Construction contracts traditionally contain a provision stating that the approval of a shop drawing or a submittal does not constitute acceptance of a deviation from the plans and specifications unless certain other requirements are satisfied. Basically, the contractor assumes the burden of ascertaining all of the applicable requirements and specifically identifying deviations from those requirements. As design-build projects become more common, a potential question involves the effect of an owner’s approval of the design documents on the design-builder’s liability. A recent decision by the U.S. Court of Federal Claims in Gee & Jenson Engineers, Architects, and Planners v. United States, 2008 WL 4997488 (2008) illustrates both the extent of the design professional’s obligation to ascertain the applicable design requirements and the possible effect of an owner’s approval of the design documents.
The Gee & Jenson decision arose out of a project to design a building for the Navy, which was constructed under separate construction contract, a classic design-bid-build scenario. After construction was completed, the building experienced leakage. After an investigation of the water infiltration, the Navy concluded that a contributing cause for the leaks was the absence of flashings under a concrete sill at the building’s storefront and that these flashings should have been included in the design in accordance with various Navy guide specifications that were incorporated into the design contract by reference. Gee and Jenson asserted that it was obligated to design in accordance with the applicable building code and that the building code did not require the use of flashing in the design, but made its use discretionary with the design professional. Finally, Gee & Jenson asserted that the Navy’s approval of its design constituted a waiver of any requirement for flashing and shielded it from judgment. The court rejected all of the designer’s assertions. For a contractor performing a design-build contract, this decision illustrates a different facet of its potential exposure in the event of a later design problem with the completed structure.
The Requirement for Flashing Was Not Ambiguous
Many of the details of the requirements for the design on this Navy project were, like most government contracts, incorporated by reference in the physical documents. Specifically, the contract referenced an “A-E Guide” and numerous Navy guide specifications. By reference to guide specifications, the Navy included detailed instructions for inclusion of flashings. In that context, the Court of Federal Claims stated that contractors who work with the government know well that the referenced design guides, performance manuals, rules and regulations are as binding and as much a part of the contract as if they were reproduced and actually in hand. Here the design engineer argued that since some provisions required flashing yet other guide specifications did not and the applicable building code gave the designer discretion to include flashings, the contract was ambiguous and any doubt should be resolved against the government. The court carefully studied all the guide specifications and the incorporated references in the contract documents, and held that the requirement for flashing, specifically at the concrete sill, was straightforward. The cases allowing the designer discretion did not apply to that requirement. The court concluded that simply because the design engineer disagreed with the government’s guide specifications did not make the specifications ambiguous and did not relieve it of the requirement to follow the contract.
The Building Code Did Not Require Flashing
Consistent with its assertion that the guide specification did not expressly require that the design include flashing, the designer argued that it was justified in referring to the local building code which was also referenced in the contract. Since the standard building code which applied in Charleston, South Carolina at the time did not require flashing, then flashing was not required for the design.
The court studied the details of the building code and concluded, as did the designer, that the code did not require flashing. However, the court also concluded that the building code does not take precedence over the terms of the contract or the Navy’s guide specifications incorporated into the contract. In the court’s view, this was not a case where the government’s guide specifications required a lesser standard of performance than the building code, but just the opposite. The court made it clear that when the government contract requires a higher standard of performance than the local building code, as in this case, the requirements of the contract control.
Approval of the Design by the Navy
Consistent with its interpretation of the contract, the guide specifications, and the building code, the design engineer omitted flashing under the concrete sill for the building’s storefront. In the process of reviewing the building design, the Navy approved the design submitted by the engineer and the building was constructed according to that design. The engineer did not specifically request permission to omit flashing at the concrete sill and the approval by the Navy did not address the omission.
Rejecting this defense, the court noted that the contract clause at FAR §52.236-23, which was also incorporated by reference, provides that neither the government’s review or approval, acceptance or payment operates as a waiver of any rights under the contract. While the Navy’s approval of the overall design was an important milestone in design development, that approval did not function as a change in the contract requirements. The court explained that the contract’s design requirement could be altered only by the designer specifically requesting authorization from the Navy’s Engineer In Charge, to omit the flashing and receiving specific authorization from the Engineer In Charge.
The Omission of Flashing Did Not Cause the Leaks
If there had not been leaks through the walls of the building, the Navy may not have learned that the designer did not follow the guide specifications. During the investigation of the leaks, the government discovered the omission of the flashing by the contractor in accordance with the design documents. The investigation identified other causes of leaks and the contractor was instructed to perform remedial work that stopped the leaks. As the government explained, the case was not about the water damage from the leaks, but the damage to the government caused by the failure of the design engineer to comply with the contract. The government claimed damages for the cost of an investigation of the extent of the omission of flashing and costs for a contractor to perform mitigating remedial work since reconstruction in accordance with the guide specifications could not be accomplished without destroying the building. The court held that these damages are the kind of damages that can be recovered for breach of contract, to place the non-breaching party in the same position as if the contract had been faithfully performed.
Points to Remember
1. In any government contract, an incorporation by reference of guide specifications, standards and other performance requirements is as binding as if set forth in full in the contract document itself.
2. Local building codes are mandatory and binding standards of construction and are also evidence of the standard of care required for design professionals. However, any party can contract for performance that exceeds the local building code, so long as that performance does not also violate the building code.
3. Under contracts controlled by the Federal Acquisition Regulation, the review, approval, acceptance or payment by the government for performance that is different from that required by the contract may not be a waiver of strict compliance with the contract. Any deviation should be specifically addressed, and specifically authorized, by a representative of the government vested with authority to make the change.
4. Damages may result from a failure to comply with contract requirements even though the design omission as in this case, did not directly cause water infiltration. The court’s finding that the flashing was required for the adequate performance of the structure over its expected life was sufficient to authorize an investigation, remedial efforts by the government and was the basis for contractor liability for those damages.