Owner responsibility for constructability, or not?

12/20/2010

Historically, construction is Virginia is design-bid-build; that is the owner hires a designer to design the project, put the design out for bid, and the awardee contractor builds pursuant to the design. But what if the design is insufficient? Who’s responsible for resulting damages? Generally, that responsibility lies with the owner, who according to Virginia Supreme Court precedent from 1924 impliedly warrants the accuracy of plans and specifications furnished to a contractor for construction; that is the owner warrants that if the contractor builds per specs the project should be constructable and sound.

That case was Southgate v. Sanford, etc., Co., 147 Va. 554, 137 S.E. 485 (1927). In it, the owner provided contract documents for the construction of a bulkhead. The bulkhead failed. The contractor blamed latent deficiency with the plans, while the owner claimed negligent construction by the contractor. The Virginia Supreme Court followed federal “Spearin Doctrine” precedent and concluded that so long as the contractor had no reason to know the plans were deficient before it started work that the owner bore responsibility for the latent defect in the plans.

In rendering that decision, the court further held that even though the contract had a common “disclaimer” obligation for the contractor to familiarize itself with the project or the plans, and that unless the contractor had actual notice of the deficiency then it would not be responsible if there turned out to be a problem with the plans or resulting construction. However, the court left open the possibility that a clear disclaimer could in fact shift the risk of responsibility, just holding in that case that the contract language did not clearly transfer that risk.

Lesson learned: Contractors are not held to a higher standard of guarantying results from plans furnished by owners; however, it is contractually responsible to shift that liability with clear and unambiguous contract terms. This result is one reason why design-build has become more popular, as that approach allows the owner to transfer virtually all construction risk to the builder. Again we have the theme here that, absent statutory prohibition, most risks are contractually allocable, so carefully consider what you might want to include, or alternatively what you are willing to accept, in your contracts; depending upon your position and risk tolerance.

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