Construction & Public Contract Law Section Blog: Holes in the Shield: Spearin in the Age of Evolving Delivery Methods:

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  • Construction & Public Contract Law Section Blog
    October
    23
    2018

    Holes in the Shield: Spearin in the Age of Evolving Delivery Methods

    Patrick Whiting

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    With the advent of new construction delivery methods, the limits of protections from the Spearin Doctrine have been tested. Patrick Whiting discusses the intersection of the Spearin Doctrine and these new delivery methods.

    There was a time, not so long ago, when you could count on things in this world: The Milwaukee Brewers stunk, Pluto was a planet, and the Spearin Doctrine was a contractor’s ultimate shield, protecting it from problems caused by a project’s design defects.

    But as Bob Dylan so insightfully put it way back in 2000, “things have changed.”1

    The Spearin Doctrine

    Ah, the Spearin Doctrine. That wonderful barrier between designer and constructor, the line in the sand between artist and tradesman.

    Announced by the U.S. Supreme Court a century ago, the Spearin Doctrine states that a project’s owner, by providing the project’s plans and specifications, gives to the contractor an implied warranty that those plans and specifications are free from design defects. 2 Accordingly, a contractor that constructs a project according to those design documents is insulated from liability for loss or damage that results solely from the plans’ insufficiencies or defects.3 Moreover, the Spearin court held that the owner’s implied warranty cannot be overcome by “general clauses” in the owner-contractor contract requiring the contractor to examine the project site, check the plans, or assume responsibility for the work until completion and acceptance.4

    For decades, when the design-bid-build (DBB) delivery method was the only game in town, the Spearin Doctrine ruled the land. In DBB, an owner enters one contract with a design professional to design a project, and another contract with a contractor to build it. With design and construction responsibilities so distinct, Spearin made perfect sense in the DBB world.

    Traditional Exceptions to the Spearin Doctrine

    Now, there have long been exceptions to the Spearin Doctrine. For example, if a project’s design contains an error so evident that it reasonably should not be followed, a contractor who follows it can still be found liable for damages.5

    Additionally, a contractor can be held liable for a design flaw in those circumstances where the contractor assisted in the design itself.6 In the world of specialty subcontracts, where design delegation is common (think HVAC or electrical systems), this exception makes sense.

    Patrick Whiting org whiting agcwi Patrick Whiting, Minnesota 2006, is the general counsel for the Associated General Contractors of Wisconsin, Madison, where he advises members on legal matters involving the construction industry and their businesses.

    Further, Spearin does not eliminate liability when a contractor gives its express waiver of any claim should it encounter site conditions different from those expressed in the design documents.7 But such express waivers must be considerably more specific and explicit than the general waivers that the Spearin court ruled would not be upheld.

    Exceptions aside, the Spearin Doctrine’s protections generally held strong over the past century. A contractor would not be responsible for damages when those damages were really the result of the owner’s flawed plans. There was comfort in this axiom.

    Then, the world of construction contracting began to evolve, and things got stickier.

    The New World: Design-Build, Construction Management, and Everything Else

    With the advent of new construction delivery methods, the limits of Spearin’s protections have been tested.

    Design-Build
    Over the last several decades, the design-build (DB) delivery method has become increasingly popular. In the DB world, an owner enters a single contract with a DB contractor to both design and construct the project. DB contractors are generally either firms that employ both design and construction professionals, or are independent design and construction firms that work together as a joint venture for a specific project.

    Because a DB contractor is, by definition, responsible for a project’s final design, the Spearin Doctrine is generally of limited help to it when a problem arises that can be blamed on a design flaw. Cases abound where courts have determined DB contractors are responsible for flaws in the designs they put together, and that Spearin provides them no protection.

    There have been cases, however, where even a DB contractor has been able to use Spearin to shield itself from design liability. These cases tend to have a common backstory: even though the DB contractor was responsible for the project’s final design, the owner provided some specific aspect of the design itself, and that specification ended up causing the problem at the heart of the litigation.8

    Accordingly, while the knee-jerk reaction in a DB setting is to assume that the DB contractor will not be able to rely on Spearin’s shield, attorneys should always analyze whether the flaw in the design actually came from the owner itself. If it did, they may have protection after all.

    Construction Management
    At its core, the construction management (CM) delivery method is based on the idea of a contractor (i.e., a construction manager) acting as an owner’s agent to oversee a project. The value of this delivery method is that the construction manager almost always has more expertise than an owner to run a project efficiently and cost-effectively. In theory, things should run smoother when a construction manager – rather than the owner – is coordinating schedules, negotiating change orders, and scheduling material deliveries.

    Construction management contracts generally take one of two forms. In the first form, the contractor simply acts as the owner’s agent in the oversight of the project. This is known as a construction manager as adviser (CMA) contract. In the basic CMA setup, the owner still enters individual contracts with other contractors (sometimes colloquially, but incorrectly, referred to as "subcontractors") whose work is supervised and directed by the construction manager.

    The other basic CM framework is generally referred to as a construction manager at risk (CMR) contract. In such an arrangement, the construction manager oversees the project on the owner’s behalf, just like in the CMA format. But in addition, a construction manager working under a CMR contract enters (or "holds") subcontracts with trade subcontractors. CMR contracts can be set up so that the construction manager either provides a guaranteed maximum price to the owner, or is paid a cost plus fee.9

    Regardless of which format is used, the CM delivery method generally requires the owner – not the construction manager – to furnish plans for the project. Accordingly, the owner still enters a separate contract with a designer to formulate those plans.

    One of the most attractive aspects of hiring a construction manager, however, is that it can provide “pre-construction services” to the owner, including advice during the design process. In the traditional DBB world, a contractor often is not hired until the designer’s plans are complete. But in the CM world, it is not unusual for a construction manager to be hired around the same time or even before a designer is brought on board. In the “pre-construction” phase, the construction manager can provide input to the designer about the efficiency and feasibility of plans as they’re being drafted.

    While the CM delivery method can provide real benefits to an owner, the danger to the construction manager is evident: the more it is involved in the project’s design, the less it can safely rely on the Spearin Doctrine to bail it out if that design has problems.

    This was demonstrated in a relatively recent case that garnered significant attention from the national construction bar. In Coghlin Elec. Contractors, Inc. v. Gilbane Bldg. Co.,10 a Massachusetts state agency entered a CMR contract with Gilbane Building Company (Gilbane) to serve as the construction manager of a psychiatric facility project. Gilbane then subcontracted the electrical work to Coghlin Electrical Contractors (Coghlin). In time, Coghlin incurred additional costs, which it requested Gilbane pay. When Gilbane refused, Coghlin sued Gilbane for increased costs of performance allegedly arising, in part, from design defects. Most notable was Coghlin’s allegation that the plans did not include sufficient space between floors to allow for the placement of electrical equipment. Gilbane, in turn, filed a third-party complaint against the State, asserting that any damages should be borne by the State because of its flawed plans.

    In a ruling that sent shudders through construction executives’ offices nationwide, the trial court granted the State’s motion to dismiss Gilbane’s third-party complaint, and ruled that an owner does not provide an implied warranty of design when it enters a CMR contract.

    Thankfully for contractors, the Massachusetts Supreme Judicial Court disagreed with the trial court and reversed the decision. The upper court did, however, recognize that a construction manager often contributes something more to a project’s design than does a traditional DBB contractor, and differentiated how the two situations should be analyzed:

    The general contractor in a design-bid-build project may benefit from the implied warranty where it relied on the plans and specifications in good faith, but the CMR may benefit from the implied warranty only where it has acted in good faith on the design and acted reasonably in light of the CMR’s own design responsibilities.11

    In short, the court stated that a construction manager invoking the Spearin Doctrine will face heightened scrutiny when it attempts to shield itself from liability for faulty design. As case law concerning CM projects develops, it will be interesting to see how other courts utilize the Coghlin decision.

    Everything Else: Design-Assist, Integrated Project Delivery, Etc.

    While the DB and CM are the two pillars of alternative delivery methods, the construction industry continues to evolve.

    A delivery method that has recently gained some traction is design-assist (DA). There, an owner enters a contract with one or more contractors prior to the completion of the project’s design. The contractor(s) and key subcontractors then consult with the owner’s designer – sometimes bringing in their own designers – to “assist” the owner’s design professional. In short, DA is premised on the idea that lots of different actors working together on a project’s design will make the actual construction run smoother and the final product better.

    Similarly, integrated project delivery (IPD) is a term that is increasingly thrown around to discuss the increased emphasis on contractors, designers and owners working together through all phases of their projects. IPD is alternatively discussed as a delivery method and a philosophy.

    There is not much case law surrounding these newer delivery methods. But their hallmark – an increased emphasis on collaboration between designers and contractors – can only mean one thing: future litigation surrounding these methods will continue to test the bounds of Spearin.

    Conclusion: Two Observations

    What should contractors – and their attorneys – make of all this? Two things, really.

    First, the basics of Spearin are still alive and well. Contractors should still invoke it as a shield when they’re sued for a project gone bad, so long as they can argue that the owner’s design, rather than their own work, was the cause of the problem. Particularly in the DBB world, it should be a first line of defense.

    Second, in the world of alternative delivery methods, an ounce of prevention is worth a pound of cure. If a contractor is going to be involved in a project’s design – whether as a construction manager or design-builder or anything else – it should talk to its attorney and its insurance representative prior to signing the contract. Each must understand that the contractor will be involved in the project’s design, and both the contract and the insurance documents must be tailored to address potential design liability down the line. The last thing a contractor needs is to assume more liability than it deserves.

    The Construction and Public Contract and Labor and Employment Law sections are co-producing the CLE presentation “Redefining Leadership in Construction: How a Diverse Team Gets Better Results” from 3 p.m. to 5:40 p.m. on Nov. 14 in Pewaukee. For more information, visit Redefining Leadership on WisBar's Marketplace.

    Endnotes

    1 See Bob Dylan, “Things Have Changed,” on Music From the Motion Picture ‘Wonder Boys’ (Sony Records 2000). To hear what Dylan thought about “change” in the 1960s, see generally Bob Dylan, “The Times They Are A-Changin’,” on The Times They Are A-Changin’ (Columbia Records 1964).

    2 U.S. v. Spearin, 248 U.S. 132, 39 S. Ct. 59 (1918). The specifics of the Spearin decision involve a contractor, George Spearin, who contracted with the federal government to construct a dry dock at the Brooklyn Navy Yard. The government’s plans required Spearin to excavate the site and relocate and reconstruct a brick sewer line. After the sewer was relocated and reconstructed, heavy rains caused it to back up, which resulted in the flooding of the dry dock excavation area. The government insisted that Spearin clean up and fix the situation at his own expense, while Spearin contended that he had only built what was specified in the plans. The Supreme Court ultimately found in Spearin’s favor.

    3 Spearin has been readily embraced in Wisconsin. See, e.g., Thomsen-Abbott Constr. Co. v. City of Wausau, 100 N.W.2d 921, 926 (Wis.) (“[A] contractor bidding on a public work project has the right to rely on the express representation contained in the plans even in the presence of a contract clause … which places a duty of investigation upon the contractor.”) (citing Spearin). In fact, Justice Brandeis analyzed a Wisconsin Supreme Court decision involving the construction of new wings at the State Capitol building in the Spearin decision itself. See Spearin, 248 U.S. at 136-37 (citing Bentley v. State, 41 N.W. 338, 73 Wis. 416 (Wis. 1889)).

    4 See Spearin, 248 U.S. 137-38.

    5 See, e.g., Metro. Sewerage Comm’n of Milwaukee Cnty. v. R.W. Const., Inc., 241 N.W.2d 371, 388 (Wis. 1976) (contractor could not rely on project plans when it could not “reasonably believe” that the incorrect water levels indicated in the plans were accurate).

    6 See, e.g. Austin Co. v. U.S., 314 F.2d 518 (Ct. Cl. 1963) (contractor that proposed substitute specifications for a workable digital data recording system could not rely on Spearin Doctrine to shield itself from liability after its design was incorporated into owner’s plans and the constructed recording system failed).

    7 See S&M Constructors, Inc. v. City of Columbus, 434 N.E.2d 1349 (Ohio 1982).

    8 See, e.g., AAB Joint Venture v. U.S., 75 Fed. Cl. 414 (2007) (design-build contractor was entitled to rely on specifications provided by owner, which turned out to be flawed).

    9 There are, of course, variations on the CMA and CMR delivery methods that this article does not attempt to delve into. It should be noted that under either setup, the construction manager is often permitted to “self-perform” some of the construction work on the project. Such self-performance needs to be accounted for in a contract (or contract amendment) with the owner.

    10 36 N.E.3d 505 (Mass. 2015)

    11 36 N.E.3d 505, 562

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