Sunday, September 9, 2012

A Sunday Question About Spearin v. U.S.

I am working on a presentation about the "Spearin" doctrine.  We normally think of this as the implied warranty of correctness of plans and specifications, without thinking about it too critically.  I will discuss three prongs.

  1. The original holding of Spearin, which is (in a different example) that if plans require contractor to install a certain sized beam and that beam breaks because calculations were off, the owner (and engineer) are responsible, not the Contractor.  I don't think that is a warranty concept.  
  2. The superior knowledge doctrine: owner has knowledge that should tell owner that representations made on plans are incorrect, or owner conceals relevant information. I don't think that's a warranty concept either (this is an aspect of fraud and covenant of good faith and fair dealing).
  3. The implied warranty of correctness of plans; i.e. that plans are fully coordinated and sufficient for construction with no change necessary. [I think there is less support for this proposition in the law than we normally pretend] 

The third of these prongs implies that if a change is necessary in the field to carry out the plans, this is a breach of warranty by owner, and gives rise to damages. Another way to approach this issue is through the changes clause: if Kor is required to build as drawn, but building as drawn is impossible, there is a change and this change gets handled through the changes clause. There is no breach.

As to this third prong, the question arises: is the change already priced in the contract. For example, coordinating HVAC and electrical in tight quarters involves changes, but such changes are routine. They happen on every project. As such, many such changes are already included in the labor costs assumed at bid time. Labor costs are determined from experience on past similar projects; if past similar project had the same changes, the labor costs should reflect that.

Here is the question. How do you tell which means and method changes are included in the original price? I think it's not as easy as looking at the contractor's take off and bid documents because many means and method changes are assumed as part of the original labor cost. How do you draw the line? How do you determine what should give rise to extra costs, and what should not?  How can we address this issue in contract documents up front?

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