. Cir. 2014).

In Metcalf, the government provided erroneous soils reports which caused the contractor to incur over $4.8 million in soil excavation costs.  Specifically, the government issued a revised request for proposals which provided a “soil reconnaissance report,” stating it was “for preliminary information only.”  The report turned out to be wrong.

At the trial court level, the Court of Federal Claims (COFC) held that the government was not liable for the removal of expansion soil because its investigative soil report was for “preliminary information only.”  On appeal, the Federal Circuit disagreed, holding that statement merely signaled “that the information might change,” not that the contractor would bear the risk if the “preliminary information turn[ed] out to be inaccurate.”  Furthermore, none of the provisions requiring the contractor to check the work site as part of the design-build contract “expressly or implicitly” warned that the contractor could not rely on the government’s soil report or that the contractor bore the “risk of error” contained in the government’s soil report.  Simply put, under Spearin, the government remained liable for its own design error under this design-build contract. 

Drennon Constr. & Consulting, Inc., 13 B.C.A. (CCH) ¶ 35213 (Jan. 4, 2013)

In Drennon, the Civilian Board of Contract Appeals (CBCA) decided in favor of a contractor who claimed the government’s flawed geotechnical information caused it to incur unexpected costs when a hillside collapsed.  The government argued that because of the design-build nature of the procurement, the contractor should be liable for the hill collapse that occurred during excavation.  The CBCA disagreed, noting that the contractor’s design had to fall within the confines of its own engineering firm’s design, not the government-provided geotechnical information. 

Drennon is an example of how an agency’s involvement in project design during the solicitation stage of a contract can be the basis of a Spearin defective design claim.  Drennon also exposes the common misconception that the government bears no liability simply because the federal contract is design-build.  Indeed, a contractor may prevail on a claim arising from a design-build contract if it can demonstrate that it incurred damages caused by defects in specifications provided by the government.

Appeals of — CDM Constructors, Inc., ASBCA No. 60454, 18-1 B.C.A. (CCH) ¶ 37190 (Oct. 24, 2018).

The contractor in CDM Constructors successfully argued that it was entitled to an equitable adjustment for costs it incurred as a result of defective specifications contained in the Army Corps of Engineers’ (“Corps”) concept drawings in a design-build contract.  The Board concluded that, “by providing the concept drawings, the Corps warranted that satisfactory performance would result from adherence to those drawings.”  Therefore, the Corps “breached that warranty” when it later rejected the contractor’s design that followed those concept drawings.  The Corps argued that the drawings provided were not specifications because the contract did not require the contractor to comply with them.  The Board rejected this argument, holding that these “concept drawings” were indeed specifications and the contractor had to rely on them in order to price its proposal. 

The Corps further argued that the contractor’s reliance on the concept drawings was unreasonable because the drawings were inconsistent with directives in the contract.  The Corps contended that the directives took precedence over concept drawings.  The board, however, found the concept drawings to be consistent with the contractual requirements.  Therefore, “[b]ecause the concept drawings were not trumped by inconsistent [contractual requirements], those drawings created an implied warranty that adherence to the drawings would result in satisfactory contract performance, which the Corps breached.” 

B.        Cases Involving Unsuccessful Defective Design Claims

In Re Lovering-Johnson, Inc., ASBCA No. 53902, 05-2 B.C.A. (CCH) ¶ 33126 (Nov. 17, 2005).

In Re Lovering-Johnson involved government-drafted preliminary drawings.  The drawings at issue were of drainage piping that included the pipe sizes and language that “expressly indicated” that design concepts and information must be verified before development of final design by the contractor.  The contractor failed to verify the government’s design concepts, which turned out to be defective.  The CBCA rejected the contractor’s claim for failing to follow the contract requirements.

As demonstrated in In Re Lovering-Johnson, a Spearin claim is not viable where a contractor has assumed responsibility to develop aspects of the preliminary drawings and specifications for design elements.

Conclusion

The government will often try to avoid liability in design-build contracts by assigning much of the responsibility for concept design to the contractor.  However, design-build contractors do not always bear the risk for design errors.  When the government plays a substantial role in developing initial designs during the solicitation process, design-build contractors assume less risk of design error liability and have a greater chance to succeed in recovering additional costs associated with defective government-provided specifications.

Mechanic’s Liens For Design Professionals: A Powerful Payment Collection Tool

Christian Dewhurst and Timothy Fandrey | Gray Reed

In these unprecedented times, every bit of revenue is critical to the continued operation of nearly every business operating within the construction industry. Fortunately, there are a myriad of remedies to aide collection efforts. Perhaps the most commonly discussed remedy is the mechanic’s lien provided by Chapter 53 of the Texas Property Code Chapter.

Mechanic’s liens are most frequently used by contractors and suppliers to obtain payment security for the valuable labor and materials that they furnish to a construction project. In Texas, unlike many other states, design professionals are also given the right to lien for certain professional services that they perform for the project. In today’s uncertain climate where collection of money for valuable design services performed is a concern, the lien provides the design professional the opportunity to secure payment.

Like their contractor counterparts, design professionals must satisfy certain requirements to maintain and perfect a mechanic’s lien in Texas.

  1. The lien for professional services is limited to architects, engineers and surveyors.
  2. The types of professional services for which the property can be liened are limited to the preparation of a plan or plat in the case of architects and engineers, and the conducting of a survey in the case of a surveyor.
  3. The design professionals must be in privity of contract with the owner or the owner’s agent.

Thus, it appears that sub-consultants are unable to lien. Given the requirement of direct privity requirement, lien perfection is relatively straight-forward. The lien affidavit must simply be filed by the 15th day of the fourth month after the design contract is completed, terminated or abandoned.

Under many standard construction industry forms, including the American Institute of Architects and the Engineers Joint Contract Documents Committee, architects and engineers are required to perform construction administrative services, including review of submittals and change orders, and periodic inspections of the project site. These are no doubt valuable services, but cannot be liened unless there is a change to the plan or plat. Architects and engineers may, however, lien for construction supervision services because such services are considered “labor” and thus can be liened.

Despite the existence of this powerful, albeit somewhat limited, right to lien, engineers and architects do not file liens with the frequency of contractors and suppliers. One reason is that the cost of design services relative to the cost of construction is typically small. Accordingly, design professionals may not often find it necessary to secure payment through a lien. Relatedly, design professionals generally perform the bulk of their lienable services at the beginning of the project during a period before large amounts of project funds have been spent on other items, including construction and payment is therefore less frequently an issue. Further, design professionals that are able to lien have contractual privity with the project owner and merely use a lien as payment security. By contrast, subcontractors and suppliers typically do not have contracts with the project owner and can also be subject to a contingent payment clause in their contracts with the general contractor. A lien provides the subcontractor not only payment security, but also functions as a powerful method of extracting payment from the owner that has not made payment to the general contractor.

Given the changing payment landscape in the midst of the COVID-19 pandemic, architects, engineers and surveyors should consider giving their lien rights a first or second look. It is a powerful tool that can give the design professional security to perform work on credit to a project owner.

Design-Assist Collaboration/Follow-Up Post

John P. Ahlers | Ahlers Cressman & Sleight

Shortly after posting the blog article “Design-Assist an Ambiguous Term Causing Conflict in the Construction Industry,” I received an email from Brian Perlberg, the Executive Director and Senior Counsel for ConsensusDocs. He brought two ConsensusDocs forms to my attention:  ConsensusDocs 541 Design Assist Addendum and ConsensusDocs 300 Integrated Form of Agreement (IFOA). In the ConsensusDocs model of “design-assist,” the lead design professional retains design responsibility but benefits from input and consultation from the construction team during design development. By contrast, in the design-build project delivery method, the constructor assumes design responsibility and liability for either the entire project design (design-build) or just a component of the design (delegated design).

The ConsensusDocs 541 document goal is to provide “accurate information concerning program, quality, cost, constructability and schedule from all parties.” It provides a range of standard and optimal services during design development that essentially shifts the curve of selecting the construction manager (CM) and most importantly, special trade contractors, to much earlier in the process, perhaps as soon as the owner’s program is developed. This opens a world of possibilities for the design and construction team to collaborate early and often. The design professional, however, does not abdicate its design responsibility or authority in this process. The ultimate goal is to end the all-too-common wasteful cycle of design and redesign that is common in construction projects.[1]

The ConsensusDocs 541 explicitly states at §2.3: “[W]hile retaining overall responsibility for the project design, Design Professional shall work collaboratively with other members of the project team drawing on the respective expertise in order to achieve the project objectives.” Thus, to the extent design build trade packages or other delegated design may occur during the collaborative process, such shifting of responsibility is done explicitly in a collaborative and intentional fashion in ConsensusDocs 541. In other words, stated simply, if a contractor is to assume design responsibility, that design responsibility is explicitly and unequivocally delegated to the contractor so that there is no misunderstanding of when or if the design work is handed off.

Design-Assist is not IPD (Integrated Project Delivery —a multi-party contract in which the contractual risk is shared in a shared risk pool.) At §2.3, the ConsensusDocs 541 form affirmatively states: “[t]he Parties acknowledge this addendum is not an Integrated Project Delivery agreement or design build agreement and that each party remains responsible for its own errors, omissions or construction defects to the extent provided in the underlying agreements.”

The ConsensusDocs 300 provides a much deeper level of risk-reward sharing that includes contractual privity among the owner, design professional and constructor, a limitation of liability among the core group and a shared risk pool where the parties’ compensation rises and falls together with the success of the project, akin to IPD.

Comment: Design-Assist is an option for owners who wish to incorporate a collaborative design process into projects and the ConsensusDocs makes it clear that the design responsibility remains with the design professional unless components of the design are specifically delegated to the contractor. Using the phrase “design assist” without the clarification recommended in the ConsensusDocs 541, that the design professional retains overall responsibility for the project, can cause conflicts when design issues arise during construction.


[1] How Design-Assist Moves the Needle on Collaboration and How it Differs From Design-Build and IPD, Leon and Pearlberg Design Cost Data, January-February 2020.

Circumstances in Which Design Professional has Construction Lien Rights

David Adelstein | Florida Construction Legal Updates

If you are a design professional (architect, landscape architect, interior designer, engineer, surveyor, or mapper) you have construction lien rights in the event you are not paid.   This does not mean your lien rights are absolute so it is important to understand the circumstances which allow you to record a construction lien on a project.  These circumstances are contained in Florida Statute s. 713.03:

(1) Any person who performs services as architect, landscape architect, interior designer, engineer, or surveyor and mapper, subject to compliance with and the limitations imposed by this part, has a lien on the real property improved for any money that is owing to him or her for his or her services used in connection with improving the real property or for his or her services in supervising any portion of the work of improving the real property, rendered in accordance with his or her contract and with the direct contract.

(2) Any architect, landscape architect, interior designer, engineer, or surveyor and mapper who has a direct contract and who in the practice of his or her profession shall perform services, by himself or herself or others, in connection with a specific parcel of real property and subject to said compliances and limitations, shall have a lien upon such real property for the money owing to him or her for his or her professional services, regardless of whether such real property is actually improved.

The first circumstance pertains to design professionals that do NOT have a direct contract with the owner of the property.  In this circumstance, you have lien rights for your services “used in connection with improving the real property” or your services “in supervising any portion of the work of improving the real property” that you perform under your contract and with the direct contract, presumably between the owner and your client.  The important, operative word in this circumstance involves improving the real property.

The second circumstance pertains to design professionals hired directly by the owner.  In this circumstance, you have broader lien rights as you have lien rights for your services “regardless of whether such real property is actually improved.”  Hence, improving the real property is of no moment.

A design professional does not need to serve any preliminary notice (such as a notice to owner) in order to preserve their lien rights.  However, a design professional still needs to record a construction lien within 90 days from their final furnishing date.

A construction lien from a design professional is less common than a lien from a contractor, subcontractor, or supplier. Nonetheless, design professionals do have construction lien rights that an owner should be cognizant of and a design professional should understand in furtherance of best ensuring payment.

Design-Build Lite – Construction Contracts with D-B Components

Colm Nelson | Ahead of Schedule

For most in the industry, when we think about a standard construction contract, we envision the construction documents being drafted by the architect and other design consultants.  We tend to view the project as design-price-build, unless an alternative procurement mechanism has been selected such as design-build.  Consistent with this design-price-build model, the contractor’s review of the design is ordinarily not to identify errors and omissions or violations of law in the design, but purely to review the design from a contractor’s constructability standpoint.  Many contractors doing this work don’t carry professional liability insurance, because they don’t view themselves as designers.

But the market has changed a lot over the last ten years.  Nowadays, when owners and contractors drill down with their lawyers to discuss risk, they often realize that, in fact, the contractor is performing  a lot of design work.  For instance, it is not uncommon for the contractor, through its subtrades, to design the mechanical, electrical, and plumbing systems to performance standards created by the owner and/or provided by code.  In fact, fire sprinkler systems have been designed by the trades for a long time.

In addition, there is a certain amount of design work involved in the construction process itself.  For instance, designs of shoring and forming systems may involve a professional design component.  Taken together, for larger projects, a significant amount of design risk may actually be assumed by the prime contractor.  In light of this, the parties should consider a number of factors when negotiating a standard construction contract.  Some questions to consider are as follows:

  • If the contractor is performing design work, should the contractor’s review of the Architect’s design be held to a higher professional standard, at least with respect to those systems being designed by the contractor?
  • What type of insurance is in place to cover the risk associated with defects in the designs provided by the contractor, potentially including errors and omissions (E&O) and owner’s protective professional indemnity (OPPI) coverages.
  • Who owns the drawings and/or who has a license to use them, and when?
  • Is the project owner entitled to bring design claims directly against the subcontractor and, if so, what is the effect, if any, of the liability limitation/consequential damages waiver in the subcontract?

Asking these questions before the contract is negotiated will often help the parties understand their risk and shift as much of that risk as possible onto the appropriate party (usually the party that controls the risk) and their insurance company.