Does the Spearin doctrine apply to private construction contracts? Court says “Yes.”

Does the Spearin doctrine apply to private construction contracts? Court says “Yes.”

July 5, 2022

By Nathan R. Sellers

 

 

Nathan is a member of the firm’s Construction Law Department. He can be reached at 612.359.7606 or nsellers@fwhtlaw.com

       

         

 

            Every construction litigator and many construction contractors are well-versed in the Spearin doctrine. The Spearin doctrine, which is also known as the implied warranty of design adequacy, generally provides that a contractor who is bound to construct or build according to plans and specifications prepared by the owner will not be responsible for the consequences and defects in those plans and specifications. In addition, the rule typically holds that when a contractor submits a bid based on plans and specifications prepared by the owner and those plans and specifications are incorporated into the construction contract, the contractor is entitled to recover added costs occasioned by errors or defects in the plans and specifications.

            United States v. Utah, Nevada, & California Stage Co.

            When you think of the Spearin doctrine, you probably don’t think of a tired postal carrier in Turn-of-the-Twentieth-Century Manhattan, clambering down from a horse-drawn covered wagon and ascending a lengthy staircase to deliver mail to messengers on elevated trains. But perhaps you should.

            The Spearin doctrine gets its name from the Supreme Court decision in United States v. Spearin, 248 U.S. 132, 136-37 (1918). The Spearin decision, however, is actually rooted in a 1905 decision from that same court in United States v. Utah, Nevada, & California Stage Co., 199 U.S. 414 (1905).

            The Court’s decision in Utah, Nevada, & California Stage Co. arose out of a mid-1890s advertisement for bids by the U.S. Postmaster General for the rendition of certain covered wagon, mail messenger, and transfer station services in New York City. The advertisement for bids, which was made part of the contract won by the plaintiff stage company, inadvertently stated the number of transfers between the Manhattan Elevated Railroad Station, the general post office, and certain branch stations as “two.” In fact, the plaintiff’s services required twice that many transfers. As a result, the stage company was required to perform double the number of specified trips: specifically, nearly 500,000 extra trips going up and down steps making delivery of mail to messengers on elevated trains.

            The Court acknowledged the advertisement for bids required bidders to inform themselves of the facts and the advertisement expressly stated that additional compensation would not be allowed for mistakes in the bidding documents. But those generic disclaimer clauses couldn’t save the Postmaster General.

            In ruling the stage company was entitled to additional compensation for its work, the court explained that by “positively stat[ing] the number of stations at two,” the Postmaster General “spoke with certainty.” And the stage company had the “right” to rely on that positive statement and to presume it to be correct: “We do not think, when the statement was thus unequivocal, and the document was prepared for the guidance of bidders . . . , that the general statement that the contractor must investigate for himself, and of nonresponsibility for mistakes would require an independent investigation of a fact which the government had left in no doubt.”

            The basic principle is this: if an owner makes a positive representation in the bidding documents about a fact particularly within the owner’s knowledge, a bidding contractor is generally entitled to rely on that representation. And such affirmative statements are not typically undone by generic language requiring a bidding contractor to inform itself of the facts of the work.

            Extension to Spearin and beyond 

            In a series of cases culminating in Spearin, the Supreme Court readily extended the holding in Utah, Nevada, & California Stage Co. into the context of federally owned construction projects. Most state courts followed suit. As a leading commentator has put it: “The owner’s implied warranty of the adequacy of the plans and specifications has been adopted in nearly all jurisdictions.”[1]

        The question then became: can the holding and rationale in those decisions be employed to the benefit of general contractors on private construction projects? What about subcontractors?

            Over the years, several state courts, including those in Minnesota, have applied Spearin to private construction projects without much hesitation.[2] Courts have likewise willingly extended the doctrine to protect subcontractors who prepare bids on the basis of plans and specifications provided by the project owner.[3] In doing so, however, courts have failed to explore the distinction between such projects and publicly-bid projects and have generally failed to explain their rationale for extending the Spearin doctrine—which arose in the context of government contracts—to private contracts.

            MidAmerica, Inc. v. Bierlein Companies, Inc.

            That changed recently in a case I argued to a federal court in Arkansas. In MidAmerica, Inc. v. Bierlein Companies, Inc., the court directly addressed the question whether the implied warranty of design adequacy applies to construction projects involving only private parties.[4]

            The case involved claims for extra compensation by an environmental remediation subcontractor on a project for the decontamination and demolition of an abandoned power plant. The project’s private owner had prepared plans and specifications for bidding that set forth, among other things, the types of waste material one could expect to find on the project site. The bidding documents, which were incorporated into the prime contract and subcontract, specifically provided the material in the project’s underground piping and associated equipment was “No. 2 fuel oil.”

            In the United States, there are six grades of fuel oil, ranging from No. 1 fuel oil to No. 6 fuel oil. As the number increases, so does the fuel oil’s boiling point, carbon chain length, and viscosity. Consequently, No. 2 fuel oil has comparable physical characteristics to diesel fuel. No. 6 fuel oil, on the other hand, is nearly tar-like and can be significantly more difficult and costly to remove from piping and equipment than to No. 2 fuel oil.

            When the plaintiff subcontractor arrived on site to begin its work, it immediately discovered the material in the underground piping and equipment was No. 6 fuel oil. After the owner and general contractor refused to issue a change order, the subcontractor eventually cleaned the No. 6 fuel oil under protest at a cost that exceeded its bid price by nearly $500,000.

            The court, which was applying Michigan law based on the terms of the applicable contract, determined the Michigan Supreme Court would apply the implied warranty to private contracts. The court’s reasoning is instructive. Even though the federal district court did not cite the Supreme Court’s old stage company case, its resonance could still be felt 115 years later.

            The federal district court explained the underlying rationale for the implied warranty of design adequacy is that “the party making a construction bid on specific information that the owner of the project provided should be able to trust and rely on that information.” The court further reasoned that the “core consideration that created the warranty was that of fair dealing.” Hence, the court concluded it is irrelevant whether the owner is a government entity.

            The key takeaway from MidAmerica is that, given the right set of facts, courts should not hesitate to expand the Spearin doctrine and the implied warranty of design adequacy to situations that involve only private parties.

[1]     3 Bruner & O’Connor Construction Law § 9:93 (Mar. 2022 Update).

[2]      See, e.g., Pat J. Murphy, Inc. v. Drummond Dolomite, 232 F. Supp. 509, 524-26 (E.D. Wis.); M.L. Shalloo, Inc. v. Ricciardi & Sons Constr., Inc., 205 N.E.2d 239, 243 (Mass. 1965); Hayle Floor Covering, Inc. v. First Minn. Constr. Co., 253 N.W.2d 809, 811 (Minn. 1977).

[3]      See, e.g., M.L. Shalloo, 205 N.E.2d at 243; Hale Floor Covering, 253 N.W.2d at 811.

[4]      MidAmerica, Inc. v. Bierlein Companies, Inc., No. 19-cv-4096, 2020 WL 5995981 (W.D. Ark. Oct. 9, 2020).

 


Announcements

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Mark Becker will be speaking at the Annual Conference of the Society of Construction Law North America, on July 8, 2022 in Denver, Colorado.  Mr. Becker is part of an expert panel to discuss early mediation strategies to resolve construction disputes. For more information, click here.

 


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