Design-Builder Not Entitled to Equitable Adjustment To Meet Owner's Detailed
Design Specifications
September 2004
Where a contractor/bidder has actual knowledge
of an ambiguity in the specifications included within the request for proposals
on a design-build project, whether that ambiguity is so obvious that it is "patent"
or it is so unapparent at time of bidding that it is "latent," the bidder has
an obligation to inquire about the ambiguity. Where a design/builder failed
to inquire about the discrepancy, a court held it was not entitled to recover
on equitable adjustment claim where it unilaterally chose how it would resolve
the ambiguity without first inquiring of the project owner.
by J.
Kent Holland Jr.
ConstructionRisk.com LLC
The case was United Excel Corp. (VABCA #6937,
2003 WL 22977508, 041BCAP32, 485). There, a design-build contractor, United
Excel Corporation (UEC), submitted its 90 percent design submission to the project
owner, Veteran's Administration (VA). The VA representatives formally commented
that the request for proposal (RFP) required stainless steel operating room
heating, ventilation, and air-conditioning (HVAC) components. The design builder
(D/B) stated at that time that it would revise the drawings to reflect the stainless
steel instead of the aluminum components it had included in the design at that
point. In all subsequent shop drawing submittals, the stainless steel components
were included and were approved by the VA.
UEC submitted two change order proposals on behalf of KCM and Stadium Sheet
Metal. The VA denied the change order because it concluded:
- UEC submitted a certified claim for an equitable adjustment resulting
from installing stainless steel instead of aluminum diffusers. The VA conceded
that the specifications contained conflicting provisions concerning whether
stainless steel or aluminum was to be used for the diffusers in the operating
room HVAC installation. But the VA argues that the discrepancy was "patent"
and as such that the D/B was required to inquire about what material was
required.
The request for proposal (RFP) stated: "The RFP documents are intended to
define existing conditions, certain required items, and design parameters to
be included in the project. It is the DB Team's responsibility to complete the
documents and construction in a manner consistent with the intent of the RFP
documents within the required time period (contract length)."
In discussing this issue, the court pointed out that if an ambiguity is indeed
so obvious or glaring as to be a "patent ambiguity," then the rule of contra proferentum (interpretation against
the drafter) would not apply. But this did not avail the design-builder in this
instance because its subcontractors (Stadium/Triangle) were aware of the specification
discrepancies with regard to the material requirements prior to submitting their
proposal to the design-builder.
As explained by the court, "Where a contractor/bidder has actual knowledge
of an ambiguity, be it ‘patent' or ‘latent,' it has an obligation to inquire
about the ambiguity." Since the design-builder failed to inquire about the discrepancy,
the court held it could not now prevail on an equitable adjustment claim resulting
from its unilateral resolution of the ambiguity.
In addition to the above argument, the design-builder argued that because
it was working under a design-build contract, the drawings and specifications
contained with the RFP must only be "design parameters" and not absolute requirements.
The D/B, therefore, asserted it was entitled to choose aluminum diffusers as
the most economic way to achieve the design intent. In rejecting this argument
the court explained:
- The contract is clear that, in executing the final Construction documents,
UEC was constrained to follow the requirements of the RFP specifications
and drawings, and this constraint required UEC/HWA to design a diffuser
configuration, using stainless steel diffusers … We also see nothing in
the case law … for the proposition that the well-settled law relating to
the contract interpretation is suspended or abrogated in a design-build
contract. To the contrary, the case law indicates that a design build contract
shifts risk to a contractor that a final design will be more costly than
the bid price to build and that the traditional rules of fixed-price contract
interpretation still obtain. UEC was not relieved of its obligation to inquire
about the aluminum stainless steel diffuser discrepancy because the Contract
was design-build.
One final argument by the design-builder that was rejected by the court was
the assertion that the court should create a new method of contract interpretation
for design-build contracts because use of the traditional "patent ambiguity"
rules of interpretation "unduly punish" contractors where a contractor bids
on incomplete plans and specifications as is typical with design-build projects.
The court concluded:
- … there is nothing in the terms of the Contract or the law that would
permit us to ignore the Contract language and establish a new rule of allocating
the risk that a patent ambiguity exists in the specifications of a design-build
RFP.
Practice Note
The necessity of a design-build contractor meeting design criteria specified
by the project owner has been addressed by a number of court decisions. In a
number of cases, contractors have argued that the owner's design details were
not binding on them because they believed a design-build contract permitted
them to disregard such details so long as what they designed met the performance
requirements of the owner. But courts hold that owners have the right to prescribe
plans and specifications just as detailed as in design-bid-build projects. When
responding to a design-build solicitation, the contractor needs to understand
which aspects of concept documents developed by the owner are discretionary
and which are not.
A good example of this is presented by the case of Dillingham Construction v U.S., 33 Fed Cl 495
(1995). The facts underlying that case were that the electrical specifications
included in the solicitation required use of raceways (trays) to run conduit
and described conduit size and characteristics as well as supports for the raceways.
Dillingham's electrical subcontractor wanted to use metal clad cable instead
of the raceways. The owner rejected this proposal. Then, when the subcontractor
installed the raceways using supports differing from those specified, the owner
required them to be removed and replaced.
The subcontractor submitted a claim for over $600,000 for its extra costs
in complying with these requirements. It argued that the specifications were
"performance" specifications providing "general guidelines" giving the subcontractor
"wide latitude" in interpreting them. The court rejected the subcontractor's
argument and noted that the contract specifically required the subcontractor
to furnish a design that complied with the electrical specifications. The court
found the specifications to be "design" specifications that gave the subcontractor
no flexibility to deviate.
Just as the contractor is required to meet the significant design details
that are specified by the owner, the more involved the project owner becomes
in specifying such details, the more the owner takes responsibility for the
design, the more involved it becomes in specifying such details.
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