Many types of disclaimers of owner responsibilities and warranties—particularly of the “express” variety—are frequently found riddled throughout today’s construction contract. While it is true that these disclaimers must be clearly understood if they do exist in print, it is equally true that some types of attempted evasions of responsibilities may often be overly ambitious in their attempt to shift the owner’s responsibilities onto the contractor. In some cases, efforts to create iron-clad disclaimers possibly can backfire, apply intermittently, or mean exactly what they say. Each one should therefore be scrutinized very closely and thoroughly understood.
When not barred from a specific contract, the law imposes several warranties, duties, and responsibilities on the owner—whether or not they are specifically highlighted directly in the contract language. These general responsibilities include the following:
1. In the case of public contracting, using sound discretion in evaluating the qualifications of apparent low bidders.
2. In the case of public contracting, preserving the integrity of the public bidding and contract award systems.
3. Funding the work, including all changes.
4. Providing all surveys describing physical characteristics on the site (unless such surveys are clearly part of services to be provided by either the contractor, construction manager, or design-build firm).
5. Securing all necessary easements and authorizations.
6. Warranting the adequacy of the plans and specifications.
7. Warranting the suitability of furnished materials.
8. Disclosing of superior knowledge.
9. Implementing prompt action on clarifications and changes.
10. Acting within time periods that are within the reasonable contemplation of the progress of the schedule.
11. Providing “final” interpretation of the contract documents.
12. Cooperating.
13. Ultimately assuming responsibility for the design professionals.
- Preserving the Integrity of the Public Bidding and Contract Award Systems*. Public bidding requirements are normally set forth very clearly and specifically. They can often be extensive and in some cases comprise an extreme amount of detail. Beyond the price proposal itself, bid bonds or other bid security will be required, various affidavits and statements may be included, and the bid itself may be expanded to detail specific components with unit prices. The bid forms may require that certain subbidders be named, along with their prices. All bid documents need to be delivered in complete and proper form by a particular day and time.
The bidder who completes the forms and requirements to the last detail as required in the stated bid procedure seals off at least those portions of the bid from further consideration and/or competition. Those bidders who do not complete a particular section in a very real sense maintain the option to keep shopping around for the particular item. At the extreme, if improper security for performance has been submitted, such a bidder may not even be qualified to perform the work. If this type of bidder is ultimately awarded the contract, it is patently unfair to the other bidders who may have been completely responsive to all of the bidding requirements. Accordingly, if the nonresponsiveness in bidding is allowed by the public agency to continue, all bids in the system would soon degenerate. Left unchecked, the public bidding system itself would be left in ruins.
After the requirements of strict conformance to the document forms of submission have been met, the fundamental nature of public bidding requires that all bids be submitted precisely on time or before. 2:00 p.m. means 2:00 p.m.—and not 2:05 p.m. In the words of the Practicing Law Institute:
“If late bids could be accepted, the integrity of the competitive bidding system would be violated because the late bidder would have the opportunity to obtain superior knowledge and, hence, there would be multiple opportunities for abuse.”
In addition, the late bidder would have actually had more time to prepare his or her bid in the first place, thereby compounding the unfair advantage.
Acceptance of late bids at public openings is becoming increasingly rare, but it still occurs. When nonresponsive bids are brought to the attention of the other bidders, it is important that all responsive bidders protest immediately and compel the public agency to do the right thing by rejecting the nonresponsive bid.
- Funding the Work, Including Changes*. Many contractors would list this item as the owner’s first requirement. In the case of a public bid, if the funding source has not been properly arranged, it is, at best, unfair to those contractors who took the time and expended the energy (and money) to prepare and submit a bid for the project. In any event, when the project is under way, the owner’s primary responsibility as far as the contractor is concerned is to secure funds necessary to allow payments to occur strictly as prescribed in the contract. These parameters include the following:
a) The timing of payables.
Payments to the contractor must be made after receipt of each invoice within the time periods specified, or within the requirements of appropriate laws (the contract language itself may determine which takes precedence). If the contractor has met all procedural requirements, the owner will become responsible for subsequent delay in the work and possibly for consequential effects that may include such items as interest on late payments.
b) Conformance to rates and amounts corresponding to actual job progress.
If particular quantities of materials can be substantiated to have been delivered to the jobsite and/or put in place in an acceptable manner considering all project requirements, the owner must pay for that quantity at the prescribed rate. Any alteration by the owner for convenience may create a hardship for the prime contractor and affected subcontractors, for which they may be entitled to compensation.
c) Contingency for changes.
Change orders are a normal part of the construction process. Because of the fact that changes occur on virtually every construction project, the owner has an obligation to provide financially for their eventuality. Responsible project funding will incorporate some additional percentage (often ranging between 5% and 10%) of the project based bid value that is to be set aside in order to be available to accommodate legitimate changes as they occur. Owners who fail to provide an adequate funding contingency for such changes are setting their projects up to experience major difficulties. In such projects that are inadequately funded, even if an owner’s representative agrees with a contractor with respect to the need to increase the Contract Sum because of needed change orders, the change may be rejected—or at least significantly delayed—simply because the funds are not in place to deal with the issue properly. Although it is true that the denial of an otherwise appropriate change order for this reason can be considered to be “bad faith,” it can occur much more often than it should.
- Provide All Surveys Describing the Physical Characteristics of the Site*. The contractor cannot be responsible for the correct layout and prosecution of the work unless the information upon which its activities are founded are fundamentally correct. Generally, it is the owner’s responsibility to provide all complete and accurate relevant data as it is or may become necessary for correct installation of the work. Certain aspects of this information include the following:
a) Proper Establishment of Property Lines and Contract Limit Lines. The first and the most basic of these kinds of information is the establishment of property lines and the Contract Limit Lines within which the contractor has the right (and obligation) to operate. Again, it is much more common than it should be that components of the work otherwise required as part of a particular contract are indicated to be completed outside of precisely indicated Contract Limit Lines. In such cases, even if the work still remains within property lines, the Contract Limit Lines formally define those boundaries within which the contractor must operate.
b) Site Material Composition. If significant excavation or other subsurface work is included in the particular project, boring data or other test data describing the subsurface material composition that will have to be dealt with as part of the contract are in the final analysis fundamental prerequisites for completing the work of the contract. While it is very true that there has been a compelling movement in construction contracting to provide such subsurface data in construction contracts as “informational,” instead of defining such data as specifically necessary for determination of scope and cost, the fact remains that such information still has a clear purpose. More and more construction owners are working very hard to shift the risk for unknown (or undisclosed) subsurface conditions from themselves directly to the contractor through complicated, confusing, and often very cryptic language in the contract documents with respect to subsurface information. This subject is so important that every construction professional should become intimately familiar with the specific issue and be prepared to deal with its nuances in every situation.
c) Baselines and Benchmarks. Normally, the contractor is responsible to lay out the work, as a typical specification clause states: “…from two (2) baselines and a benchmark furnished by the owner.” Under normal circumstances, the baselines and benchmark must be physically located on the site, and the owner should assume complete responsibility for and warranty their correctness. The project is then normally laid out by the contractor relative to these baselines and benchmark provided by the owner. Any subsequent errors in the project layout that may be transmitted from incorrect baselines or benchmark information should therefore remain the responsibility of the owner.
d) Utility Locations. The owner is normally responsible for providing accurate locations of all existing utilities. Locations of telephone lines and so on may be necessary in order to tie into new building services, or may be necessary only to prevent accidental interruption. Correct sanitary and storm line locations and elevations are critical to the design of their underground systems’ correct drainage and tie-ins. Invert elevations are also necessary in order to allow proper estimates of the amount of excavation and backfill for the respective utilities. If, for example, the invert elevations indicated on the drawings as 48.0′ are actually 43.0′, the additional 5′ of excavation depth may now require shoring or greater trench width—all substantially increased costs. If this error is due to an improper representation on the drawings of the subject utility locations, the owner in most cases will be likely to be responsible for associated increases in cost to complete the work under these changed conditions.
e) The Effects of Adjacent Properties. The relationship of adjacent properties may be significant to the construction phase at a project site. An important piece of information that may not be made available in the contract documents and would not be readily apparent in a prebid site investigation by the contractor, for example, may be the drainage characteristics of a surrounding piece of property. If, for example, surface water from several acres of land that is adjacent to the construction site drains into a swale that creates an active water course through the site that lasts several days every time it rains, this fact may not be considered to be something that should have been “reasonably anticipated” by the contractor. If so, the responsibility for resulting downtime, additional drainage and dewatering operations that may be required, and rework of the affected areas can rest with the owner. This can be the case if such a water course had not been disclosed to bidders and is not apparent or otherwise discernible in any reasonable prebid site investigation.
- Securing and Paying for Easements and Authorizations*. The contractor must be provided with the physical facility in which to complete its work. Barring any specific contractual language to the contrary, the contractor may have the right to assume that the entire footprint within the Contract Limit Lines is available at any time during the period of the contract as necessary to allow the performance of the work as determined by the contractor’s “means and methods.” If the contract contains some other unusual restriction, such as sequential access to different areas of the site, such information should be clearly included in the contract documents. It should be sufficient in detail in order to allow the contractor to plan its work both in the bidding phase and throughout the construction phase. To the extent that such language is included, it remains the owner’s obligation to comply with its part of the bargain as well. Specific considerations in this regard include the following:
a) Site Access. The contractor must have access to the site in order to perform its operations. Even if such access is limited or restricted, as, for example, may be the case when working within a military complex, a security area of a manufacturing facility, or some similar environment, the peculiarities must be made known to the contractor prior to bid. The consideration of these types of issues with respect to probable lost time and attendant costs must be allowed. If these or any other types of access restrictions have not been made clear prior to the commencement of the work and are not apparent in the reasonable prebid site investigation, the contractor cannot be expected to carry the extra burden without additional compensation. Some reasonable facility should be provided for workers to park, enter into, and leave the site. If not, specific conditions that address these types of matters should be provided in the bid documents in order to allow contractors to provide appropriate pricing for unusual circumstances. If it is either expressed or implied in the contract documents or in the reasonable prebid site inspection that space is available for material storage (to allow billing the payment for such materials before they are actually installed in the project) and that space suddenly becomes unavailable, the contractor may be faced with another surprise that will prevent invoicing for materials that now need to be stored off-site. Again, if this is not a problem that should have been anticipated by the contractor during the bidding process, the contractor may not be required to bear the costs of material storage, multiple handling, carrying charges, and other problems resulting from late payment for off-site stored materials. These conditions should be studied carefully in order to allow the contractor to take appropriate steps toward equitable adjustment. The point of this section is simply that if any considerations other than those that can normally be expected to be encountered during the life of the project (considering the type of project) exist, the owner has a specific obligation to disclose them. If the conditions have been changed, the responsibility usually rests with whomever caused the changed condition.
b) Agency Approvals. The Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), the Inland Wetlands Commission, and any number of federal and local agencies may have some level of jurisdiction over certain areas of the facility design and construction. The approval of these agencies of the facility, or some component thereof, may be necessary either at the design development stage or at some time prior to the achievement of the Certificate of Occupancy. It is most often the owner’s responsibility to secure these types of approvals prior to the start of construction. In the absence of any noted exception, the contractor usually will have the right to expect that all of these loose ends have been taken care of.
- Warranting the Adequacy of the Plans and Specifications*. The Spearin Doctrine states that the owner warrants the adequacy of the plan and specifications, and therefore bears the responsibility for any defects in them [(United States v. Spearin, 248 U.S. 132, 136, 39 S. Ct. 59 (1918)]. Defects in the plans and specifications can exist in many forms but can be thought of as boiling down into the two distinct categories of product and time. Most defective specifications problems involve the accuracy of the technical specifications. Such issues can involve mistakes in the way information is communicated (errors), the failure to provide some necessary information (omissions), the failure to coordinate various components of the design (errors), or inconsistencies and incompatibilities between and among design components (errors). Time, then, most often becomes a consequential consideration that is related to the inability of the contractor (or anyone else for that matter) to provide for the (changed) scope of the contract within the amount of time originally contemplated for the performance of the work.
Accordingly, the owner warrants that:
1. The facility and its various components can, in fact, be built as designed.
2. All pieces of the design will fit together in the way indicated.
3. It is physically possible to accomplish all this by employing reasonable means (unless a more elaborate procedure is clearly spelled out in the contract).
4. All the components necessary to complete the project are available within time frames necessary to allow completion of the project within the contract time specified.
From this fundamental warranty flows the responsibility for accurate description of the divisions of responsibilities between the different parts of the work. It is normally the owner’s responsibility to ensure that the plans and specifications are clear, complete, comprehensive, and comprehensible (unambiguous). This is referred to as the “Four Cs of Contracts.” Responsibilities for the individual pieces of work must be clearly spelled out—without duplication, and without holes.
As noted, the second fundamental owner warranty involves adequate time within which to complete the work of the contract. If the contract allows, for example, 320 working days to complete a project, the owner warrants that the project can in fact be built by reasonable means within those 320 working days. The bidder will normally have a right to expect that by employing reasonable methods and care, he or she will complete the project by or before the total amount of contract time has been used up. The designers (representatives of the owner, for which the owner is responsible) have had every opportunity to confirm that all specified materials and equipment can in fact be purchased and delivered within the constraints imposed by a logical construction sequence that will allow completion of the project within the prescribed period of time. The contractor has the right to depend upon this information. So, for example, if it is discovered that by employing reasonable schedule logic the project time will be overrun, the owner may hold title to the additional time needed to complete the project (and/or for the costs associated with acceleration of the construction that becomes necessary to meet the original completion date—by employing unusual or excessive efforts).
- Warranting the Suitability of Furnished Materials*. In projects where the owner provides material and/or furnishes equipment to the contractor for use in the work or for incorporation into the project, the law provides that a warranty that these items will be suitable for their intended purpose exists [Thompson Ramo Woolridge, Inc. v. United States, 175 Ct. Cl. 527, 361 F.2d 222 (1966)]. Beyond ensuring the fundamental compatibility of materials, the owner is also responsible for the timing and coordination of the respective items in the same manner and to the same extent as every other subcontractor and supplier to the project. Shop drawings and other coordination information must be submitted and distributed correctly and in a timely manner, and deliveries of owner-furnished materials and equipment must be made within the current requirements of the contractor’s progress schedule. Because of this, the owner would become responsible for delays to the project—and associated costs—caused by delays in providing this information and/or materials and equipment.
- Disclosing Superior Knowledge*. The owner has an absolute duty to disclose to the contractor “superior” knowledge of any item that it may directly or indirectly have that is related to the work, where that knowledge is either unknown to or has not otherwise been available to the contractor. Considering the “boring data” example discussed in item #3 above, assume that the boring and soils information did in fact exist for the interior portions of construction, but that it was either intentionally or inadvertently left out of the contract. Such an omission can be the result of a simple error, or may be the result of a “nothing-to-lose” attitude that the contractor might somehow absorb the cost of working through the rock (undisclosed condition) once it is finally encountered. An owner with a “bad faith” motivation might consider that such information can either (properly) be provided in the contract, thereby guaranteeing added costs, or gambles with the chance that the contractor may or may not later make an issue out of it. Even though this type of attitude may actually border on fraud, it is unfortunately one plausible scenario. Likewise, where the owner’s superior knowledge of a fact, such as the unavailability or inadequacy of the specified material, would lead to reduced costs, improved efficiency, or simply the earlier exposure of the problem, the owner has the obligation to so advise the contractor.
- Taking Prompt Action on Clarifications and Changes*. Good construction contracts recognize the need for and importance of speed with respect to issuing clarifications and reviewing/approving Change Orders. This is true whether or not these documents are produced by and for public bureaucracies or for private development contracts. Although not as often openly admitted, this recognition is an acknowledgement that change orders do, in fact, interfere with and disrupt the orderly sequence of the work. They accordingly must be resolved as quickly as possible in order to minimize their total direct and consequential impacts on construction.
In the case of large public agencies, this recognition may manifest itself as a prescribed set of unique procedures that in effect transcends all other standard practices as they relate to normal project correspondence. The following passage, taken from a state Bureau of Public Works “Working Procedure” section of the General Conditions, is an example of this exception procedure:
“To expedite change orders during the course of construction, proposals are to be submitted directly to the Construction Supervisor (in the numbers of copies requested) with a copy to the Chief of the Construction Section (in duplicate), the District Construction Supervisor, and the Architect.”
- Providing “Final” Interpretation of the Documents*. Although the architect normally researches and prepares recommendations for technical matters relating to design, when involving cost and/or time, these corrections, changes, and interpretations are communicated to the owner, who issues the final position on the matter in the case of public projects. In the case of private development projects, greater amounts of authority may be invested into the design professionals. Varying amounts of “informal” authority may be accorded to architect, other design professional, or even some other member of the owner’s organization, but actual authority should be clearly defined in the contract. Because no contractual tie normally exists between an architect and a contractor, however, the ultimate responsibility for the architect’s performance in these situations continues to rest with the owner.
It is true that certain contract structures incorporating strict, unmodified provisions of certain documents such as the AIA Document A201 General Conditions of the Contract for Construction prepared by the American Institute of Architects may include language either empowering or requiring (depending upon your perspective) the architect to “interpret” some or all questions and issues relating to the contract documents, and may also provide that such interpretation would be “final.” In most public contracts, though, the “right”—and obligation—to interpret the contract is more specifically bestowed directly upon the owner.
- Working Cooperatively*. Just as the owner’s contract documents are likely to include an express requirement on the part of the contractor to “cooperate” with separate contractors and other entities, the owner has a corresponding duty to cooperate with the contractor to the best of his or her abilities. This cooperation includes an obligation to avoid impeding, hindering, obstructing, or otherwise interfering with the work of the contractor. It is as simple as it sounds and often boils down to the personalities involved.
On the one hand, the contractor should be held responsible for assuming at least a certain impact from normally anticipated effects that should reasonably be anticipated in the given contracting environment. The bureaucracy of any public agency, for example, must be anticipated by the contractor to some extent. In the case of public projects, it would not be considered reasonable for a contractor to claim that it should not be responsible for costs associated with dealing with the normal operations of an existing bureaucracy. The owner, on the other hand, is responsible for ensuring that its own procedures and response times do not exceed those limits expressed in the contract or implied by industry standards.
- Assuming Ultimate Responsibility for the Design Professionals*. The architect and his or her engineers have many duties and responsibilities. Although there may be few “express” warranties in the contract as far as the owner responsibilities go, many implied warranties of performance exist. Professional liabilities are assumed for the activities of these people and companies. The continuing contact and dialogue between the contractor and the architect that is typical on nearly every project can sometimes confuse direct-line responsibilities if the specific language of the particular contract is not clearly understood and enforced by all parties. A review of the contract structures described in the early part of this section reaffirms that unless the architect coincidentally assumes some other formal role in addition to his or her design responsibilities, no formal contractual relationship exists between the contractor and the architect. The architect remains an agent of the owner. The owner therefore ultimately assumes the liability for the architect’s performance, or lack thereof.
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