Ambiguous Specifications: The Federal Duty to Inquire
by John S. Mrowiec

It is rare that the United States Supreme Court decides a construction contract dispute. Undoubtedly, the most famous construction contract case decided by the Supreme Court was United States v. Spearin, 248 U.S. 132, 39 S.Ct. (1918).

Spearin established the now well-known principle of the implied warranty of plans and specifications prepared by or on behalf of an owner. The Spearin Doctrine, as it is frequently called provides the following:

"If [a] contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications."

Recently, the Supreme Court was presented with the opportunity to address the application of the Spearin Doctrine to a modern, complex construction contract dispute concerning contradictory and ambiguous plans and specifications on a public works project. The Supreme Court declined to take the case in KiSKA Construction Corp. v. Washington Metropolitan Area Transit Authority, 321 F.3d 1151 (D.C. Cir. 2002), cert. denied, 2003 U.S. LEXIS 7330 (Oct. 6, 2003). The case is instructive nonetheless.

WMATA wanted to extend its Green Line subway under 14th Street in Washington, D.C. WMATA hired a geotechnical engineering consultant to assess the subsurface conditions. The geotechnical consultant issued a report concluding that groundwater was a significant problem at the site, "even . . . fairly extensive dewatering" was not likely to be effective and, therefore, "open face tunneling be strictly prohibited."

After issuing a second report, which confirmed the first, the geotechnical consultant met with WMATA's Board of Engineers. Thereafter, the geotechnical consultant issued a third report. This third report characterized dewatering as "at best going to be difficult" but permitted open face tunneling in conjunction with extensive dewatering and a pre-support grouting/ground improvement program. But the geotechnical consultant warned WMATA that even the recommended grouting would not permit open face tunneling if groundwater was not depressed at least two feet below tunnel invert.

WMATA directed the consultant to design a dewatering system. The consultant designed a system that included over three hundred dewatering wells.

WMATA issued an Invitation for Bids to construction contractors for a lump sum contract to construct the subway tunnel extension. The bid documents did not disclose any of the geotechnical consultant's reports. The design plans and specifications included a specified grout system but did not include the geotechnical consultant's 300+ dewatering well system. Instead the contract specified a system of a different design calling for 61 dewatering wells.

KiSKA Construction was the successful bidder at approximately $43 million. (The decision does not report the amounts of other bids.)

During construction, the contractor experienced a number of difficulties with the specified dewatering system, which proved ineffective, and the excavation methods required by the contract. Although the contractor completed the project, it spent nearly double the $43 million contract price.

The contractor sued. The contractor had five legal theories. Before trial, the district court rendered three rulings that resulted in limiting the trial to only two contract theories each of which concerned the meaning of the plans and specifications.
The jury sided with the owner against the contractor. The contractor lost its post-trial motion and then appealed to the United States Appeals Court for the District of Columbia.

On appeal, the contractor's arguments may be summarized broadly into two main issues: (1) Was this public owner required to disclose to bidders the geotechnical reports (as contractor contended) or was the failure to do so, under these facts, protected by the doctrine of sovereign immunity (as owner contended)? (2) Were the failures in the specified dewatering system and grout hole system breaches of the implied warranty of the plans and specifications entitling the contractor to compensation under the Spearin Doctrine?

Space limitations require that this column truncate our discussion of the various arguments and reasoning. The KiSKA Construction appellate court first held that WMATA's decision not to include the geotechnical reports in the bid package, under these facts and a District of Columbia statute was not open to challenge. The court recognized that an owner might owe a duty to contractors to disclose knowledge that could affect performance of the contract. In this "closer" case, however, the court held the content of the bid package was the public owner's discretionary decision susceptible to policy judgment and, thus, was not subject to challenge.

On the second question, the contractor contended that the Spearin Doctrine applied. After all, the contract required "installation of the specified dewatering system as soon as possible after notice to proceed." According to the contractor, the owner had warranted that the specified dewatering system would "maintain groundwater 2 ft. below invert" by the following provision:

"For mined earth tunnels, additional wells beyond the specified minimum dewatering system may be required to effectively reduce hydrostatic pressure and control groundwater in soil surrounding each tunnel in order to prevent the following:

A.) Heaving of the invert, blowups, hazardous seepage and sudden flow of soil in tunnel face
B.) Loss of ground and surface subsidence
C.) Maintain groundwater 2 ft. below invert" (emphasis added)

The owner, of course, emphasized the "additional wells . . . may be required" language. Beyond that, another paragraph in the same specification section warned:

"The designed dewatering system may not eliminate all groundwater from the tunnel excavation. The Contractor shall be prepared to support the tunnel face . . . and to handle and convey groundwater from the tunnel to appropriate discharge locations . . . additional dewatering wells may be required based on the observed performance of the dewatering system."

The owner contended that the contract clearly alerted bidders that the designed, specified dewatering system might have to be supplemented by the contractor.
According to the owner, that meant the Spearin warranty did not apply. The contractor argued it was senseless to use the phrase "maintain groundwater 2 ft. below invert" unless that was what the designed, specified system was to do.

The crucial question then was: did the specification promise the specified dewatering system would maintain the groundwater two feet below the invert? The trial court ruled that the specification was ambiguous on that point leaving the issue for the jury to determine. The jury decided against the contractor.

On appeal, the KiSKA Construction appellate court agreed that the specification was ambiguous. Unlike the trial court, however, the appellate court said the specification was so confusing and contradictory that the ambiguity was not "latent" but "patent."
The appellate court emphasized that the language "maintain groundwater 2 feet below invert" relied upon by the contractor was one item in a three-item list following the word "prevent." That was an "obvious" grammatical error.

In federal contracts, patent contract ambiguities are construed against the contractor unless the contractor inquires about the correct meaning of the terms at issue. An ambiguity is "patent" if it is "glaring, substantial, or patently obvious." If the ambiguity is "neither glaring nor substantial nor patently obvious, however, and therefore latent, the ambiguity is ordinarily construed against the drafter" here, the government owner (KiSKA Construction, 321 F.3d at 1163-64).

The appellate court found the grammatical errors of one subsection of the specification were "sufficiently obvious" that the contractor had a duty to inquire regarding the true meaning of the contract. By failing to do so, the contractor "assumed the risk that the government would offer a reasonable, but conflicting interpretation, which interpretation would then be accepted by the court" (KiSKA Construction, 321 F.3d at 1164). Because the contractor failed to inquire about the patent ambiguity, the Spearin Doctrine could not apply: with hindsight, a $40 million error by the contractor based on a grammatical error.

John S. Mrowiec is a partner with Chicago-based Conway & Mrowiec, a construction and public contracts law and litigation practice. He may be reached at (312) 658-1100. For information, go to the firm's Web site at www.cmcontractors.com.