17.1 Owner Default
Library | Virginia Construction Law Deskbook (Virginia CLE) (2019 Ed.) |
17.1 OWNER DEFAULT
17.101 The Law of Default in Virginia. Construction contracts are subject to the same rules of interpretation as any other Virginia contract to provide goods or services. 1 Contracts are construed as a whole and their words given their plain meaning. Courts are reluctant to rewrite the parties' contract. 2 A written contract should define the rights and obligations constituting the bargain between the parties. The courts will look to trade usages and customs in the industry to interpret contract terms and the performance by the parties. 3 To the extent that the contract is silent on such points, the parties must turn to the common law to determine whether a breach has occurred and, if so, the measure of recoverable damages. A failure by an owner to conform to the terms of a contract will constitute default and entitle the non-breaching party to seek any remedy for the breach that is not precluded under the terms of the contract. To establish a breach by an owner of a construction contract, the contractor (or other entity in privity of contract with the owner, such as a design professional) must establish the existence of the contract between the parties, the specific provisions breached, the facts constituting the breach, and the amount of damages incurred by the non-breaching party. 4
17.102 Common Law Default.
A. In General. At common law, the owner assumes several obligations in connection with formation and performance of a construction contract.
B. Duty to Fund the Project. Any failure by the owner to obtain necessary funding for the project, other than for reasons beyond its
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control, constitutes a breach of its contract with the prime contractor. Although the occurrence of an unforeseeable contingency or event could excuse the owner's refusal to fund the project, changes in market conditions or the financial situation of the owner ordinarily would not qualify as such an event. 5
C. Duty to Cooperate. The owner has an implied duty to cooperate in the construction project. Cooperation may include making the site ready and available and obtaining all necessary permits for the contractor's work. 6 The general contractor owes to its subcontractors a similar duty to cooperate in the performance of their work. 7 The owner also has a duty
1. | Not to hinder or delay the contractor's work; 8 | ||
2. | To disclose to its contractor's superior knowledge concerning the site, such as subsurface or soil conditions, or any external factors that could adversely affect the contractor's performance of the work; 9 | ||
3. | To coordinate and schedule the work on multiple prime projects; 10 | ||
4. | To avoid unnecessary interruptions in the work's performance and to grant reasonable time extensions; 11 and |
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5. | To timely and adequately respond to contractor inquiries concerning performance of the contract. 12 |
These duties will often be delegated by the owner to its agent, such as an architect, engineer, or other design professional.
D. The Spearin Doctrine. Probably the most important, and most litigated, duty the owner owes to its contractor is to provide accurate and buildable plans and specifications for the project. In fact, the courts have determined that the owner warrants to its contractors the adequacy of the contract documents. This warranty requirement, commonly referred to as the "Spearin doctrine" based on a United States Supreme Court decision of that name, 13 has been adopted by the Virginia courts. 14 In the Spearin case, the general contractor contracted to build a dry dock in accordance with the government's plans, which called for the relocation of a storm sewer. During the course of construction, a sewer line broke and caused damage to the site. The government refused to pay for the damage and terminated the contract. The contractor filed suit to recover the balance due for its work and for lost profits. 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." 15
The Court in Spearin determined that the duty to review plans did not impose upon the contractor "the obligation to pass upon their adequacy to accomplish the purpose in view." 16 Contractual language requiring a contractor to inspect the site and assume all responsibility for the prosecution of work does not relieve the owner of liability for defective specifications. 17 Nor
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is a contractor required to compare the set of construction documents in its possession with those on file with the owner or architect. 18 For the Spearin doctrine to apply, there must be an absence of negligence on the contractor's part and no express guaranty or warranty by him that the plans and specifications are sufficient or free from defects. 19 However, courts are reluctant to find that generally worded contract provisions can serve to shift the burden of defective specifications to the contractor. 20
The Spearin doctrine does have limitations. It does not apply to cases in which the contractor has knowledge of a defect in the plans or specifications and fails to communicate it to the owner or architect, or where defects are so obvious that a contractor with reasonable competence in the industry should have been aware of them and should have alerted the owner or architect of the potential problem. 21 If the owner's plans and specifications are ambiguous or contain discrepancies, it is the duty of the contractor to raise questions about them and attempt to resolve the conflicts before beginning work. Failure to do so may impose liability on the contractor for the cost of correcting any resulting deficiencies in the project. 22 Moreover, the Court of Appeals for the Federal Circuit has held that a Spearin-type warranty is implied only in design specifications, not performance specifications. 23
If the contractor suggests deviations to the contract specifications, he is entitled to rely upon acquiescence to the deviations by an authorized employee of the owner, such as an assistant city engineer. 24 With respect to owner-issued project schedules, the owner warrants that the contractor can successfully perform its work according to that schedule. If the contractor is not able to do so through no fault of its own, the owner has breached its Spearin warranty, entitling the contractor to recover for resulting damages. 25
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Through use of performance specifications, an owner's duties regarding the warranty of plans and specifications under a traditional design-bid-build contract can be modified to be similar to those in a design-build contract. Traditional design specifications provide instructions for the contractor to follow to complete a portion of the work. 26 For instance, a design specification for metal roofing will typically specify the metal alloys to be used, minimum thicknesses of materials, spacing and methods of attachment, type of finish, and other details, often by reference to industry standards. If the owner, or the owner's design agent, furnishes the design specification, the owner warrants the accuracy and completeness of the specification under the Spearin doctrine.
In contrast to design specifications, a performance specification will tell the contractor only what result must be achieved. In the metal roofing example, a performance specification may give general information about the materials required but allow the contractor to design and provide any metal roofing system that complies with the specified test criteria for structural loads, wind uplift, corrosion resistance, and other requirements. Under a pure performance specification, a Spearin implied warranty does not apply because the responsibility for design of the system has been shifted to the contractor. Although simple in theory, performance specifications often may include aspects of design specifications, thus blurring the distinction and creating ambiguity as to whether the implied warranty applies. 27
E. Breaches Caused by Owner's Design Professionals. Virginia requires privity of contract in cases where a party seeks to recover for economic losses caused by the acts or omissions of third parties. Thus, a contractor may not recover from an architect for increased costs in performance due to defective plans provided by that architect to the owner when no contractual relationship exists between the contractor and the architect. 28 The contractor's sole remedy for damages related to defective plans or specifications that were prepared by a design professional having privity of
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contract only with the owner is to pursue a claim for damages against the owner. The owner is responsible to the contractor for damages caused by defective plans or specifications prepared by its agents. 29
F. Owner's Duties Under Design-Build or Design-Bid-Build Contracts. In the design-build project delivery method, the owner and design-builder enter into a single contract in which the design-builder is "responsible for procuring or furnishing the design and for the construction of the Work consistent with the Owner's Program . . ." 30 Although variations occur, in the typical design-build contract the owner has duties similar to those it has under a traditional design-bid-build contract, with a few exceptions. 31 Although the owner of a turnkey design-build project retains the implied duty to cooperate, responsibility for the project design has been shifted to the design-build entity, so the owner has no duty to warrant the adequacy of the contract documents prepared by the design-build entity. 32
The owner is responsible for furnishing accurate and clear program documents that the design-build entity will use as a basis for completing the project design. Such documents would include the conceptual design or...
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