March 1, 2010
By Mark R. Becker
Many construction Contractors and Subcontractors have found themselves on the receiving end of a complaint about the quality of the result of their work. Project managers and construction executives should be cognizant of the defenses that may be available in the event a customer complains that work is defective. This paper identifies ten common defenses to construction defect claims.
Many complaints about the quality of the result of construction work are, in fact, attributable to poor design. In general, Contractors and Subcontractors who build in accordance with the design furnished by the Owner are not liable for the results. This concept is known in construction circles as the Spearin doctrine taken from the name of the ancient case that is commonly cited as the source of the concept.
Good control over construction drawings, specifications, change orders, RFI answers, and submittals can minimize disputes over what standards apply to the work. Project managers and superintendents should photograph job progress to verify that work is proceeding in accordance with the owner-furnished design. These photographs should be furnished to the Owner and the Owner’s design-professional on a regular basis, and reviewed in weekly construction meetings.
The Spearin defense is not often available to contractors who accept design responsibility pursuant to design-build type contracts. This defense is also not available if contractors accept responsibility for end results through performance specifications. Contractors and Subcontractors must carefully review their contracts to determine if they are being asked, unwittingly, to waive their Spearin doctrine defenses.
Oftentimes, the repairs specified by Owners include elements not called for in the original design. These additional elements would have cost the Owner more money up front if the Owner had included them in the original design documents. The “betterment” doctrine recognizes that it is unfair for an Owner to get additional elements as part of a damage claim when the Owner would have had to pay up front for the omitted elements. In essence, the Owner should not receive more damages than necessary to give the Owner what the Owner bargained for.
Slow and late payments are an unfortunate reality of today’s construction environment. In general, an Owner must pay in accordance with its contract as a condition of asserting a claim against the Contractor. Failure of an Owner to pay a Contractor in some instances discharges the Contractor’s obligation to repair defects in the work. This is especially true where the Owner’s payment delays occur in the early phases of the Project and substantial work remains incomplete.
Most contracts require the Owner to furnish the Contractor notice and an opportunity to cure the allegedly defective work. Failure of the Owner to permit the Contractor to cure can result in the Owner waiving claims against the Contractor or result in reductions to the Owner’s claims.
Similarly, an Owner must permit the Contractor to document the alleged defective work before the Owner hires a separate Contractor to fix the allegedly defective work. If the Owner repairs the work before permitting the Contractor and its counsel to document and analyze the existing conditions, the Owner risks spoliation sanctions. If Owner pursues the Contractor in court, the Contractor can argue that the Owner denied the Contractor the right to prepare a defense by destroying, i.e., spoliating the evidence.
Spoliation can be an especially strong defense when a Contractor or Subcontractor is terminated wrongfully, excluded from site, and prevented from observing and documenting the repair work performed by the Owner’s replacement contractor.
Sometimes, Contractors fail to build exactly in accordance with the design, but the complained of deficiency did not cause the Owner’s damages. For example, if a window installer used different flashing than specified, the window installer would be liable potentially for breach. However, if the Owner’s moldy walls became moldy because of leaks through the roof and not leaks through the window, the window installer would not be responsible for the Owner’s moldy walls.
Sometimes, Owners seek to hold Contractors and Subcontractors responsible for mistakes that aren’t the Contractor’s or Subcontractor’s fault by demanding agreement to onerous indemnity provisions. Contractors and Subcontractors should be careful about signing contracts with indemnity provisions that require Contractors or Subcontractors to indemnify anyone else for things that are not their fault unless they are covered by insurance for that obligation.
Sometimes, fault is shared. If in the prior example, if the Owner’s moldy walls became moldy because of both the wrong flashing and the leaky roof, then the roofer and window installer should share fault. But, if the Contractor can resolve a claim by paying 50%, that would be better than paying 100%.
Sometimes, Owners accept work that isn’t 100% perfect. Contractors who receive sign-offs from Owners throughout the course of the Project can improve their chances of proving the Owner accepted the work.
Every party aggrieved by a construction defect owes a duty to mitigate damages. If the construction defect relates to a public project, the Owner may be required to solicit competitive bids for the repair work. If an Owner does not seek multiple bids, or awards the repair contract on an unusually lucrative basis – such as cost plus 20%, the Contractor may have a defense based on the Owner’s failure to mitigate damages.
10. Exculpatory Provisions.
Construction defects can cause damages to the Owner in excess of any repair costs. For example, an Owner may have loss of use, delay related costs, loss of profit, and other substantial damages resulting from the defect. Savvy Contractors and Subcontractors include limitations of liability in their contracts to avoid losses beyond the cost of repair.
Contractors and Subcontractors need to be cognizant of common defenses that may be available to them if they receive a complaint about the quality of their work. Contractors and Subcontractors can reduce their exposure by good management practices, and careful contracting practices. Contractors and Subcontractors concerned about better managing their construction defect risks can seek legal counsel of their choice for assistance.
This discussion is generalized in nature and should not be considered a substitute for professional advice. © FWH&T