Construction Law Blog
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Implied warranties are warranties created by law, legislation, or courts. In the construction industry, one of the most prominent implied warranties is that owners who provide plans and specifications to their contractors impliedly warrant the adequacy of their plans and specifications.[i] That implied warranty had its beginning in the 1918 US Supreme Court decision of U.S. v. Spearin[ii] and is, therefore, popularly known as the Spearin Doctrine. Under the Spearin Doctrine, if the contractor completes the work in accordance with the owner’s plans and specifications, but there is a deficiency or failure, the owner, not the contractor, is responsible. When the owner breaches its implied warranty, in most instances, the contractor is entitled to additional compensation for extra work performed, delays experienced, and other additional expense or loss occasioned by the warranty breach. A recent case demonstrates that this implied warranty is not “immunity.” The contractor must still act reasonably and diligently, particularly when the contract provisions so require.
Rotech Healthcare, Inc., a healthcare contractor, recently successfully protested the award of a home oxygen and durable medical equipment contract by the Department of Veterans Affairs to Lincare, Inc. based on an unsupported past performance evaluation and allegations of an unequal discussion. See GAO Protest File Number: File: B-413024 (August 17, 2016). The Request for Proposals (“RFP”) provided that award would be made on a “best value” basis to the offeror whose proposal was most favorable to the government based on the following evaluation factors with the following possible ratings:
- Joint Commission Accreditation (Acceptable or Unacceptable)
- Region of Service (Acceptable or Unacceptable)
- Past Performance (Excellent, Good, Satisfactory, Unsatisfactory, or Neutral)
- Technical Capability (Excellent, Good, Satisfactory, Unsatisfactory)
In a public works dispute in Massachusetts, a Massachusetts Court judge ruled that a general contractor could not recover any of its over $14 million claim against a public owner because it had violated its contract with the Owner by certifying that it had paid its subcontractors in full and on time when in fact it had not.[i] The case involves a contract dispute arising from a state and federally-funded project to design and construct a fiber optic network in western Massachusetts. The Owner was a state development agency established and organized to receive both state and federal funding to build a 1,200–mile fiber optic network known as MassBroadband123 in Western Massachusetts (the Project). Of that amount, $45.4 million was awarded pursuant to the American Recovery and Reinvestment Act of 2009 (ARRA). One of the stated goals of ARRA was (as its title suggests) to create jobs in the wake of the 2008 recession and to provide a direct financial boost to those impacted by the economic crisis. In the context of the instant case, that meant that, if there were to be subcontractors on the job providing labor and materials, they needed to be paid on a timely basis in keeping with the statutory purpose of stimulating the economy.
The Prompt Payment Act Obligation is Not Triggered When the Owner Holds Less Retention from the General Contractor
Most states have laws known as “prompt payment” statutes which govern the timing of payments on public works projects from project owners to general contractors, and from general contractors to subcontractors. The purpose of these statutes is to ensure that contractors and subcontractors who may have less leverage than the project owners and prime contractors, respectively, are paid for their work on a timely basis.
Companies that do not themselves qualify for federal preferences as small, disadvantaged businesses can help in joint ventures with other qualified companies and enjoy many of the benefits these programs offer.
Federal agencies annually reserve over $12 billion in federal contracting opportunities for award to “8(a)” companies, which are businesses that have successfully applied for determination of being socially and economically disadvantaged under Section 8(a) of the Small Business Administration (“SBA”) Act. In addition, other categories of disadvantaged, small businesses, such as companies owned and controlled by service-disabled veterans, qualify for a growing allotment of set aside contracts and other preferences.
The U.S. Government Accountability Office (“GAO”) has jurisdiction to hear bid protests from government contractors seeking review of a federal agency’s contract procurement and awards. The GAO receives thousands of bid protests every year. On April 15, 2016, the GAO published notice of potential changes to its protest procedures, which would significantly change the manner in which protests get filed and decided.
Many of our veterans returning from the wars in Iraq and Afghanistan are interested in starting or buying their own business. To support our soldiers, the U.S. Department of Veterans Affairs (“VA”) implemented the Veteran and Small Business program, which creates set-asides for Service-Disabled Veteran-Owned Small Business and Veteran-Owned Small Business (“VOSB”). However, the far more lucrative set-asides with the Department of Transportation (“DOT”) are governed by the Disadvantaged Business Enterprise (“DBE”) program. For DOT set-asides, only women-owned and minority-owned small businesses qualify as DBEs.
More than 100 new industries are now eligible for the Small Business Administration’s (“SBA”) Woman-Owned Small Business (“WOSB”) contract program. The SBA implemented the WOSB program in order to expand the number of industries where woman-owned small buisnesses could compete. The program allows set-asides for Economically Disadvantaged WOSBs (“EDWOSBs”) in industries where WOSBs are underrepresented and set-asides for WOSBs where they are substantially underrepresented.
As discussed in previous blog posts, a Termination for Convenience (“TforC”) clause allows a party (generally, the owner or general contractor) to stop work for just about any reason without having to pay for anticipated profit or unperformed work. Read more here and here. Recently, the Washington Court of Appeals decided SAK & Associates, Inc. v. Ferguson Construction, Inc. in which the Court held that all that is required to trigger a TforC clause is a statement that termination is being invoked for the convenience of the terminating party. Read more here.
At times, both public and private owners succumb to the temptation of taking back what was given to a contractor through a differing site conditions clause by including disclaimers in their contracts as to the reliability of site condition information supplied in the bidding documents. The disclaimers may be specific statements, such as “no claims for differing site conditions will be recognized regarding the absence or presence of subsurface rock or unstable rock conditions,” or general statements, such as “the contractors shall not rely upon any contract indications or owner furnished information, but should make their own soils analysis.” The effectiveness of these disclaimers depends upon the specific language used. The more general the language, the more likely the disclaimer will be rejected. The outcome also depends on the jurisdiction in which a party attempts to enforcement of the disclaimer.