Design Errors: Statute of Limitations

Dec. 28, 2000
Can a contractor recover economic losses incurred as a result of design defects directly from the design engineer? The answer to that question depends on the law in the state where the cause of action arises. In some states a contractor has no right to recover an economic loss from a design engineer because of a "lack of privity" of contract. In other words, because there is no contractual relationship between the designer and the contractor, the courts of those states do not permit recovery. In other states "lack of privity" is no bar to recovery.
Can a contractor recover economic losses incurred as a result of design defects directly from the design engineer? The answer to that question depends on the law in the state where the cause of action arises. In some states a contractor has no right to recover an economic loss from a design engineer because of a "lack of privity" of contract. In other words, because there is no contractual relationship between the designer and the contractor, the courts of those states do not permit recovery. In other states "lack of privity" is no bar to recovery.

In states where a contractor may recover damages caused by design defects directly from the design engineer, the second question to be decided is when the statute of limitations begins to run for a design defect. In Hardaway Co. v. Parsons, Brinckerhoff, Quade & Douglas Inc. 479 S.E. 2d 727 (Ga. 1997), the Georgia Supreme Court was faced with that question.

Parsons Brinckerhoff contracted with the Georgia Department of Transportation to design the reconstruction of State Highway 19 in Savannah, including construction of 10 approach bridges for the Talmadge Memorial Bridge over the Savannah River. As part of its design package, Parsons Brinckerhoff planned a detailed erector system for use in erecting a number of 50-ton bridge girders.

Hardaway Co. was the successful bidder for the construction contract and in May of 1988 signed the contract with the DOT. In October of 1988, Hardaway asked the DOT to verify the workability of the erector system designed by Parsons Brinckerhoff. One month later, after consulting with Parsons Brinckerhoff, the Georgia DOT affirmed the integrity of the designed erector system.

Revision of Erector System

In March of 1989, Parsons Brinckerhoff began to revise its computer analysis of the erector system. By May of 1989, Parsons Brinckerhoff allegedly concluded that its designs for the erector system were flawed. On June 15, 1989, Hardaway was informed that the erector system would not operate properly as designed. In the litigation Hardaway claimed that the defective design delayed the fabrication of the bridge girders for approximately two months and delayed the installation of the girders roughly six months.

On April 8, 1993, Hardaway filed suit against Parsons Brinckerhoff claiming negligent design of the erector system and negligent misrepresentation of the system's integrity. In the trial court, Parsons Brinckerhoff filed a motion for summary judgment claiming that Hardaway's cause of action was barred by the four-year statute of limitations, which Parsons Brinckerhoff argued began to run when Hardaway contracted with the DOT in May of 1988. In opposition, Hardaway argued that the statute of limitations did not commence until June of 1989, when it began to incur losses.

The trial court denied Parsons Brinckerhoff's motion for summary judgment. The court of appeals reversed, ruling that Hardaway's cause of action began when it contracted with the DOT in May of 1988. Hardaway then appealed the adverse court of appeals decision to the Georgia Supreme Court.

In the supreme court, Parsons Brinckerhoff argued that Hardaway's cause of action accrued in May of 1988, because it could have successfully filed a lawsuit at that time. The Georgia Supreme Court disagreed. It noted that the essential elements underlying Hardaway's cause of action required that it show an actual economic loss proximately resulting from Parsons Brinckerhoff's negligent misrepresentation. At the time it signed the contract, Hardaway did not even know it had a problem, much less that it would suffer a loss. Until Hardaway suffered that economic loss it did not have a claim for negligent misrepresentation against Parsons Brinckerhoff. As a result, the statute of limitations did not begin to run.

In concluding its decision, the court stated its belief that public policy considerations also required this result. It noted that implicitly in Parsons Brinckerhoff's argument that the statute of limitation period commenced upon signing of the contract is the assumption that Hardaway was somehow obligated to make its own evaluation of Parsons Brinckerhoff's design specifications to determine whether they were in fact reliable and would work as planned. In order to accomplish this, Hardaway would have had to employ an independent engineering and design firm at a substantial additional cost, which would have had to be included in its bid price which would have eventually been paid by the taxpayers of Georgia. The court declined to endorse, even by implication, such a wasteful approach to public spending.

Comment

It is refreshing that the Supreme Court of Georgia looked to the practicalities of life as a highway contractor rather than legal technicalities. There is no way a highway contractor can determine that a complex design is defective at the time it signs the contract. If contractors were actually forced to verify designs in the pre-bid phase, the cost of constructing highways and bridges would be astronomical. This case would have been even more interesting had it arisen in a design-build context because the contractor and the designer would have been part of the same design-build team.