Implied Warranties in Government Contracts

• Author: By Major George H. Dygert
• Pages: 02

Subatantial litigation has arisen over the years regarding the unwritten aasumptiom of parties to government contracts. This article szamines the doctrine of implied wnrranty, studies altermtive approaches to problems in the area and discusser the eztent to which ezculpatory olausea may avoid government liability.

1. INTRODUCTION

   The government, as the largest purchaser of goods and services in this country, affects the economic life of large and small busi-ness in all parts of the United States economy. Because of the very volume of its procurement, it is not subject to the normal controls exercised by a Bystem of competition. Contract provisions are not subject to negotiation in any real sense. The government dictates the terms of its contracts largely free from influence by the contractors who are dependent upon it for large portions of their business and who, in many caw, are dependent on such business for their very existence.' In such an atmosphere of adhesion contracts, the doctrine of implied warranty plays an important part in protecting the government contractor from unfair or unanticipated obligations imposed by the letter of the government contract8

   The theory of implied warranty was imported into the law of government contract8 by the United States Supreme Court in 1918

   *This article "81 adwed from B thean presented to The Judge Advocate General's School U. S Army, Charlottesvllie Virginla rhlie the author WBI a member of thd Eighteenth Advsnced Cou& The o&om and eonelusiona pmsented herein are those of the author and do nut necessarily reprerent the view of The Judge Advocate General's School or m y other governmental

   1 Sae Cuneo & Crowell, Impoiaibd~iy o i Periomancs Assumption o i the Risk 01 Aot a/ Submiamon, 28 LAW & CONTEMP. PROB. 531,'648-51 (1964).

   IMPLIED WARRANTIES

   tion of risk and is much broader in application than impossibility, misrepresentation or mutual mi~take.1~

   11. CIRCUMSTASCES GIVISG RISE TO IMPLIED WARRAS-TIES

   Implied warranties arise from the contractual relationship between the parties. Their existence and effect depend upon the provisions of the contract, the nature of the subject matter and the actions of the parties prior to award and during performance. The theory of implied warranty, first applied in the law of government contracts to circumstances involving gaaernment furnished detailed draivings and specifications, has been expanded in agplication and is now applied in numerous other circumstances.

   1. CONTRACTS CONTAINING DETAILED PLANS AXD SPECIFICATIONS

      The Supreme Court in L'nited States v, Spearin" held that the government impliedly warrants that detailed drawings and specifications issued as part of a government contract will result in a satisfactory performance if conscientiously followed by the contractor. In Spearin the contract required the relocation of a 8ewer as part of the construction of a drydack. The contractor relocated the sewer in the configuration required by the contract. Later 8s a

      result of a heavy rain storm and an obstruction in a connecting sewer not shown on the drawings the newly constructed 8emr broke, causing the site to flood. The contract included standard ilauses requiring the contractor to investigate the site and assure himself of the conditions and ta check the drawings for accuracy prior to bidding.18 When the flooding occurred the contractor stopped work and refused to proceed until the government accepted responsibility for the flooded site and for correcting the draxuings. In holding the government liable for breach of contract on the theory of implied warranty, the court specifically determined that the general exculpatory language resarding the contractor's obligation for site inspection and verification of drawings did not impose on him the obligation to determine the adequacy of the government furnished detailed drawings. The court then proceeded to award common 12w damage8 for breach of contract. The defect in drawings involved here was not a patent one readily

      discernible by a reasonable review of drawings and specificatlane or Site inveatipation. Its discovery could not have been accomplished without extensive research of extracontractual drawings of existing subsurface structure."

      The government, in addition to drafting its own detarled draa-inns and specifications, incorporates into its contracts drawings and specifications developed by principal contractors and others under separate contracts. Where the government incorporated into a contract detailed specifications recommended by the contractor a8 more satisfactory than the government specifications, recovery on the theory of implied warranty of the Specifications was denied when they failed to result in a satisfactory praduct.'u The court reasoned that it is improper to charge the government with responsibility for specifications adopted at the insistence of a can-tractor who later found them unsatisfactory far the intended purpose. An implied warranty was found and recovery allowed where the government provided a contractor detailed production drawings developed by B third party with a warning that the drawings had not been verified and might contain errors.'@ In this case, the court specifically noted the warning and the government's and the contractor's belief that the drawings would be aatisfactory for use. It then determined that the warning w a ~ merely a statement of fact that the drawings had not been checked by the government.2o

      In two-step formal advertising the government initially seta out performance specifications in its step one request for technical proposals.P1 Only potential contractors who have submitted acceptable technical proposals are allowed to bid during step two in response to the formal advertised request for bids.22 Each contractor who bids in step two is bidding far a contract consisting of the government's performance specifications and the detailed drawings and specifications of his own technical proposal which for purposes of his bid have been incorporated as part of the government plans and specifications.23 The government has specifically determined that the technical proposal is acceptable before adver- 17 Sea pp. 48-47, $%/?a, for diaeuasian of the scope Of the contractor's oblign- tion in conducting prebid InveatiEation and reiiejj.. Where imestwation of rveh smpe will not reveal defect8 in detailed drswinm and mecihcstiona, 85 ii the situation in the inatant case, the eantraetor has io abllgstm to determine ILli. .l.",,."l.

      _".~_"

      16 Auitin Ca. V. United States. 311 F 2d 518 ICt. C:. 15831,I9 N. Am. Philhpr Co \ Unrted States. 358 F.2d 980 (Ct. CI. 1566).10 See pp. 69-70, injra. for discussion of the effect of oxeulpatory provmians 11 ASPR gS 2 501 (1 Jan. 1969) and 2.503-1 (1 Jan 1585)22 ASPR &E 2.501 (1 Jan. 1969) and 2 503-2 (1 Jan. 1565121 Id42

      IMPLIED WARRANTIES

      tisins far bids in step two; however, the detailed specifications and drawings are accepted at the suggestion of the contractor who by proposing them represents his belief that they will yield the desired performance, This is very similar to the situation found in Austin Co. v. United States.24 However, there is one substantial difference. In the two-step formal advertising process the potential contractor muat develop and submit a technical proposal if he is to be considered for award of the contract. In Austin, the contractor was a volunteer-the contract would have been performed utilizing specifications furnished by the government had he not requested incorporation of the specifications he submitted. This factual difference must be considered when the court determines whether the detailed drawings and specifications submitted by the contractor in his teehnieal proposal in two-step formal advertising are warranted by the government. It is suggested that this differ-ence does not have sufficient significance to support a result con-trary to that reached by the court in A2istin and that no implied warranty of adequacy of the detailed drawings and specifications would be found.

      There ia no implied warranty that a structure constructed according to government furnished specifications will withstand all natural disasters which may occur prior to acceptance.26 The warranty is mereiy that a satisfactory result will be achieved under normal circumstances, not that the contractor is protected agninst all eventualities.

      The implied warranty that a satisfactory result will be achieved when detailed plans and specifications furnished by the government are followed applies to the oontrect. In determining the adequacy of the contract, all of its parts must be examined and read together.B' This interpretation must be based on good faith and made with regard to good practice within the particular industry. The elements which must be considered will vary with the type of contract, the complexity of its provisions and whether the drawings and specifications are self-contained or refer to items or documents not within their corners. The drawings and specifications need not be so explicit that it is absolutely impossible to misinterpret them. The government is Obligated to provide drsw-in85 sad specifications that are reasonably complete and acrurate:

      21 311 F.2d 518 (Ct. CI. 1963).*I Eke. and hliasile Faeilit~s,

      Inc, FAACAP No. 66-17. 6 Dee. 1966, 66-2 B.C A para 5260.26 E#., Flippin Materisk Co. Y. United States, 812 F.2d 408 (Ct. CI 19631,and Highland Constr. Carp., CGBCA Nos. T-222, T-239, T-241, T-265, T-257and T-282, 20 Jan. 1967, 67-1 B.C.A. para. 6094.

      honerer, the contractor must make more than a cursory examination of such documents. He is charged with the knowledpe that a reasonably careful cautious bidder would have gleaned from the contract documents while preparing his bid.z- Attempted recovery for minor errors or omimions in the drawings and specifications which a contractor experienced in the field would recognize as necessary for the ?atisfactor...