Expert Commentary

Design-Builder Not Entitled to Equitable Adjustment To Meet Owner's Detailed Design Specifications

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.

Design and Professional Liability
September 2004

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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