1. Owners Warranty of the Plans and Specifications

   Under Pennsylvania law, construction contracts impose upon a contractor an implied duty to perform the scope of work skillfully, carefully, and in a workmanlike manner, free from defects, in either materials or workmanship¹. This implied duty has now been rendered somewhat obsolete because virtually ever standard form construction contract including the American Institute for Architects General Conditions of Contract expressly impose this duty on contractors².

   In any event, as a corollary to the requirement that a contractor perform in a workmanlike manner, if a contractor performs according to the plans or specifications furnished by the owner, the contractor will not be responsible for damages related solely from defects in the plans or specifications, assuming, of course, that the contractor has not otherwise contractually assumed responsibility for design. This precept of “implied warranty of adequate specifications” emanates from a line of cases beginning with the United States Supreme Court's 1918 decision in United States v. Spearin.³ In Spearin, the Court, speaking through Justice Brandeis, held:

   [I]f 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. This responsibility of the owner is not overcome by the usual clauses requiring builders to visit the site, to check the plans, and to inform themselves of the requirements of the work, as is shown by [citations omitted] where it was held that the contractor should be relieved, if he was misled by erroneous statements in the specifications . . . .⁴

   By prescribing the character, dimensions and location of the work to be performed, the owner “import[s] a warranty that, if the specifications [a]re complied with, the [work] w[ill] be adequate”.⁵ Thus, “[w]hen the [g]overnment provides specifications directing how a contract is to be performed, the [g]overnment warrants that the contractor will be able to perform the contract satisfactorily if it follows the specifications”.⁶ An owner warranty similar to the Spearin doctrine has been followed by the Pennsylvania courts in private contracting contexts,⁷ thus an analysis of this doctrine is equally applicable to government and private construction contracts.

   Design Specification vs. Performance Specification

   Over the years, courts modified the “Spearin doctrine”.⁸ The modern approach to Spearin assigns responsibility for a defective specification according to whether it is a “performance” or “design” specification".⁹

   Performance” specifications “set forth an objective or standard to be achieved, and the successful bidder is expected to exercise his ingenuity in achieving that objective or standard of performance, selecting the means and assuming a corresponding responsibility for that selection.”¹⁰ The government does not implicitly warrant performance specifications for complete accuracy or adequacy. Typical performance type specifications set forth an objective or standard to be achieved, and the successful bidder is expected to exercise his ingenuity in achieving that objective or standard of performance, selecting the means and assuming a corresponding responsibility for that selection.

   On the other hand, “Design” specifications, “describe in precise detail the materials to be employed and the manner in which the work is to be performed. The contractor has no discretion to deviate from the specifications, but is required to follow them as one would a road map”.¹¹ “Specifications are design when only one material or a certain composition will enable the product to meet the performance standards expressed in the specification”.¹² Design specifications explicitly state how the contract is to be performed and permit no deviations.

   In order to differentiate between design and performance specifications, courts examine the level of discretion that exists within a given specification; “discretion serves as the touchstone for assessing the extent of implied warranty and intended liability".¹³ A contractor claiming a particular specification is “design” rather than “performance” must establish the specification “do[es] not permit meaningful discretion . . . and the defective specification [is] the cause of [the] injury.” Id.

   Of particular import, the mere identification of a product or manufacturer does not create a design specification. Where a government agency identifies a particular product or manufacturer by name, but permits substitution of “an approved equal,” such a specification is “performance” in nature and, as a result, carries no implied warranty.¹⁴

   Breach of Implied Warranty Claim Struck down by Federal Court.

   The United States District Court for the Western District of Pennsylvania in the recent decision of Alstom Power, Inc. v. RMF Industrial Contracting, Inc.¹⁵ (Recent Case Alert) has ruled that Pennsylvania law does not recognize a breach of implied warranty claim based on construction plans and specifications. In Alstom Power, “Count III of the Counterclaim state[d] that by distributing the RFQ [request for quotation] with the plans and specifications for the project, Alstom impliedly warranted [that] the project was capable of being constructed within those plans and specifications.”¹⁶ The Court held that in the context of construction plans and specifications and/or request for quotation, the Court found no authority to support a claim for breach of implied warranty under Pennsylvania law. Therefore, the Court predicted that the Pennsylvania Supreme Court would decline to recognize a claim for breach of implied warranty based on construction plans, specifications, or request for quotation.¹⁷

2. The Architect and Contractors Duties and Obligations

   Architect’s Duties and Obligations

   Under most standard construction contracts, the architect or engineer on a construction project is the project administrator with respect to interpretation of the specifications and other related contract documents.¹⁸ Yet, potential liability for the drafting and implementation of the plans and specification is not limited to the construction contract. The Pennsylvania Supreme Court in Bilt-Rite Contractors, Inc. v. The Architectural Studio.¹⁹ (Recent Case Alert) issued an opinion permitting a building contractor to maintain a negligent misrepresentation action against an architect for alleged misrepresentation of the architects' plans on a public construction project. This decision is momentous because it drastically increases liability for architects and other design professionals in both the public and private arenas. Notably, prior to January of 2005, Pennsylvania foreclosed an action by a general contractor or subcontractor against an architect, unless there was a contractual relationship. (i.e., privity of contract).

   The longstanding Pennsylvania jurisprudence restricting liability for the design professional was reflected in the seminal decision of Linde Enterprises, Inc. v. Hazelton City Authority.²⁰ The Pennsylvania Superior Court in Linde held that a contractor cannot prevail against an architect for economic damages suffered as a result of negligence in drafting specifications absent a contract between the contractor and the architect. In Linde, a contractor was a low bidder on a public project for the construction of a dam located in Hazelton Township and owned by Hazelton City Authority (“HCA”). HCA hired an engineering firm, WECO, to provide specifications for the dam and supervise its construction. The plaintiff, Linde Enterprises, incurred significant cost overruns, which were attributed to faulty specifications provided by the HCA and WECO's negligent supervision.

   In Bilt-Rite, the Pennsylvania Supreme Court overruled the decision of Linde Enterprises, Inc. v. Hazleton City Authority. The facts in Bilt-Rite expose a new, unmitigated liability for design professionals in both public and private construction projects. The facts are as follows: East Penn School District entered into a contract with The Architectural Studio ("TAS"), pursuant to which TAS provided architectural services for the design and construction of a new school in Lower Macungie Township, Lehigh County.²¹ The services included the preparation of plans, drawings and specifications to be submitted to contractors for the purpose of preparing bids for the construction of the new school.

   Bilt-Rite Contractors, Inc. ("Bilt-Rite"), submitted its bid for general construction work on the project and the school district awarded the general construction contract to Bilt-Rite, who was the lowest responsible bidder.²² TAS's plans provided for the installation of an aluminum curtain wall system, sloped glazing system and metal support systems, all of which TAS expressly represented could be installed and constructed through the use of normal and reasonable construction means and methods, using standard construction design tables.²³ Once construction commenced, however, Bilt-Rite discovered that the work, including the aluminum curtain wall, sloped glazing and metal support systems, could not be constructed using normal and reasonable construction methods, and instead required Bilt-Rite to employ special construction means, methods and design tables, resulting in substantially increased construction costs.²⁴

   Bilt-Rite sued TAS on a theory of negligent misrepresentation under Section 552 of the Restatement (Second) of Torts, claiming that TAS's specifications were false and/or misleading, and seeking damages for its increased construction costs.²⁵ The trial court dismissed Bilt-Rite's complaint, asserting that TAS owed no duty to Bilt-Rite, with whom it had no contractual relationship. When Bilt-Rite appealed, the Superior Court affirmed the trial court's decision to dismiss the case against the design professional and noted that the absence of contract between the parties is not an absolute bar to recovery for economic damages in tort; however, the question of which business relationships will be deemed exempt from the privity requirement must be decided on a case-by-case basis.

   The Pennsylvania Supreme Court reversed the Superior Court decision and established the new legal principle in the Commonwealth of Pennsylvania that an architect is now liable for a negligent misrepresentation tort action in the architect-contractor scenario. The elements of negligent misrepresentation differ from intentional misrepresentation in that the speaker is not required to know his or her words are untrue, but must have failed to make a reasonable investigation as to the truth of these words. In short, the design professional does not have to make an affirmative intentional false statement in the drawings, specifications, or other contract documents to be liable. It is only required that the construction documents contain an alleged error to bring a negligent misrepresentation claim. This new legal precedent permits a contractor or subcontractor to immediately file a direct suit against the architect for putative design errors, when prior to this decision, a tort action against a design professional for economic losses, such as cost overages, and delay damages, by the contractor were forbidden.

   To support this new position, the Pennsylvania Supreme Court cited law in Massachusetts, Arizona, Georgia, and North Carolina, which permit direct actions against architects on the grounds of negligent misrepresentation. The Court's rationale for its decision was the reliance placed upon professional services of design professionals and the fact that design professionals should not be free from malpractice claims based upon a negligent performance or a failure to perform those services in a competent fashion. For that reason, the Supreme Court specifically adopted Section 552 of the Restatement (Second) Torts as the law in Pennsylvania in cases where information is negligently supplied by one in the business of supplying information, such as an architect, or other design professional, and where it is foreseeable that the information will be used and relied upon by third persons, even if the third persons have no direct contract relationship with the supplier of the information.²⁶

   From the prospective of a general contractor and/or subcontractor, the Supreme Court's decision in Bilt-Rite provides a novel opportunity to file a direct action against a design professional for any cost overruns or delay on a project. Indeed, architects and design professionals are now subject to negligent misrepresentation actions, when prior to this decision, the architect was able to limit liability by negotiating favorable terms in contracts. It is important to note that the Court has not only created boundless liability for architects to general contractors, but also to subcontractors and any other "third-party" who may “rely” on the documents.

   Aside from the new precedent in Bilt Rite, liability for architects with respect to preparation of plans and specifications has been upheld by the Pennsylvania judiciary on breach of contract and negligence theory. In the oft cited decision of Bloomsburg Mills, Inc v. Sordoni Construction Co,²⁷An architect is bound to perform with reasonable care the duties for which he contracts. His client has the right to regard him as skilled in the science of the construction of buildings, and to expect that he will use reasonable and ordinary care and diligence in the application of his professional knowledge to accomplish the purpose for which he is retained. While he does not guarantee a perfect plan or a satisfactory result, he does by his contract imply that he enjoys ordinary skill and ability in his profession and that he will exercise these attributes without neglect and with a certain exactness of performance to effectuate work properly done. Henon v. Vernon, 1918, 68 Pa. Super. 608; 6 C.J.S. Architects § 19 (1937); 25 A.L.R.2d 1086. While an architect is not an absolute insurer of perfect plans, he is called upon to prepare plans and specifications which will give the structure so designed reasonable fitness for its intended purpose, and he impliedly warrants their sufficiency for that purpose. Hill v. Polar Pantries, 219 S.C. 263, 64 S.E.2d 885, 25 A.L.R.2d 1080.²⁸

   Thus, an architect is generally liable for foreseeable consequences of the failure to exercise reasonable care in preparation of architectural designs or if the design plans and specifications are faulty and defective.²⁹ An architect may also be responsible for the economic losses resulting from the architect's negligent designs to contractors working on the project or to the purchasers of the project. However, if the architect is following the specifications given by the owner for a specific purpose, the architect may not be liable if the specifications given the architect were themselves defective.

   In another recent case affecting architect liability, the Superior Court in Varner v. Classic Communities Corporation, 890 A.2d 1068 (Pa. Super. 2006) (Recent Case Alert) addressed whether a Certificate of Merit is required to file a civil action against a contractor. In Varner, the plaintiffs alleged in their Complaint that children were severely burned and died in a fire at a townhouse and that those injuries were caused by defective plans and designs for the townhouse and violations of the BOCA Code. Accordingly, the plaintiffs filed suit against the architects based upon negligence per se and negligence. The Common Pleas Court ruled that Pennsylvania's Rules of Civil Procedure contain a new provision pertaining specifically to professional liability actions, Pa.R.C.P. 1042.1-1042.8, which requires that a Certification of Merit be filed prior to initiation of a lawsuit against a professional. The Certificate of Merit shall be substantially in the following form:

   (Caption)
   (name of expert) an appropriate licensed professional has supplied a written statement to the undersigned that there is a basis to conclude that the care, skill or knowledge exercised or exhibited by this defendant in the treatment, practice or work that is the subject of the complaint, fell outside acceptable professional standards and that such conduct was a cause in bringing about the harm;

   AND/OR
   (name of expert) the claim that this defendant deviated from an acceptable professional standard is based solely on allegations that other licensed professionals for whom this defendant is responsible deviated from an acceptable professional standard and an appropriate licensed professional has supplied a written statement to the undersigned that there is a basis to conclude that the care, skill or knowledge exercised or exhibited by the other licensed professionals in the treatment, practice of work that is the subject of the complaint, fell outside acceptable professional standards and that such conduct was a cause in bringing about the harm;

   OR
   (name of expert) expert testimony of an appropriate licensed professional is unnecessary for prosecution of the claim against this defendant.

   A plaintiffs' claim against an architect that sounds in professional liability requires a filing of a Certificate of Merit or the Complaint will be dismissed. Accordingly, any time an action is brought against an architect for negligence, (and potentially breach of contract if it is based on negligence), the filing of a Certificate of Merit will be a necessary prerequisite to filing suit.

   Contractor’s Duties and Obligations

   The contractor under a standard construction contract has an obligation to "supervise and direct the work, using the contractor's best skill and attention".³⁰ "The contractor shall be solely responsible for and have control over construction means, methods, techniques, sequences and procedures and for coordinating all portions of the work under the contract, unless the contract documents give other specific instruction concerning these matters".³¹ The contractor still has a common law and implied contractual obligation to perform the work in a workmanlike manner. As part of this responsibility, the contractor is responsible for proper sequence of the work and implementing the architect's design to meet the specification criteria and any time limitations.

   As noted with regard to the "owner warranty" the contractor is absolved of damages related solely to the plans and specifications. Nevertheless, the reliance on this precept does not relieve the contractor of the responsibility to use professional judgment and act in a skillful manner. If a plan or specification is defective and the contractor in his or her professional judgment believes implementation of the plan will be a construction error, the contractor has a duty to notify the architect and owner. The claim "I did it according to specification" will not be a worthwhile defense if the plans are obviously defective. Therefore, as a rule a contractor should document any error that based on his or her experience should be remedied, and request specific written direction from the architect to alleviate any concerns.

3. Defects Discovered During Construction the Planning and Construction Phase of Project

   If defects are identified in the preliminary stages or during actual construction, it is an absolute necessity to remedy the error as soon as practicable. The construction industry is an inherently risky enterprise. Proper risk management and early notification of a surety may be the initial step to remedy a substantial error or delay related incident. The desire to wait to "see if it works out" will not necessarily move the project along to a successful conclusion.

   The contractor and owner must meet any contractual prerequisite for relief as soon as the defect is identified. The requirement of notice and submission of revised schedules early on will potentially avoid litigation. In fact, it is prudent for a contractor to develop a checklist of all notice requirements to ensure compliance. In addition, as noted below, the employment of experts to document the construction defects when the error is revealed is vital.

4. Damage Analysis for Project Errors

   The methodology for calculating damages differs in construction cases depending on whether repair of defective construction is the primary issue or if delay in completion is the primary harm.³² Yet, the object of an award of damages remain the same, to place the non-breaching party in a position would have had the breach not occurred.

   With respect to specification defects, the necessity of determining costs for defects or omissions must be engaged during the course of the project or soon after substantial completion to the extent the defects are found at that time. The appropriate measure of damages is the cost of repairing any defects or of completing the work to make it conform to the plans and specifications. Such costs usually include charges paid to the completing contractor, any additional overhead, costs for the completing contractor, additional costs to architects and engineers for expert analysis, as well as correction of project specifications, and any other additional costs the owner could sustain as a result of having to re-procure the project and familiarize the contractor with the project.

   Owners and contractors usually do not consider engaging expert engineers, attorneys, or consultants until long after the project is completed and litigation is about to ensue. Yet, the owner or contractor needs to employ an expert immediately if a construction failure occurs during the course of the Project.

   Engineering and architectural experts should be retained to identify the technical and complex problems and disputes in order to formulate possible resolutions. Mechanical and structural engineers can suggest ways to mitigate damages and to overcome the defects in the plans and specifications in a most cost efficient manner, thereby enabling an early resolution to the problem on a project. If there is a delay issue economists or accountants may also be required. Finally, counsel can be hired to advise the contractor and/or owner as to how to optimize its legal and factual position should litigation be inevitable or develop a plan to avoid litigation. The early employment of professionals, while an additional cost during the course of construction, will enable the contractor or owner to compile the necessary project documents and make a cost effective decision on continuing course on the project or, in the alternative, create a sound evidentiary record for litigation. .

Should you have any questions regarding this matter or any commercial litigation issues, please call or e-mail John P. Corcoran, Jr. at (412) 261-6400 or jpc@jpcg.com.