1. Design-Build Case Law Washington, DC Steven E. Knott, Attorney at Law
July 19, 2016
Steven E. Knott, Attorney at Law

2. Design-Build Case Law: Construction and Design Liability
Errors in Owner’s Preliminary Design
Conflicts Between Owner’s Design and Performance Specifications
Geotechnical Design Scope and DSCs
Disputes Arising Out of the Design Process
Failure of Design-Builder to Meet Expected Performance
Designers’ Liability for Design Defects
Liability for VE and ATCs
Limitation of Liability and Consequential Damages

3. Foundation United States v. Spearin, 248 U.S.132 (1918)
Contractor complies with plans and specifications and project fails to meet owner’s internal purpose, then no recourse against contractor
Defective plans and specifications (one element of work conflicts with another, for example), owner must provide contractor with a change order to pay for the consequence of defects

4. The “Obvious” Rule
Contractor must have reasonably relied on accuracy of owner’s documents
If there is an obvious defect in documents from a review of the bid package, bidders must raise the defects during the bidding process to retain Spearin rights

5. Design-Build Case Law: Construction and Design Liability
Errors in Owner’s Preliminary Design
Conflicts Between Owner’s Design and Performance Specifications
Geotechnical Design Scope and DSCs
Disputes Arising Out of the Design Process
Failure of Design-Builder to Meet Expected Performance
Designers’ Liability for Design Defects
Liability for VE and ATCs
Limitation of Liability and Consequential Damages

6. Errors in Owner’s Preliminary Design
Spearin applies in design-build cases
Appeal of M.A. Masterson Co.
“these requirements may be used to prepare the proposals” [concrete and rebar]
+ 35% complete "minimum requirements"
= Owner Impliedly Warranted Specifications

7. But What About “Pure Performance Specifications” From Owner?
Appeal of Lovering-Johnson, Inc.
Ruling against contractor
Drawings in RFP not detailed and expressly not final
White v. Edsall Const. Co. and Appeal of Donahue Electric Inc.
Detailed designs, methods and equipment ≠ a “pure performance specification”

8. Design-Build Case Law: Construction and Design Liability
Errors in Owner’s Preliminary Design
Conflicts Between Owner’s Design and Performance Specifications
Geotechnical Design Scope and DSCs
Disputes Arising Out of the Design Process
Failure of Design-Builder to Meet Expected Performance
Designers’ Liability for Design Defects
Liability for VE and ATCs
Limitation of Liability and Consequential Damages

9. Conflicts Between Owner’s Design and Performance Specifications
Proposer does not have to go through an engineering effort to determine agency solicitation is defective
J.E. Dunn Const. Co. v. G.S.A.
20 hours engineering to discover
= “latent” defect
Remedy: equitable adjustment to contract price

10. Design-Build Case Law: Construction and Design Liability
Errors in Owner’s Preliminary Design
Conflicts Between Owner’s Design and Performance Specifications
Geotechnical Design Scope and DSCs
Disputes Arising Out of the Design Process
Failure of Design-Builder to Meet Expected Performance
Designers’ Liability for Design Defects
Liability for VE and ATCs
Limitation of Liability and Consequential Damages

11. Geotechnical Design Scope and DSCs
Geotechnical Disclaimers
Metcalf Const. Co. v. United States, 742 F.3d 984 (Fed Cir. 2014)
RFP: soils “light expansion potential”
Metcalf geotechnical engineer says soils “moderate to high” expansion
Chlordane issue
Metcalf PROMPTLY notifies USN

12. Geotechnical Design Scope and DSCs
Geotechnical Design Requirements
Appeal of PBS&J Contractor
Spread footings or drilled piers
Design-builder loss
Not prompt, course of performance

13. Geotechnical Design Scope and DSCs
Record Steel R. Const. v. United States
Over excavation “should” vs. “shall”
Government loss and ambiguity
Contra proferentem (4 parts, 3 redundant)
No exception when ambiguity not “patent and glaring”
Expedite (political, funding) “As Is” Fails (Spearin) “Weasel Words”

14. Design-Build Case Law: Construction and Design Liability
Errors in Owner’s Preliminary Design
Conflicts Between Owner’s Design and Performance Specifications
Geotechnical Design Scope and DSCs
Disputes Arising Out of the Design Process
Failure of Design-Builder to Meet Expected Performance
Designers’ Liability for Design Defects
Liability for VE and ATCs
Limitation of Liability and Consequential Damages

15. Disputes Arising Out of Design Process
Conflicting Views Over Contract’s Design Requirements
Laundry list of codes and specs. to meet
Specific language trumps broad provisions
Order of precedence clauses
“most stringent” clauses

16. Disputes Arising Out of Design Process
Design-Builder Discretion to Deviate From Contractual Standards for Design
If RFP specific, prescriptive, then Design-Builder must perform and duty to inquire regarding patent ambiguity not relieved

17. Disputes Arising Out of Design Process
Duty of Design-Builder to Meet Prescriptive Elements of a Performance Specification
The Design-Builder Argument
“I Can ignore prescriptive elements of a specification if I achieve the performance specification”
The Courts’ Response:
“Read The Contract.”
“Special Design Specifications and Performance Specifications”
Comply with BOTH

18. Disputes Arising Out of Design Process
Owner’s Actions In Reviewing and Approving Design Submittals
Length of time completing design reviews
Adding to Scope of Work
“Nitpicking” submittal causing delays

19. Disputes Arising Out of Design Process
Design-builders’ claims typically fail unless proof that owner actions (1) actually caused delays to the project and (2) contemporaneous written notice of objection with indication that owner is causing delays.

20. Disputes Arising Out of Design Process
Failure of Design-Builder to Abide By Its Own Design (“You Wrote The Specifications”)
Appeal of Strand Hunt Constr. Inc.
Window Thermal and Blast-Resistance Performance Requirement
“SHC Apparently Assumed”

21. Rule: Don’t Assume INVESTIGATE!
Evidence showed windows could be designed and manufactured “In Accordance With The Contract”

22. Design-Build Case Law: Construction and Design Liability
Errors in Owner’s Preliminary Design
Conflicts Between Owner’s Design and Performance Specifications
Geotechnical Design Scope and DSCs
Disputes Arising Out of the Design Process
Failure of Design-Builder to Meet Expected Performance
Designers’ Liability for Design Defects
Liability for VE and ATCs
Limitation of Liability and Consequential Damages

23. Failure of Design-Builder to Meet Expected Performance Remedies
D-B Advantage over D-B-B = Single Point of Responsibility
Improper Design or Construction: Breach of Contract
Negligence Theory Increases Damages If State Law Allows
Failure to Meet Performance Requirements and Guarantees
Breach of Contract, Breach of Warranty, Fraud (Negligent)

24. Failure of Design-Builder to Meet Expected Performance
Owner Involvement as Impacting Design-Builder’s Responsibilities
Typically contract clauses require DB to meet contract obligations notwithstanding owner inspections or design review and approval. Contrast active owner

25. Failure of Design-Builder to Meet Expected Performance
Insurance Coverage For Defective Work
Commercial General Liability
3D Party property damage, bodily injury, “advertising injury”
Exclusions For “Your Work” “Professional Liability”
First Party Property Damage
“Resulting Damage”
Wrap Up Policies (Gaps, Subs with Wrap Exclusions)

26. Design-Build Case Law: Construction and Design Liability
Errors in Owner’s Preliminary Design
Conflicts Between Owner’s Design and Performance Specifications
Geotechnical Design Scope and DSCs
Disputes Arising Out of the Design Process
Failure of Design-Builder to Meet Expected Performance
Designers’ Liability for Design Defects
Liability for VE and ATCs
Limitation of Liability and Consequential Damages

27. Designers’ Liability For Design Defects
[Designer Is Not Prime Design-Builder]
Design Deficiencies in Proposal Process
C.L. Maddox, Inc. v. The Benham Group, Inc. 88 F.3d 592 (8th Cir. 1996)
Designer (Benham) included cost estimating for bid on remodeling of coal processing system

28. Designers’ Liability For Design Defects
[Designer Is Not Prime Design-Builder]
Design Deficiencies in Proposal Process (Continued)
Leading cases remind of risk to designers for proposal-related work, especially for quantity errors
Include teaming agreement providing clarity on what happens if quantity is wrong

29. Designers’ Liability For Design Defects
Failure of Design To Achieve Performance Guarantees
Arkansas Rice Growers; Day and Zimmerman
Professional negligence
Implied warranty
Contract included performance quantities

30. Designers’ Liability For Design Defects
Liability to Third Parties
Economic Loss Doctrine
State law specific
Liability of Owner’s Design Professional
Fact specific (involvement at site, express performance guarantee)

31. Design-Build Case Law: Construction and Design Liability
Errors in Owner’s Preliminary Design
Conflicts Between Owner’s Design and Performance Specifications
Geotechnical Design Scope and DSCs
Disputes Arising Out of the Design Process
Failure of Design-Builder to Meet Expected Performance
Designers’ Liability for Design Defects
Liability for VE and ATCs
Limitation of Liability and Consequential Damages

32. Liability for Value Engineering (VE) and Alternative Technical Concepts (ATCs)
Clear contract language shifting risk to Design-Builder
Agree on Details
What exactly is a VE or ATC?
Procedure, Elements, Cost, Change Order
Not After The Fact
Owner Sole Discretion To Reject

33. Design-Build Case Law: Construction and Design Liability
Errors in Owner’s Preliminary Design
Conflicts Between Owner’s Design and Performance Specifications
Geotechnical Design Scope and DSCs
Disputes Arising Out of the Design Process
Failure of Design-Builder to Meet Expected Performance
Designers’ Liability for Design Defects
Liability for VE and ATCs
Limitation of Liability and Consequential Damages

34. Limitations of Liability and Consequential Damages
Ceiling on total amount (available insurance and 80% of contract price)
Exclude liability for consequential damages
Revenue, cost of capital debt, lost profits on related contracts, administrative costs, loss of use
Liquidated Damages
Recovery limited to certain events (no delay damages)
Anti-Indemnity Statutes
Sole negligence
Clear language (Union Oil case)

35. State Laws Affecting Design and Construction Liability
Indemnification
Broad, Intermediate, Limited Form
Anti-Indemnification Statutes Response
Appendix B
California “Active Negligence”
Duty to Defend Selection of Counsel
Draft contract to show who decides on selection of counsel

36. State Laws Affecting Design and Construction Liability
Statutes of Limitation and Repose
Contract or Negligence?
Accrual Dates
When injury took place?
If design, then date design completed
When injury should reasonably have been discovered or discoverable = Forever?
Statutes of Repose
AIA – 10 years after substantial completion

37. State Laws Affecting Design and Construction Liability
Certificates of Merit
List of States Requiring In Appendix D
Design–Build Likely Applications
Claim for defective design or solely pertaining to construction side of work?

38. State Laws Affecting Design and Construction Liability
Derivative Immunity
Liability Only to the Extent of Liability of Agency or Authority
Sovereign Immunity In Design Review Process
California Review and Approve by Legislative, Agency, or Employee With Discretionary Authority

39. Questions

40. Thank you. Steven E. Knott Attorney at Law Nossaman LLP 213.312.8358
nossaman.com