The Spearin Doctrine: Determining Who Bears the Construction Risk of Design Errors

All owners, contractors, and subcontractors should carefully negotiate contract clauses that govern their relationships. In addition, all construction participants should be aware of the many implied obligations in construction contracts. An implied obligation is one that is not expressly stated in a contract but implied, by courts, arbitration panels, and dispute review boards. One such implied obligation is the implied warranty of the adequacy of the plans and specifications, also known as the Spearin Doctrine.

Before the turn of the 19th century, the law generally placed all construction risk on contractors, except in the event that their contract expressly stated otherwise or their performance was made impossible by an Act of God or Nature. It was said that “[w]here 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.”[1]

This remains the general rule of law today.[2]  However, the courts have created certain exceptions to this rule.  Foremost among those exceptions is the owner’s implied warranty of the adequacy of the plans and specifications, recognized by the United States Supreme Court in the landmark case, United States v. Spearin, where the court ruled that “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.  This responsibility of the owner is not overcome by the usual clauses requiring builders to visit the site, to check the plans, [] to inform themselves of the requirements of the work, … and to  assume responsibility for the work until completion and acceptance.”[3]

Spearin was a utility contractor who entered into a contract with the United States to relocate a 6-foot storm sewer and to build a dry dock.  The plans and specifications set forth the dimensions, materials, and location of the sewer, impliedly warranting that, if followed, the sewer would be adequate.  It wasn’t.  A year after the sewer was relocated, a torrential rain coinciding with high tide caused a backup in the sewer system that, because of an unforeseen blockage upstream from the relocated sewer, caused the internal pressure in the sewer to increase until it broke in several sections flooding the dry dock.  The Government took the position that Spearin was responsible for repairing the relocated sewer.  Spearin disagreed, insisting that the Government change the design of the sewer and either repair or pay Spearin to repair the sewer. The Government refused. After fifteen months of discussions, the Government terminated Spearin’s contract, radically changed the design of the sewer, and hired other contractors to complete the work.  Spearin sued the Government for wrongful termination, seeking almost $64,000 for the unpaid value of the work performed, plus profits on the unperformed work.  The Court determined that Spearin was excused from continuing performance because the Government breached its implied warranty to Spearin that the plans and specifications were adequate, and repudiated responsibility for remedying the sewer after it broke.

The Spearin Doctrine is recognized in public and private settings in nearly every jurisdiction of the United States.  The Spearin Doctrine has evolved to recognize that the implied warranty may be asserted both defensively, as it was in Spearin, to avoid responsibility for an unacceptable project, and offensively where the contractor can show that its work was made more costly, timely, or difficult by defects in the plans and specifications provided by the owner.  To invoke the Spearin Doctrine, however, the contractor has to show that it reasonably relied upon the defects in the plans and specifications, and that the defects in the plans and specifications caused the unacceptable project or adversely affected the cost, time, or difficulty in performing the work.

Georgia’s Supreme Court first recognized the Spearin Doctrine in Decatur County v. Praytor, Howton & Wood Contracting Co., 142 S.E. 73, 165 Ga. 742 (1928).  In this case, PHW Contracting rescinded its contract for the construction of a bridge for the County after PHW Contracting discovered that it would need to install two bridge piers at much lower elevations than those shown in the plans and specifications.  Using Spearin offensively, PHW Contracting sought to recover the value of the work it performed before the rescission, and profits it would have made on the project if the plans and specifications were correct.

PHW Contracting alleged that the rescission was proper because the change in the pier elevations was material in that the installation of the piers at the lower elevations would be more timely, expensive, and difficult.  PHW Contractor further alleged that the County assured it that the elevations were correct during pre-bid discussions after PHW Contracting told the County that it did not have adequate equipment or finances to bid piers below a certain elevation.

The Court found that, while the elevations of the bridge piers in the plans and specifications were wrong, the contract for the project also included an express disclaimer, which stated:

“The elevations shown on the plans for the bottom of piers, abutments, or footings represent the foreseen conditions.  In case the actual elevations necessary to obtain a foundation satisfactory to the engineer differ from those shown on the plans an allowance will be made either for or against the contractor at an equitable unit price to be estimated by the engineer.”

Citing to Spearin, the Court explained that errors in the plans and specifications may allow a contractor to recover damages but only if the contract between the parties does not expressly disclaim the owner’s implied warranty as to the adequacy of the plans and specifications.  In other words, the Court recognized that the implied warranty of the adequacy of the plans and specifications could be waived by an express contract provision disclaiming the implied warranty.  The express disclaimer reflected the parties’ intent that PHW Contracting assume the risk of the change in elevations because

“[The contractor’s] proposal [to the county] was not alone to build these piers upon the elevations shown in the plans, in which case it would have been relieved from so doing, if the piers could not be so built, but its proposal was to build these piers upon different foundations if the foundations represented upon the plans were unsatisfactory to the engineer.  The contractor was as much bound by its proposal and contract to build the piers upon different and lower foundations, if the foundations shown on the plans were unsatisfactory to the engineer, as it was to build these piers on the foundations shown in the plans.  If the contractor did not wish to run the risk of having to furnish the additional material and do the additional work necessary to erect them at lower elevations than called for in the plans, because of its financial inability to do so, it should not have submitted this proposal and entered into the contract which required the contractor to erect them on different foundations which might involve additional expenditures for material and labor.”

(emphasis added).  Notwithstanding its ruling against the contractor, the Court endorsed the Spearin Doctrine in its ruling.  Id. at 81. (“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 plans and specifications. . . . This responsibility of the owner is not overcome by the usual clauses requiring bidders to visit and inspect the site, to check the plans, and to inform themselves of the requirements of the work.”)

The Spearin Doctrine has evolved to encompass two specific implied warranties.  Under Spearin, the owner is deemed by law to impliedly warrant that the plans and specifications are (1) accurate and (2) suitable for their intended use.  An owner breaches the first warranty when the actual condition of the site is not as indicated in the plans and specifications.  For example, the owner might breach this warranty if hard rock is found but the plans and specifications indicate weathered rock.  An owner breaches the second warranty when a contractor accurately follows the plans and specifications but the completed work in inadequate because of an error in the plans and specifications.  For example, where a sewer pipe installed in accordance with the plans and specifications breaks because it was undersized.

In future articles, we will explore more of the nuances of Spearin. For now, it’s sufficient for utility contractors to understand that, absent an express disclaimer, the Spearin Doctrine implies a warranty that allows a contractor to reasonably rely upon the adequacy of the plans and specifications provided by an owner in the event that the design proves to be inadequate or causes the work to be more expensive, timely, or difficult.

Authored by Scott Cahalan and Darren Rowles for Georgia Utility Contractors Association’s (GUCA) monthly publication “Underground Connection”.

 

[1] United States v. Spearin, 248 U.S. 132(1918)

[2] American Demolition v. Hapeville Hotel, 413 S.E.2d 749, 202 Ga. App. 107 (1991)  (holding that where “[a] contract … contained no changed conditions clause, unequivocally limited the contract payment to a sum certain, and contained an inspection clause [that] [i]t is clear from these provisions that the contract imposed the risk of uncertainty of subsurface conditions on [the contractor].”)  The contract in American Demolition incorporated a modified version of AIA A201-1987 General Conditions in which the parties had struck through the changed conditions clause.

[3] Spearin, 248 U.S. at 136.

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