| Many RFIs
Could be Insufficient To Recover Delay Damages
By
John S. Mrowiec
Normally, this column focuses on case decisions
from our readership's area of Illinois, Indiana, eastern Missouri and Wisconsin.
But
we are straying from our usual geography this month to discuss an interesting
case.
The United States Supreme Court long ago articulated the Spearin
doctrine:
"If the contractor is bound to build according to the plans
and specifications prepared by the owner, the contractor will not be responsible
for the consequences of defects in the plans and specifications . . . This responsibility
of the owner is not overcome by the usual clauses requiring builders to visit
the site, to check the plans, and to inform themselves of the requirements of
the work" United States v. Spearin, 248 U.S. 132, 136 (1918).
As we
noted in the October 2000 column, breach of the implied warranty of the plans
and specifications might result in a contractor recovering reasonable costs attributable
to delay resulting from the defective design. (See Delays Arising from Defective
Design: Not the Usual "Change".)
A New Case Arises Nevertheless, a new case teaches that proof of numerous contractor
requests for information might be insufficient to support a contractor's recovery
of delay damages where the contractor fails to provide an identifiable design
defect or set of design defects, Dugan & Meyers Construction Co. v. Ohio Dep't
of Admin. Services, 162 Ohio App. 3d 491 (10th Dist., July 28, 2005).
The
Dugan & Meyers Construction Co. case involved construction of phase two of
the Ohio State University Fisher College of Business, which is comprised of three
buildings. The lead contractor, Dugan & Meyers Construction Co., was required
to coordinate the work of multiple prime contractors, including preparing and
maintaining the project's schedule.
In addition, the lead contractor also
was awarded the general trades prime contract which included the construction
of the concrete and build-out of the three buildings.
Together, the contractor's
price was nearly $21 million with $12 million in other prime contracts.
Except
for a one-month "no cost" time extension because of unavailability of
steel,
construction proceeded smoothly for the first year.
But between
June and September 1998, 176 requests for information regarding the plans and
specifications had been submitted, many resulting in field work orders. The architect
issued a field work order where changes to the plans were required resulting in
additional cost or time.
By February 1999, the lead contractor's schedules
projected delays to the buildings' completion dates beyond the extended dates.
In early April 1999, the owner, associate architect and owner's separate construction
manager told the lead contractor that it was critical to complete one particular
building and several floors of another by the extended contractual completion
date for classes; if these could be completed timely, time extensions might be
available for the balance of the areas.
But through June 1999, submission
of RFIs and issuance of field work orders continued. Other than attributing four
days of delay regarding one of the RFIs, the lead contractor never sought time
extensions or delay compensation in writing.
Contractor Relieved of Duties Finally, in late June
1999, the architect sent the lead contractor a default letter for "failure
to prosecute the work so as to complete the work by the applicable milestones."
Shortly thereafter, the owner's construction manager relieved the lead contractor
of that role.
One of the buildings was completed on time by the construction
manager so that classes could be held. The balance of the project was delayed
approximately six months.
The owner assessed against the lead contractor
both liquidated damages (after apportionment) and the cost of the construction
manager to complete the lead contractor's role.
The lead contractor sued
in the Ohio Court of Claims for breach of contract and, alternatively, for unjust
enrichment. The owner counterclaimed for breach of contract seeking liquidated
damages plus the cost paid to construction manager to complete lead contractor's
performance.
A referee held a 17-day trial and issued a 74-page recommendation
in favor of lead contractor for an award of $1,996,421 before interest. The award
represented $1,192,585 in contract balance (reversing $589,840 of owner's backcharges)
and $803,836 in "delay damages" or "cumulative impact damages."
The referee denied lead contractor's claims for unabsorbed home office overhead
and for lost profits (other than a 10 percent margin as part of the "cumulative
impact" damages).
The trial court adopted the referee's decision with
the exception of some minor items and awarded the lead contractor $752,623 in
prejudgment interest. The owner appealed.
On appeal, the owner raised a
number of defenses some based on contract language. The Dugan & Meyers Construction
Co. appellate court found two of the owner's arguments sufficient to reverse the
trial court's award in favor of the lead contractor. Accordingly, it was unnecessary
to reach the owner's other contract-based arguments.
Appellate Court Reverses Decision The appellate court reversed the award of
"cumulative impact" damages reasoning that:
"In our view,
the implied warranty of the plans and specifications identified in Spearin, is
not appropriately invoked in the present case. The Court of Claims interpreted
the so-called 'Spearin Doctrine' to stand for the proposition that [the owner]
warranted the plans and specifications it furnished against any problem, need
for clarification, minor deficiency, or subsequent deviation. Spearin does not
stand for the proposition that owners, by virtue of having furnished the plans
and specifications for the job, will indemnify and hold contractors harmless for
all delays occasioned by agreed changes in the work necessitated by some force
not within the complete control of the contractor.
"This is true even
where, as here, the record reflects that the contractor issued a large number
of RFIs (162 Ohio App.3d at 502)."
The appellate court recognized
that it had itself applied the Spearin doctrine in an earlier case. Nevertheless,
the Dugan & Meyers Construction Co. "decline[d] to permit the extension
of the Spearin warranty in this case" 162 Ohio App. 3d at 503. Unlike the
referee, who "was clearly persuaded to award delay damages because of the
sheer numerosity of the RFIs", the appellate court found that the contractor
was required to prove more (162 Ohio App. 3d at 503.)
Lacking in the contractor's
proof, according to the appellate court, was any evidence "that the substantive
concerns addressed in any one RFI or group of RFIs rendered the owner-furnished
plans and unbuildable or otherwise wholly inadequate to accomplish the purpose
of the contract" 162 Ohio App.3d at 503. Therefore, the contractor could
not collect any delay damages resulting from design errors and omissions.
Not
only could the lead contractor not collect its delay damages but the appellate
court held that the owner could recover liquidated damages for delay (162 Ohio
App.3d at 504). The lead contractor did not dispute that it failed to request
extensions of time in writing as the contract required. Instead, the lead contractor
argued that doing so should not be a prerequisite for defending against liquidated
damages because owner would not have granted those requests anyway.
The
evidentiary basis for the lead contractor's argument was that the owner had no
alternative arrangements in place for holding many of the classes that the college
had planned to conduct. That fact, according to the court, did not prove that
the owner would have refused time extensions if they had been requested. Indeed,
if lead contractor had requested time extensions, the appellate court remarked
that extensions likely would have been appropriate (162 Ohio App.3d at 504-05).
(Contractors sometimes do not associate a time extension request with
a particular RFI response where individually, the response might have little or
no time impact.)
One of the members of the three-judge panel in Dugan &
Meyers Construction Co. dissented. The ground of the dissent was that the referee,
as the trier of fact, made appropriate factual findings including that the owner
had failed to present evidence to refute the contractor's evidence of impact resulting
from the numerous design changes.
The outcome of the Dugan & Meyers
Construction Co. case cautions that contractors might need to prove the quality
(not just the quantity) of design errors and omissions to prevail on a Spearin-type
claim, if the contractor even chooses to so characterize it.
Certainly,
prudent contractors should not ignore contractual requirements for the submission
of written time extension requests if at all possible.
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.
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