Damages recovered due to defective spec

Article December 28, 2000
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When an owner makes changes as a result of defective
specifications, the contractor is entitled to be paid for any
delays and related costs associated with such defective
specifications. This is certainly the rule for federal contracts
under the current changes clause. It also is the rule in most
states. In this column, I will examine the background and
reasoning behind the rule as discussed in a 1970 Maryland case.

In Dewey Jordan, Inc. v. Maryland Nat. Capitol Park and
Planning Comm'n, 265 A.2d 892 (Md. App. 1970), the contractor,
Dewey Jordan, was engaged by the commission to construct an
earthen dam according to plans and specifications furnished by
the U.S. Soil Conservation Service (SCS). Those plans and
specifications specifically indicated that rock meeting
specifications for the down-stream fill could be obtained from
designated borrow pits near the job on land owned by the
commission.

After approximately one year's performance, the
commission discovered that the designated fill material was too
fine. It thereafter suspended all work pending an investigation
regarding the quality of the designated material and the
effectiveness of the drainage system created by its use.
Following a one-month delay, the commission ordered Dewey Jordan
to resume work and added a toe drain to the dam structure to
improve drainage. Subsequently, Dewey Jordan was forced to
recover delay costs it incurred during the one-month suspension
of work by order of the commission.

Not only did SCS design
the project, it also provided some 94.6% of the funds required
for construction. As a result, a federal "changes" clause was
included in the contract. As most readers know, the changes
clause entitles the government to make changes within the
general scope of the contract. It also requires the government
make an "equitable adjustment" if the changes cause an increase
or decrease in the contractor's cost of performance.

The
current version of the changes clause specifically addresses the
fact that all costs incurred in attempting to comply with or
remedying a defective specification are compensable. However,
the changes clause reviewed in Dewey Jordan did not contain
express language addressing defective specifications. As a
result, the court was required to compare what had become known
as the Rice and Spearin Doctrines.

Comparing doctrines

The frequently criticized Rice Doctrine comes from the U.S.
Supreme Court case of United States v. Rice, 317 U.S. 61 (1941).
Under it, the government is given a "reasonable time" to make
changes within its power under the changes clause. As such, it
is not liable for delaying the work a reasonable time in
exercising its right to make a change. Based on the Rice
Doctrine, the commission in Dewey Jordan argued that it had not
breached its contract by suspending the work to investigate the
quality of the designated borrow and deciding to add the toe
ditch. The trial court found the argument persuasive and ruled
in favor of the commission. The appellate court, however,
correctly distinguished Rice on the basis of defective plans and
specifications and applied the better known Spearin Doctrine.

The Spearin Doctrine is taken from the line of cases, which
follow United States v. Spearin, 248 U.S. 132 (1918). That
doctrine provides that a government owner impliedly warrants the
accuracy and adequacy of the plans and specifications it
furnishes and that a contractor is entitled to be reimbursed for
any costs, including delay costs, associated with defects in the
plans and specifications.

Because the plans and
specifications at issue in Dewey Jordan clearly indicated
suitable borrow material could be obtained for the down-stream
fill from designated sources, the court determined that the
delay to later investigate the actual suitability of the
material was the result of defective plans and specifications.
Thus, the court distinguished Rice and applied Spearin.

Rice
not without merit

As a final matter, the court noted that
absent a defective specification, the commission would have had
a legitimate defense under Rice to the claim of delay.
Particularly, it stated, "Were [the specifications not
defective, the commission's] contention would be correct: [Dewey
Jordan] would have no right to complain of the [commission's]
exercise of its reserved right to make changes and set its work
schedule awry."

While today, there is no doubt a continued
right of the government to make changes, it is doubtful an owner
can still get away with making changes, which "set a schedule
awry" without paying additional costs. First, even under Rice,
changes must be made within reasonable time. I submit that on a
tightly scheduled project, any change, regardless of the
underlying reason therefore, which disrupts operations or delays
progress can not be made in a "reasonable time." Further, the
modern changes clause affords greater protection than that
afforded by the one considered in Dewey Jordan, as would the
current version of the federal Suspensions of the Work clause.

Parvin is a shareholder in the law firm of Jenkens &
Gilchrist, which has offices in Austin, Dallas, Houston, and San
Antonio, Texas, and Washington, D.C. The firm's web site is
www.jenkens.com.

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