By Brent Carpenter, AttorneyThis article was originally published in the November 26, 2018 edition of the Daily Journal of Commerce.
Construction contractors are familiar with providing warranties and owners are familiar with receiving them. For example, contractors warrant that their work will be performed in accordance with the project plans and specifications and they provide the owner warranties for various products incorporated into a project. However, contractors and owners may not be as familiar with the implied warranty that the owner provides to the contractor.
Being familiar with the warranty—called the implied warranty of specifications—and its variations can put the contractor at an advantage in negotiating with owners on construction disputes. For owners, familiarity with the warranty and its nuances is essential in assessing its potential liability to a contractor prior to letting a contract.
The implied warranty of specifications was established 100 years ago in the case of United States v. Spearin. In that case, the United States Supreme Court held that "if the 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." This became known as the implied warranty of specifications or "Spearin doctrine." Oregon adopted the Spearin doctrine, with the Oregon Supreme Court holding in AH Barbour & Sons, Inc. v. State Highway Commission that specifications are "in the nature of a warranty that, if it is complied with, satisfactory performance will result."
On projects in which the United States is the owner, the case law further breaks down the implied warranty of specifications into three categories: design, performance, and purchase description specifications. While the federal distinctions are not binding on Oregon courts, they should be considered when evaluating risks when letting and bidding on a project and in negotiating and litigating disputes, as Oregon courts would consider them persuasive authority.
The distinction between the three types of specifications is important because the warranty created by the Spearin doctrine covers design and purchase description specifications, but not performance specifications.
Design specifications tell the contractor how to perform the work on the project by setting forth precise measurements, tolerances, materials, quality control requirements, inspection requirements, and other specific information. In other words, where the specifications are described in precise detail and permit the contractor no discretion, they are design specifications. Under this type of specification, the owner is responsible for design and related omissions, errors, and deficiencies in the plans and specifications.
Performance specifications tell the contractor what the project objective is, but do not provide specific details on how to achieve that objective. Under performance specifications the contractor has broad discretion as to the details but the work is subject to the owner's final inspection and approval or rejection. In other words, where the specifications set forth simply an objective and leave the means and methods of obtaining the objective to the contractor, they are performance specifications. Under this type of specification, the contractor accepts responsibility for design, engineering, and achievement of the project objective. However, merely having some performance requirements in a specification does not convert the specification to a performance specification if the specification details the method of performance.
Finally, purchase description specifications tell the contractor what product to incorporate into the project. Under purchase description specifications, if the contractor correctly uses the specified brand name product or an approved equal, the responsibility for proper performance falls on the owner. A specification is still a purchase description specification even if it specifies more than one manufacturer's product. Of the three types of specifications, purchase description specifications impose the greatest warranty obligation upon the owner.
Therefore, when evaluating a set of plans and specifications—whether prior to letting and bidding or in the context of claims litigation—a contractor and owner should first determine into which category the specifications fall. If the specifications can be characterized as design or product description specifications, the owner and contractor should know that the owner is warranting that if the contractor follows the specifications, the owner will be liable for any omissions, errors, and deficiencies in the plans and specifications. Conversely, if the specifications can be characterized as performance specifications, the parties should be aware that the contractor will be responsible for any omissions, errors, and deficiencies in the performance and final project. Knowing who is liable for what will help the parties weigh their risks and proceed appropriately.