Legal Aspects of Performance-Based Specifications for Highway Construction and Maintenance Contracts (2013)

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33 One project that has received much national attention is the Federal Center South project currently being built by the U.S. General Services Administration (GSA) in Seattle.107 The original design-build contract, valued at $66 million, included a 0.5 percent “holdback” that will only be paid if the building makes good on its proposal promise to deliver a 209,000-ft2 building that uses 30 percent less energy than the American Society of Heating, Refrigeration, and Air Conditioning (ASHRAE) 90.1-2007 standard (i.e., 27,600 Btu/ft2/year). Consistent with some of the points cov- ered previously, the parties are working through the specifics for measurement, validation, and fine tuning, and how energy-use data are to be assessed. One of the particular areas of concern is the comparison of the en- ergy model’s assumptions versus actual operating con- ditions. For example, the model assumed certain weather conditions, and that there would be no electri- cal-plug loads from individual space heaters or refrig- erators. Changes in these assumptions could impact the ability of the design-builder to meet its guarantees. Note that GSA did not use any incentives in this con- tract to reward enhanced performance.108 VIII. AN EXAMINATION OF THE CASELAW ASSOCIATED WITH PERFORMANCE SPECIFICATIONS As discussed in previous sections of this digest, many factors can drive an owner to choose performance speci- fications rather than design specifications. One of the key factors is liability exposure. Under the Spearin doc- trine, owners who use design specifications face liability to contractors for defects in those specifications, while owners using performance specifications do not. In theory, the legal distinction between design and performance specifications seems clear and easy to ap- ply. In reality, it is anything but clear and easy. As evi- dent from the caselaw on these subjects, application of this general principle to real-life situations raises a number of questions, such as 1) how does one determine if the specification at issue is a “design” or a “perform- ance” specification; 2) what happens if the specification at issue is a composite of both design and performance specifications; 3) what if the contractor helps draft the performance specification; and 4) what if the perform- ance specification cannot be achieved? If there is any- thing that is clear about this subject, it is that the win- ners and losers in litigation over performance specifications issues are decided by the specific facts of the case, where a trier-of-fact can assess what the speci- 107 Post, supra note 36, at 10. 108 As of May 2012, the building was 80 percent complete. Interestingly, the energy modeling at the time of the ENR pub- lication indicated that the building was to use 40 percent less than ASHRAE standards, and that the team was attempting to obtain a LEED Gold standard versus the LEED Silver rating that was contractually specified. fication required and who should bear responsibility for the problem. Readers should note that there are literally hun- dreds of cases around the country that have discussed defective specifications and the application of the Spearin doctrine. The purpose of this section of the di- gest is to provide a comprehensive review of how the legal issues associated with performance specifications have been decided.109 While many of the cases arise out of construction projects, there are also examples from other industries, including research and development, product sales, and technology. Readers should also note that most of the caselaw in this area arises from Fed- eral Government contracts, as is evident by the cita- tions included in this section. A. Spearin and the Creation of Implied Warranties for Defective Specifications United States v. Spearin110 is generally considered the most important construction law case in the United States. This case essentially established what has be- come commonly known as the doctrine of implied war- ranties, which imposes on an owner an implied promise that certain specifications contained in a contract are free of material defects.111 While the Spearin doctrine has been stated in many different ways, it essentially means that an owner cannot hold a contractor respon- sible for the consequences of following an owner’s speci- fications. The facts in Spearin arose out a contract that called for the contractor to build a dry dock. The contract re- quired the contractor to relocate a 6-ft sewer. Unfortu- nately, the plans inaccurately reflected subsurface con- ditions through which the sewer system would be built, as there was an existing dam not shown on the plans. The contractor relied upon the plans and specifications and completed the sewer relocations. One year after completion, a heavy rainstorm backed up water into the sewer, breaking it and flooding the surrounding dry- dock area. The nondisclosed existing dam contributed to the flooding and failure. When the contractor refused to clean the area and complete performance on the contract, it was termi- nated for default. This resulted in a lawsuit over who was responsible for the problem. In finding for the con- tractor, the United States Supreme Court established the fundamental liability differences between owners and contractors for constructability risk: 109 There are many nuances associated with defective speci- fications that do not directly relate to performance specifica- tions, such as the duty of the contractor to provide what is reasonably inferable from the contract documents and to raise patent ambiguities in the bidding process. These nuances are not discussed in this digest. 110 248 U.S. 132, 39 S. Ct. 59, 63 L. Ed. 166 (1918). 111 Kevin C. Golden & James W. Thomas, The Spearin Doc- trine: The False Dichotomy Between Design and Performance Specifications, 25 PUB. CONT. L. J. 47 (1995).

34 The general rules of law applicable to these facts are well- settled. Where one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to additional compensation, because unforeseen difficulties are encountered. …But if the contractor is bound to build according to plans and specifications pre- pared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifica- tions. [citations omitted] …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…if he was misled by erroneous statements in the specifications.112 The Supreme Court, in reaching this conclusion, cre- ated the owner’s implied warranty by the following lan- guage: The risk of the existing system proving adequate might have rested upon Spearin, if the contract for the dry dock had not contained the provision for relocation of the 6-foot sewer. But the insertion of the articles prescribing the character, dimensions and location of the sewer imported a warranty that if the specifications were complied with, the sewer would be adequate. This implied warranty is not overcome by the general clauses requiring the contractor to examine the site, to check up the plans, and to assume re- sponsibility for the work until completion and acceptance. The obligation to examine the site did not impose upon him the duty of making a diligent inquiry into the history of the locality with a view to determining, at his peril, whether the sewer specifically prescribed by the govern- ment would prove adequate. The duty to check plans did not impose the obligation to pass upon their adequacy to accomplish the purpose in view [emphasis added].113 The holding in Spearin is somewhat narrow, as it only relates to the accuracy of existing conditions on the site—essentially creating what the industry now thinks of as a “differing site conditions” remedy. However, the cases that followed Spearin considerably broadened the holding. One of the most important post-Spearin cases was Helene Curtis Industries, Inc. v. United States,114 which involved a contract to produce disinfectant chlo- rine powder to be used by U.S. troops in Korea to disin- fect mess gear and fresh fruits and vegetables. The Army prepared a specification for the new disin- fectant product that contained the active ingredients and directions for its production. The contractor fol- lowed these specifications, but the production batches failed to meet the contract’s prescribed solubility re- quirements. To meet these solubility requirements, the contractor had to use a complicated and expensive grinding process to mix the specified chemicals. It ar- gued the government should pay for this extra work. The court agreed with the contractor. Citing Spearin as precedent, the court stated: We hold the specification for the disinfectant to have been misleading with respect to grinding. This was not merely a specification for an end-product, without any implica- tions at all as to method of manufacture. To reasonable 112 Spearin, 248 U.S. at 136. 113 Id. at 137. 114 160 Ct. Cl. 437, 312 F.2d 774 (1963). bidders it erroneously implied, in its context, that grind- ing would not be necessary to make the desired item; and in the circumstances defendant should have known that this would be the inference. Specifications so susceptible of a misleading reading (or implication) subject the de- fendant to answer to a contractor who has actually been misled to his injury.115 As indicated by the above excerpt, Helene Curtis clearly articulated what the industry has come to know as the Spearin doctrine. It also gave rise to what has become known as the Helene Curtis, or “superior knowledge,” doctrine.116 This doctrine holds that an owner violates its contractual obligations if it fails to disclose during the bidding process special knowledge that is central to the performance of the bidder, and which the bidder cannot reasonably be expected to know from any other accessible source.117 Countless cases around the country have considered claims raised by contractors that defective specifica- tions led them to do something to their detriment. Typi- cal of this is Chantilly Construction Corporation v. Commonwealth of Virginia Department of Highways,118 where the court found that a highway contractor was not liable for defective concrete where it followed the owner’s design specifications. The contractor was un- able to obtain the specified concrete strength. It was able to prove this was because VDOT specified the use of Type III modified cement as opposed to Type III ce- ment, which was substantially stronger than the Type III modified cement. Citing Spearin, the court stated that: The Department supplied Chantilly with specifications prescribing the types and amounts of components for the concrete mixture, the temperature ranges during pouring of the cement, and the methods by which the concrete was to be made. In so doing the Department impliedly war- ranted that those specifications, if complied with, would produce concrete that would meet strength require- ments.119 Myriad other courts and triers of fact have reached similar conclusions on projects involving both building and civil works contracts. They do this by reviewing the specifications themselves, determining whether the design specification was defective, and then considering 115 Id. at 778. 116 The Helene Curtis decision noted that the Army knew that a more costly process of grinding would be necessary to meet the requirements of the specification, and also knew that the contractor was planning to use a simple mixing process that would not work. The court concluded that bidders would not have had the time during the bidding process to learn this and would conclude that a simple mixing process would be adequate. The court held that “The Government, possessing vital information which it was aware the bidders needed but would not have, could not properly let them flounder on their own.” Id. at 778. 117 See, e.g., H.N. Bailey & Assoc. v. United States, 196 Ct. Cl. 166, 449 F.2d 376 (1971). 118 6 Va. App. 282, 369 S.E.2d 438 (Va. App. 1988). 119 Id. at 447.

35 the cause and effect of any problems. Importantly, courts have not generally been swayed by an owner’s argument that it can completely design a project and then, by requiring the contractor to pass a test, shift the risk of performance to the contractor.120 Spearin and Helene Curtis make it clear that an owner has liability for defective design specifications. However, the caselaw and legal commentators have made it equally clear that the Spearin doctrine does not apply to the accuracy or adequacy of performance speci- fications.121 One legal commentator stated the proposi- tion as follows: [The implied] warranty’s creation turns on whether the disputed specification falls within one of two mutually ex- clusive categories. Thus, if the court classifies the specifi- cation as a “performance” specification, the warranty does not attach. If, on the other hand, the court places the specification in the “design” category, the specification carries an implied warranty that the contractor will achieve a satisfactory result if the provision is followed.122 One of the seminal cases in this area, J.L. Simmons Co. v. United States,123 stated the general proposition as follows: “[T]ypical ‘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 re- sponsibility for that selection.”124 Several cases have cited to J.L. Simmons, including PCL Construction Ser- vices, Inc. v. United States,125 which expressed the prin- ciple as follows: The Spearin doctrine has been discussed and clarified over the years, often with the words “design” and “per- formance” specifications used to differentiate between contracts for which the specifications warranty does and does not apply. [citations omitted]. The warranty applies only to “design specifications” because only by utilizing specifications in that category does the government deny 120 An example of this is W.H. Lyman Constr. Co. v. Village of Gurnee, 84 Ill. App. 3d 28, 403 N.E.2d 1325 (1980), where the contract documents for a sewage treatment plant contained detailed plans and specifications, as well as requiring the con- tractor to pass an infiltration test on the completed sewer. The court cited to Spearin and held that because the contractor performed in accordance with the contract documents, and had no input into the design, the contractor could not be held re- sponsible for failing to pass this test. 121 The genesis of this principle comes from the language in the Spearin decision that says, “Where one agrees to do, for a fixed sum, a thing possible to be performed, he will not be ex- cused or become entitled to additional compensation, because unforeseen difficulties are encountered.” Spearin, 248 U.S. at 136. While the above wording may seem a bit vague, courts have regularly cited Spearin as the controlling authority for the basic principle that performance specifications are not covered by the same implied warranty associated with design specifications. 122 Golden & Thomas, supra note 111, at 47, 51. 123 188 Ct. Cl. 684, 412 F.2d 1360, 1362 (1969). 124 Id. at 1361. 125 47 Fed. Cl. 745 (2000). the contractor’s discretion and require that work be done in a certain way. When the government imposes such a requirement and the contractor complies, the government is bound to accept what its requirements produce.126 Other courts have used similar wording to describe this general philosophy, such as the two following quotes from reported decisions: A claim based on defective specifications can only be maintained if the contract incorporates design rather than performance specifications.127 **** Even though a contract may contain some design specifi- cations, when a crucial element of the contract requires the contractor to use its own expertise and ingenuity, a Spearin warranty does not arise as to that element of the contract.128 In short, the proposition is so well-established that virtually every writing on the subject of Spearin and performance specifications will contain language that reminds readers that the owner’s warranty under Spearin does not apply to work that is defined by per- formance specifications.129 B. Distinguishing Between Design and Performance Specifications Given the above, one might expect that a “bright line” test exists to determine whether a specification at issue is a design or a performance specification. Unfor- tunately, there is no such test. The caselaw demon- strates that the answer to the question involves a mix- ture of legal and factual considerations.130 This was well-stated in Fru-Con Construction Corp. v. United States,131 where the court, citing earlier precedent, held: “[T]he distinction between design specifications and performance specifications is not absolute and that courts should understand that it is the obligation im- posed by the specification which determines the extent to which it is a ‘performance’ or ‘design,’ not the other way around.”132 Even a specification that says, in effect, “this is a performance specification,” will not be disposi- tive on the issue. The Fru-Con court held that the labels of “performance” and “design” specifications do not in- dependently create, limit, or relieve contractors’ obliga- 126 Id. at 748. 127 Connor Bros. Constr. Co. v. United States, 65 Fed. Cl. 657, 685 (2005), citing Haehn Mgmt. Co. v. United States, 15 Cl. Ct. 50, 56 (1988). 128 Aleutian Constructors v. United States, 24 Ct. Cl. 372 (1991). 129 See, e.g., Laura A. Hauser & William J. Tinsley, Jr., Eyes Wide Open: Contractors Must Learn to Identify and React to Design Risks Assumed Under Performance Specifications, 27 CONSTR. L. 32 (2007); 19 No. 12, NASH & CIBINIC REPORT ¶ 56 (Dec. 2005). 130 Caddell Constr. Co., Inc. v. United States, 78 Fed. Cl. 406 (2007). 131 42 Fed. Cl. 94 (1998). 132 Id. at 96.

36 tions, particularly because contract language does not always fall squarely within either category and because contracts may exhibit both design and performance characteristics. While there are no “bright line” tests, there are a number of “rules of thumb” that courts use to determine how to label a specification. One approach courts fre- quently use is to assess how much discretion the speci- fication gives the contractor to perform the work. As stated in Fru-Con: “[C]ourts have directed their atten- tion to the level of discretion inhering within a given specification; discretion serves as the touchstone for assessing the extent of implied warranty and attendant liability.”133 If the specification serves as a “road map,” then it is generally considered a design specification. If the specification gives the contractor wide discretion in meeting the end result, then it is generally considered to be a performance specification. J.L. Simmons Co. v. United States.,134 which was cited above and is considered a leading case for distin- guishing between design and performance specifica- tions, stated: [In a design specification]…the defendant set[s] forth in precise detail the materials to be employed and the man- ner in which the work was to be performed, and plaintiff was not privileged to deviate therefrom, but was required to follow them as one would a road map. In contrast, typi- cal “performance” type specifications set forth an objec- tive or standard to be achieved, and the successful bidder is expected to exercise his ingenuity in achieving that ob- jective or standard of performance, selecting the means and assuming a corresponding responsibility for that se- lection.135 This case involved a dispute over whether the con- tractor should remediate a defective foundation on a hospital. The court applied the above-referenced test to find that the specifications were design specifications. These specifications contained 1) specific requirements for the type of piles to be used and depicted the design loads for these piles; 2) limitations on preexcavating and coring; and 3) “complete specificity” on the pile driving equipment to be used, as well as the procedures for its use, including when bearing capacity would be determined and the tolerances for completed piles. The contractor followed the specifications. After installing virtually all (almost 2,000) of the piles, it was discov- ered that the piles were showing movement, requiring a major remediation plan. The court rejected the govern- ment’s argument that these problems were the contrac- tor’s responsibility, concluding that under Spearin the government had impliedly warranted that if the con- tractor followed its detailed specifications, the end re- sult would have been acceptable. A variety of cases have used the “road map” analogy to find that the owner had furnished design specifica- tions. The rationale in these cases typically involves a 133 Id. 134 412 F.2d 1360 (1969). 135 Id. at 1362. review of the general principle to determine whether there is a design or performance specification. If the court concludes that the issue involves a design specifi- cation, it then examines whether the specification was defective and caused the problems claimed by the con- tractor, thereby creating liability to the owner under the Spearin doctrine. One of the cases using this approach is Caddell Con- struction Co. v. United States,136 which involved the construction of seismic upgrades to an existing Veter- ans Administration (VA) hospital. A steel subcontractor claimed that it was entitled to money and time relief because of defective specifications. The government admitted that the contract documents were detailed, but claimed that 1) because these details were not in- structions on how to construct the building, the contract was not a design specification; and 2) because the con- tract did not provide the “means and methods” for the construction, the contract was a performance specifica- tion. The court rejected this argument, and found that the subcontractor had been furnished a design specifi- cation: The court agrees with plaintiff that, at the very least, the structural steel portion of the contract was a design speci- fication. Although the government did not dictate every aspect of the construction of the building and left certain key aspects of the construction, such as sequencing and scheduling, up to Caddell, the details and specifications for the structural steel were design specifications. Nine pages of the contract are devoted to specifications for the structural steel with specific instructions on what type of bolts, washers, nuts, welds, finishes, and connections, among other things could be used for the construction. This was clearly a “road map” for the structural steel fab- ricator to follow…. In addition, the building itself was de- signed to meet specific earthquake proofing guidelines and the contractor had to strictly follow that design.137 The court also noted that neither the general con- tractor nor its subcontractor had the expertise neces- sary to make any changes while ensuring that the building served its purpose and was still earthquake resistant. All engineering for the project was the re- sponsibility of the government and its design profes- sionals, and the contractors had no authority to deviate from the structure’s prescribed design.138 Another case using the “road map” approach is Fruin-Colnon Corp. v. Niagara Frontier Transportation Authority,139 where a tunnel contractor claimed extra costs for grouting that was required to achieve the wa- tertightness of the twin subway tunnels it built. The owner argued that the specification requiring the con- structed tunnels to be “watertight” was a performance specification and that, therefore, the contractor’s addi- 136 78 Fed. Cl. 406 (2007). 137 Id. at 412. 138 Note that although this court found that the government furnished a design specification, it ultimately concluded that the contractor did not prove that errors in the specification led it to suffer damages, and rejected the claim. 139 180 A.D.2d 222, 585 N.Y.S.2d 248 (1992).

37 tional costs in achieving that standard were not com- pensable. The watertightness clause in the contract specified the end objective (e.g., watertightness) and the standards for measuring compliance with that objective; it did not specify the methods of achieving watertight- ness. The court stated that, on first blush, the watertight- ness clause looked like a performance specification. However, in reading the contract as a whole, and evaluating how much control the contractor had to achieve watertightness, the court concluded that the contract established “complex and exacting standards for design and construction of the tunnel” that made it a design specification. These standards included re- quirements that the contractor construct an unrein- forced, cast-in-place, concrete liner of precise dimension and use prescribed concrete types and mix; and the standards specified how the concrete was to be placed, cured, protected, and finished. The contractor was given no discretion to deviate from those specifications, whether for the purpose of waterproofing or otherwise. The decision observed that, for example, the contractor had no discretion to install an impermeable outer liner to resist the hydrostatic pressure that was expected to exist following completion of construction. The contract also specified that waterproofing would be accomplished by means of fissure grouting, with detailed specifica- tions governing how to do this. Interestingly, the court looked to the payment and warranty provisions of the contract to support its con- clusion that, as a whole, this was a design specification. The contract explicitly provided that all measures nec- essary for achieving the degree of watertightness, in- cluding remedial treatments, would be paid for at the contract unit prices. The court concluded that it was unlikely that the owner would have agreed to pay the contractor on a unit-price basis if the contractor had actually assumed a performance responsibility to achieve watertightness. Even the warranty clause did not provide that the contractor would remedy water leaks at its own expense. Just as there are a large number of cases that have used the “discretion” and “road map” rules of thumb to identify design specifications, there are many that have used the same standards to conclude that the specifica- tions were actually performance specifications, thereby defeating a contractor’s claim for relief. An example is Fru-Con, cited above, which involved an overblasting claim on a concrete removal project that arose out of problems with the contractor’s detailed blasting plan. The contractor argued that its blasting plan “consti- tuted nothing more than a reflection of the detailed specifications prescribed by the [Corps of Engineers].”140 It included such items as saw cutting; the amount of concrete to be removed; the height, width, and depth of removal; and the length, size, and depth of embedment of all anchor and reinforcing steel associated with per- manent installation. The government countered by stat- 140 Fru-Con, 42 Fed. Cl. at 97. ing that while it had specified the elements of a success- ful blasting plan, it did not take away the contractor’s opportunity for ingenuity. The court agreed with the government and rejected the contractor’s claims, finding that the contractor re- tained complete discretion in the development of the blasting plan, subject only to the review and approval of the Corps of Engineers. The contractor had determined the size, depth, and diameter of the holes; the size and location of the charges; and the blasting sequence; and had selected the explosives and related equipment. There was no evidence that the Corps of Engineers had input into the preparation of the plan, mandated the use of certain explosives or equipment, or imposed any obligations during its review and approval of the plan. Another example is PCL Construction Services,141 cited earlier for the general proposition of how one is to evaluate the differences between design and perform- ance specifications. This case involved a claim by PCL Construction (PCL) against the U.S. Bureau of Recla- mation on a fixed-price contract for the construction of the Hoover Dam’s visitor center and parking garage. The solicitation documents informed bidders that cer- tain aspects of the design were based on estimates of rock location and to expect some omissions, discrepan- cies, and conflicts in the design. PCL encountered nu- merous problems during construction that were largely caused by inaccuracies in the estimated rock line. Once the Bureau took possession of the facilities, PCL re- fused to fix certain items. This led the Bureau to termi- nate PCL for default and withhold the final payment. PCL filed suit to convert the default termination to a convenience termination and to recover $32 million. One of the major issues in the case was whether the Bureau had Spearin liability arising from defective de- sign specifications.142 After examining the contract, the court concluded that the specifications were not exclu- sively design specifications, but either performance specifications or a mix of design and performance speci- fications. It concluded that many areas of the specifica- tions did not have the “road map” necessary to take away the contractor’s discretion in performing the work, and cited 22 specific examples where PCL was contractually responsible for the design and/or engi- neering of significant portions and elements of the work, including concrete formwork and falsework, con- crete reinforcement, precast structural concrete units, metal floor and roof decks, prefabricated steel stairs, skylights, and glass and glazing. Reflecting on all of the facts, the court stated: 141 47 Fed. Cl. 745 (2000). 142 Another major issue in the case raised by the contractor was that, by using a fixed-price contract, the Bureau had rep- resented that the plans and specifications were prepared in accordance with industry standards and that Spearin applied. It argued that a cost-reimbursement contract should have been used if the Bureau truly believed that the plans and specifica- tions were so inaccurate.

38 It is apparent to the court from the contract requirements outlined above that the contract never contemplated that PCL’s performance could be accomplished using only the contract documents. The contract required that PCL also use numerous types of drawings and data prepared by its own forces, including coordination layout drawings, con- crete placement drawings, concrete reinforcement draw- ings, various types of submittals including its own de- signs, shop drawings and layout drawings of all crafts. *** In fact the contract expressly provided that the design package conveyed only the “design and engineering in- tent” for the project, and that the design drawings would be supplemented and detailed as necessary to construct the final product. Thus, the contract allocated a substan- tial amount of discretion and responsibility to PCL to participate in resolving design problems. The contract also stated performance goals that PCL was to meet, and did not tell PCL the methods or processes to use to achieve the specified end result. Indeed, it is evident that the drawings do not contain the level of detail necessary to actually construct the project in the field. It was up to PCL to provide the precise details of how the structures were to be built (including, but not limited to, the precise routing of electrical and mechanical systems, the number and locations of individual concrete pours, the sequence of construction activities, and details of all concrete rein- forcement.)143 Based on these findings, the court concluded that the Bureau of Reclamation was entitled to terminate PCL for default and withhold an amount necessary to com- plete the defective work. Another case, P.R. Burke Corp. v. United States,144 involved the repair and improvement of a sewage treatment plant at the U.S. Marine Corps Base at Camp Pendleton, California. The contract documents depicted certain areas of the plant that the contractor had to repair, showing both the existing location of various structures and the planned location of the new structures. One drawing showed the location of the two new trickling filters (i.e., filters that provide secondary treatment of waste in sewage treatment by converting organic materials into sludge). These drawings showed the new trickling filters, as well as several other new facilities, in the same area as the existing trickling fil- ter. The contract required that “the plant remain in op- eration during the entire construction period and the Contractor shall conduct his operations so as to cause the least possible interference with the normal opera- tions of the activity.”145 The contractor’s initial demoli- tion plan was rejected by the government because it showed the removal of the existing trickling filter and some additional tanks at the beginning of the project, essentially resulting in the plant being nonoperational. After discussions between the parties, the govern- ment ultimately suggested a sequence of work where 143 PCL Construction, 47 Fed. Cl. at 798. 144 277 F.3d 1346 (Fed. Cir. 2002). 145 Id. at 1350. the contractor would first construct one new trickling filter, and make it operational before demolishing the existing trickling filter and constructing the second new filter. While the contractor adopted this sequence, it argued that this cost it more money and delayed its performance. The court rejected the contractor’s claim, finding the specifications to be performance specifica- tions and giving the contractor the right to “plan and schedule the manpower, materials and methods of con- struction necessary to complete the Project as speci- fied.” It specifically noted that the contractor had con- trol over its demolition sequence and schedule, and had the obligation to design the trickling filter to meet spe- cific performance requirements:146 [This] simply shows that the government was telling Burke how the trickling filter needed to perform after Burke had completed it, not how Burke itself should go about constructing the filter. Indeed, under the contract, Burke had to submit drawings that “show the complete assembly of equipment, components, and parts” for the trickling filter. Accordingly, all the contract did was “set forth an objective or standard to be achieved,” the defini- tion of a performance contract.147 Central to the court’s decision was the fact that it was possible to meet the government’s definition of “normal operation.” The court also concluded that the contractor had a duty during the bidding period to raise a question with the government if it truly believed that the existing trickling filter had to be decommissioned to make its plan work.148 Some contractors have tried to argue that incomplete specifications are a basis to make a claim under the Spearin doctrine. For example, in Connor Brothers Construction Company v. United States,149 the contrac- tor claimed that it was entitled to additional compensa- tion for having to connect new diffusers and grilles to an existing hospital heating, ventilation, and air- conditioning (HVAC) system. The plans and specifica- tions showed the new equipment and systems to be in- stalled but did not specifically call out details of the connection work as to the existing HVAC system. The court rejected the contractor’s claims on a number of grounds, one of which was the contractor’s defective specification argument, stating: [S]imply because the contract documents did not specify exactly how Conner was to make an operational system, that fact does not render the contract drawings and speci- 146 The performance requirements were stated as requiring “a flow range from a minimum 1980 gallons per minute (gpm) to maximum of 3450 gpm and average design loading of 2620 gpm of sewage having a maximum 24-hour biochemical oxygen demand (BOD) of 195 milligrams per liter (mg/L).” 147 P. R. Burke, 277 F.3d at 1360. 148 The contractor argued that it should have been able to decommission the trickling filters and bypass them by sending the wastewater through the treatment plant without secondary treatment. This would have continued to make the plant “op- erational.” The court ultimately rejected this as an unreason- able interpretation of the word “operational.” Id. at 1357. 149 65 Fed. Cl. 657 (2005).

39 fications defective. An omission regarding the methodol- ogy of the reconnection of the diffusers and grilles to the ductwork does not invite a claim of defective drawings, as plaintiff would like the court to decree.150 Examining the specification at hand, and applying the tests described above, the court concluded that the contractor had the obligation to comply with a perform- ance specification relative to the connections of the dif- fusers and grilles: In this instance, the aspect of the contract involving the replacement of diffusers and grilles clearly reflects per- formance specifications and Conner has failed to demon- strate that it lacked discretion in performing the contract in order to warrant a finding of defective specifications. The contract drawings showed the layout of the ductwork and the sites of the old diffusers and grilles and where the new diffusers and grilles were to be placed along with a requirement that the system was to be made operable. This lack of detail indicates a performance specification because the contract drawings were silent as to how the new diffusers and grilles were to be re-attached to the HVAC system. The successful bidder in this case was given a significant amount of discretion in making the system operational. Conner was expected to use its own judgment and experience in deciding how to successfully perform the contract requirements.151 Note that many other cases have considered similar issues relative to the design versus performance specifi- cation argument, and have concluded that contractors cannot simply find an omission in a specification and claim that it is defective.152 However, it is important to remember, as noted earlier, that there is no “bright 150 Id. at 685. 151 Id. at 686. 152 One of the frequently-cited performance specification cases, Zinger Constr. Co. v. United States, 807 F.2d 979 (1986), falls into this category. The contractor in this case had a con- tract to install electric duct heaters in a dehumidifier system. This work included moving existing fan units and steam coils in the dehumidifier ducts approximately 3 ft forward and in- stalling new electric heaters downstream from the relocated steam coils and fans. After installing the electric heaters and relocating the existing fan units and steam coils, the contractor argued that it was not obligated to reconnect the steam coils and fans to the electric control box. Because the existing wires would not reach the relocated equipment, a new junction box and connecting wires had to be installed and the contractor filed a claim for the costs under the Spearin doctrine. It argued that it was entitled to rely exclusively on the drawings and detailed specifications, and the disputed wiring and reconnec- tion was not depicted on either. Finding the contractor’s argument that this was a design specification “misguided,” the court looked at the contract as a whole and concluded that the contract required, and a reason- able contractor would have understood, that the completed system needed to be fully reconnected and operational. The court also suggested, without specifically stating it, that the contractor had signed up for performance obligation through a clause stating that the contractor would install and electrically connect the duct heaters “in such a manner that…existing automatic control is functionally and operationally assured.” Id. at 981. line” standard on specification disputes, and the cases are decided on their own facts. For example, in M.A. Mortenson Co.,153 a contractor successfully argued that the omission of a firestopping design for penetrations placed in structural steel beams was the duty of the owner. The specifications appeared to be performance- based, although they also required a UL-listed, classi- fied, and numbered product specifically designed to close the penetrations. The Board of Contract Appeals concluded that as a result of this, it was the duty of the owner to have designed what was needed to meet that UL-listed product.154 Looking at the other side of the issue, owners cannot argue that an omission in a design specification con- verts a clear design specification into a performance specification. This situation arose in Travelers Casualty and Surety Company of America v. United States,155 a case that involved the construction of turning lanes into a new laboratory facility. The specification did not show any specific slope for the turning lanes, and the con- tractor built it along the contours of the grade. The gov- ernment believed that it should have been a 2-percent slope in accordance with South Carolina DOT’s design manual, and it argued that the absence of any desig- nated slope on the drawings required that the contrac- tor bear responsibility for determining what the re- quired slope was and achieving it. The court rejected this argument, finding that the specification was a de- tailed design specification, not a performance specifica- tion, and that the contractor’s interpretation of using the existing contours was reasonable. C. Composite/Mixed Specifications Parties involved in a specification dispute typically argue for or against the design/performance specifica- tion label. However, as most in the industry know, it is rare for a performance specification not to have some prescriptive requirements associated with it. This was noted in Utility Contractors, Inc. v. United States,156 where the court stated: The court has difficulty in believing that every govern- ment contract entered into can so neatly be placed in such black and white terms as design specification or perform- ance contract. The court does not necessarily find that these terms have to be so mutually exclusive. Certainly one can find numerous government contracts exhibiting both performance and design specifications characteris- tics.157 As stated in Costello Industries, Inc., “Specification problems become more complex when a specification is 153 ASBCA No. 53394, 04-2 BCA ¶ 32,777. 154 The Board concluded that the contractor would only be entitled to recover the labor and material costs that exceeded what it would have reasonably anticipated when bidding the job, and the specifications did require that the contractor in- stall a firestopping system of some sort. 155 74 Fed. Cl. 75 (2006). 156 8 Cl. Ct. 42 (1985). 157 Id. at 51 n.7.

40 a composite of these two types of specifications. When there is such a composite, it is necessary to test each portion of the specification, insofar as responsibility is concerned.” 158 Given the above, cases dealing with these “compos- ite” or “mixed” specifications tend to look carefully at how much discretion the contractor ultimately had in performing the work and whether flawed design specifi- cations actually created the contractor’s alleged prob- lems. This was noted in the example provided in Sec- tion II above, where the issue in dispute was whether the bridge contractor truly had discretion to drive the concrete piles to meet the performance requirements, or whether the owner’s design requirements took away that discretion and caused the contractor to suffer dam- ages. Utility Contractors is often cited as the precedent for how to deal with composite specifications. This case involved the construction of channel and drainage exca- vation in conjunction with a flood prevention program. During construction, a series of major rainstorms caused normal stream flows to flood over the contrac- tor’s temporary cofferdams, which damaged permanent concrete work, permanent and temporary excavation, and fine-grade filter material then in place. The con- tractor argued that this was a responsibility of the gov- ernment, as it had overall design responsibilities for the project and had provided design specifications to ensure that the project functioned as planned. The government argued that while it had responsibilities for the com- pleted project’s functionality, it did not have responsi- bility for damage caused before completion, and cited to specifications that required “the contractor to design and construct protective works of a sufficient size and design to prevent damage to the work during construc- tion,” and “if the protective works are inadequate the contractor shall, at its expense, make the necessary corrections.”159 The court cited to the general principles associated with design specifications, and stated that “design specifications are explicit, unquestionable specifications which tell the contractor exactly how the contract is to be performed and no deviation therefrom is permissi- ble.”160 Noting that the contract was replete with exam- ples of design specifications, the court cited to the con- crete specifications, which provided detailed requirements affecting how the concrete was to be mixed, comprised, proportioned, and produced. How- ever, because the contractor had responsibility for the means and methods of construction and for preventing damage to its work, the contract was “more like a per- formance contract,” with no implied warranties being given by the government that following its design would preclude precompletion damages.161 Stated differently, 158 ASBCA No. 28731, 89-3 BCA ¶ 22,090, citing Monitor Plastics Co., ASBCA No. 14447, 72–2 BCA ¶ 9,626. 159 Utility Contractors, 8 Cl. Ct. at 45, n.2. 160 Id. at 51. 161 Id. while the efficacy of the permanent works may have been prescribed and subject to a Spearin warranty, the temporary works were fully left to the discretion of the contractor. A similar result was reached in Martin Construction, Inc. v. United States,162 which involved a Corps of Engi- neers project for the construction of a marina at a state park in North Dakota. The contractor was defaulted as a result of substantial delays in completing the marina. It argued that this was caused by the Corps’ defective cofferdam design specification, which stated: The underwater fill for the cofferdam shall consist of ma- terials classified as GW, GP, SW, SP, ASTM D 2487. The material shall consist of a clean granular soil such as a pit run sand or sand with gravel. The material shall be State of North Dakota Type 7 Aggregate or equivalent. The contractor may utilize alternative materials, includ- ing recycled concrete, as long as the material is stable and free draining, and approved by the Contracting Offi- cer prior to use.163 The contractor used the North Dakota Type 7 (N.D. 7) aggregate, and it was soon learned that it was too permeable to lower the groundwater. After a number of changes were made to the design, the cofferdam was constructed, but the project was so late that the Corps of Engineers terminated the contractor for default. The Corps of Engineers defended on the basis that this was a performance specification, as it gave the con- tractor the ability to use N.D. 7 or its equivalent to con- struct the underwater fill, and any “alternative materi- als” as well. The court flatly rejected this, determining that the “language, detail, and specificity of the perti- nent provision indicate that the specification to use N.D. 7 for the underwater fill was a design specifica- tion. By directing the use of N.D. 7 or its equivalent, the Government set forth in precise detail the material to be used; it did not merely set forth an objective for the contractor to achieve through its own ingenuity.”164 Be- cause N.D. 7 created the contractor’s problems, the de- fault termination was lifted. Some owners have argued that the contractor has the burden of finding discrepancies within composite specifications during the bidding process. A good exam- ple is J.E. Dunn Construction Co. v. General Services Administration,165 which involved a curtainwall dispute on a new federal courthouse in Kansas City, Missouri. This project contained a number of creative architec- tural design elements, including an innovative, complex curtainwall that rested on columns four stories high, extended another three stories to the penthouse, and was semicircular in shape. The curtainwall specifications contained a mixture of design and performance requirements. For example, the solicitation stated that the drawings and specifications are “an outline of the criteria and performance re- 162 102 Fed. Cl. 562 (2011). 163 Id. at 576. 164 Id. 165 GSBCA No. 14477, 00-1 BCA ¶ 30,806.

41 quirements” of the work and “within these parameters the contractor is responsible for the design and engi- neering of the window system.” The specifications also stated that the curtainwall was to be designed to ac- commodate, among other things, “27 mm maximum long term depiction (creep) at edge of structure at the midpoint between columns.” As it was developing shop drawings, the curtainwall subcontractor determined that the curtainwall would not accommodate the long-term creep limitation. It ar- gued that the costs to overcome this problem should be borne by the government, since the design, shapes, and profiles of the curtainwall’s aluminum members were prescribed in the contract and one could reasonably assume that the government had evaluated concrete deflection in conjunction with this design. The govern- ment countered by claiming that the contractor had responsibility to determine the means and methods of accommodating deflection in its design of the curtain- wall system. It cited to contract language that the so- licitation’s drawings were merely “diagrammatic” and further claimed that “the drawings were only the start- ing point, to be modified at the discretion of the contrac- tor to meet the deflection criteria.” The Board of Contract Appeals rejected the govern- ment’s position on the basis that the Spearin doctrine governed, notwithstanding that there was a combina- tion of both design and performance specifications. It noted that the contractor’s discretion was confined by the requirements shown on the drawing details, and that any modifications to the curtainwall design had to conform to these details: We thus cannot agree with the Government’s argument that the drawing details were merely schematic, or that the written specifications subordinated the drawing de- tails to the performance requirements. The argument may be an example of the wish being father to the thought, but it was simply not the way the contract was written. …The mullions for the north and south curtain walls were dimensioned and considerably detailed in the drawings, leaving little discretion to the contractor as to how to fabricate the mullions.166 The Board ultimately concluded that the curtainwall contractor could not produce curtainwall mullions that met the design specifications while at the same time meeting the deflection criteria’s performance specifica- tion. The Board also rejected the government’s argument that this defect had to be discovered during the bidding process and that the contractor had a duty to seek clari- fication before submission of a bid. It noted that six cur- tainwall subcontractors submitted bids and none no- ticed the defect, and that even the government’s architect did not discover the defect during its initial review of the curtainwall’s sketches before shop draw- ing submission. The decision stated that it took the cur- tainwall subcontractor’s engineering expert 20 hours of engineering study to discover the defect, and then addi- 166 Id. tional structural engineering to determine what design and shape of mullion would accommodate the deflection criteria: “A reasonably prudent construction contractor is not expected to become an amateur structural engi- neer and hunt down defects in Government design drawings upon which the contractor has been told to rely, especially given the relatively short—one month— time to prepare bids.”167 Based on this, the Board con- cluded that the design defect was “latent” (hidden) and that the government bore the liability for overcoming this defect. A similar result was reached in Trataros Construc- tion, Inc.,168 which involved conflicts between design and performance specifications on the renovation of the U.S. Post Office and Courthouse in Old San Juan, Puerto Rico. The performance specification was estab- lished through the shop drawing requirements, which directed the contractor to develop shop drawings that were sealed by a professional engineer. By submitting sealed shop drawings, the contractor was certifying that its design complied with building code requirements and other performance criteria. The contractor’s scope of work included a perform- ance specification for the fabrication and installation of fiberglass panels replicating the building’s wood roof cornices. Engineered shop drawings were to include any necessary design changes to the support structures and the attachment points for the cornices. In addition to the performance specification, the contract also con- tained myriad design specifications associated with this cornice work, including specific directions for design of the stainless steel support structure and location of the attachment points. Before the contractor started the cornice work, it dis- covered that this work could not be performed as speci- fied in the contract documents. Its structural engineer determined that several parts of the structure needed modification to carry the required loads, particularly the weight of the fiberglass. The engineer also con- cluded that the number of attachment points shown on the contract drawings was inadequate to prevent the fiberglass from sagging. Because this engineer would not approve the design without making necessary changes, the shop drawings submitted to the govern- ment were different in many material respects from the original contract requirements. While the government eventually approved these shop drawings, it denied the contractor’s claim for the additional money associated with the revisions to the contract requirements, relying upon the contractor’s contractual obligation to meet the performance specification. The Board of Contract Appeals rejected the govern- ment’s performance specification defense. The Board was favorably impressed by the fact that the contract documents gave the contractor specifics on what was expected in key areas: 167 Id. 168 GSBCA No. 14875, 2001-1 BCA ¶ 31,306.

42 The drawings told Trataros to construct the support structure using stainless steel angles of a certain size, configured a particular way, connected in a particular way, and running in specified directions. The drawings said that the structure was to be attached to the building using stainless steel bolts of a specified diameter, and showed the configuration of that attachment. The draw- ings showed Trataros where to use clip angles and where to install bolts to hold the support structure’s angles and clip angles together.169 These and other detailed specifications led the Board to conclude that the contract documents and specifica- tions, read together, did not leave the design and loca- tion of the fiberglass system to the contractor’s discre- tion: Although the contract required Trataros to supply shop drawings, this did not provide Trataros with any flexibil- ity concerning either the design of the support structure or the location of the attachment points for the fiberglass panels. …Trataros’s obligation was to provide a support structure and to attach the fiberglass panels as shown on the drawings. Trataros was not obligated by the contract, however, to correct any design problems contained in the drawings.170 Similar to the conclusion reached in Dunn, the Board also rejected the government’s argument that the contractor should have assessed the risks associated with this cornice work before committing to a price. There was no evidence that the extent of the engineer- ing problems was known by the contractor or its team in advance of pricing the work. The Board stated, “Trataros did not have any contractual obligation to provide engineering services in order to determine the adequacy of the design shown in the drawings before it proposed a price for performing the cornice work.”171 Given these factors, the Board awarded the contractor an equitable adjustment for the consequences of dealing with the defective design specifications. There is also a series of composite specification cases involving government specifications for jet-fuel- resistant joint sealant that is used in repairing military airfields. Each of the cases involves a common theme, where the sealant did not produce the required results and the government and contractor argued over who had financial responsibility for repairing the problem. The government generally claimed that the joint- sealant specification was a performance specification because it set forth the operational characteristics of the desired joint sealant, without stating specific details concerning the material composition or formula for ac- ceptable joint sealant, nor the manufacturing process. The contractor would counter this by pointing to spe- cific and detailed testing procedures in the specification that established the test procedures and performance standards for all of the performance requirements. The courts and boards of contract appeals considering these cases uniformly concluded that the specifications are 169 Id. 170 Id. 171 Id. neither purely performance nor design specifications, but instead composite/mixed specifications. As a result, they examined the facts behind the manufacture of the sealant and its application in the field to assess who had liability. In Haehn Management Company v. United States,172 the sealant began to bubble and have other problems after the work was completed. The court found for the contractor, ruling that although it was a mixed design and performance specification (the design “included both a compositional requirement and standards by which the joint sealant must perform”), it was predomi- nantly a design specification. The contract specified 11 tests that the sealant had to pass, and the sealant passed each of them. The Navy stated that the samples had passed and that the contractor could begin using the sealing product. The specification also provided de- tailed measurements and tolerances of materials. Fur- ther, it prescribed in detail both the type of equipment to be used and the methodology for performing the sealant work. Citing to prior cases involving the same specification, the court held: History repeats itself, or at least it has in this case. The SS–S–200 series of joint sealant which was held to be a design specification in its earlier developmental version by another forum is before this court in its more refined and even more detailed form. This Specification now pro- vides even more detailed testing requirements. Proper samples were submitted by the contractor for testing and this tested sealant product was approved by the Govern- ment. [The contractor and manufacturer] proved at trial that this approved material was properly tested and ap- plied, and any placement defects were corrected under the purview of government inspectors.173 Contrast this with Costello Industries, Inc.,174 a Board of Contract Appeals case decided a year after Haehn that found against the contractor. The Armed Services Board of Contract Appeals (ASBCA) distin- guished Haehn on the basis that the sealant on that project was tested by the government in its testing laboratories, had passed all testing, and that the gov- ernment authorized the contractor to use it in the field. Unlike on the Haehn project, the government on the Costello project had not directly tested the sealant, but instead required that the contractor furnish a certifi- cate that the sealant met specifications. Moreover, the contractor had not provided the government any infor- mation concerning the sealant, including its composi- tion or formula, and failed to submit to any samples. While there was no proof that the contractor or manu- facturer had done anything wrong, the ASBCA con- cluded that the burden was on the contractor to prove that the government’s specification was defective. Be- cause it could not do this, the ASBCA held that the con- tactor assumed the risk that its joint sealant would meet the performance standards of the contract, and 172 15 Cl. Ct. 50 (1988). 173 Id. at 61. 174 ASBCA No. 28731, 89-3 BCA ¶ 22,090.

43 that it was liable under warranty and guarantee clauses of the contract. Costello demonstrates that the contractor faces the burden of proving that the design component of a com- posite specification is defective and created its prob- lems. This was also demonstrated in George Sollitt Con- struction Co. v. United States,175 which involved a series of claims on a Navy building project. After installing a new chiller, the contractor discovered that the 600-amp electrical service its electricians had wired pursuant to the contract drawings was not sufficient to power the chiller it had installed. The contractor argued that it used the 600-amp service because the Navy’s detailed electrical service contract drawing showed the 600-amp service going to the chiller. The court agreed with the contractor that the electri- cal drawings were design specifications. However, the chiller specification was a typical performance specifica- tion, where the contractor had discretion to install whatever chiller would meet the required cooling capac- ity. While it was undisputed that the 600-amp service shown on the contract drawings was not adequate to power the chiller installed by the contractor, the contac- tor did not prove that another chiller using 600-amp service could not have met the performance specifica- tions. Consequently, because the contractor had a duty to provide a functioning chiller, it had liability for fail- ing to provide sufficient power to the chiller it chose.176 While the contractor is typically arguing that the composite specification is more of a “design” than “per- formance” specification (i.e., to take advantage of the Spearin warranty), there are times when contractors argue that a specification is a performance specifica- tion—which gives them the discretion to ignore the pre- scriptive elements of the relevant specification. As dis- cussed below, this is a frequent topic in design-build litigation. However, it also arises under design-bid- build disputes, as evidenced by one of the leading cases in the area of composite specifications, Blake Construc- tion Co. v. United States.177 Blake involved the construction of medical facilities for the Navy, including a 1,000-ft corridor that ran along the ground floors of the new buildings. The con- tract drawings for the electrical conduits within and between the buildings showed the installed conduits on one side of the corridor, hanging either exposed from utility racks or hidden from view by a dropped ceiling. 175 64 Fed. Cl. 229 (2005). 176 Note that the court ultimately required the Navy to pay for one-half of the cost of ripping out the 600-amp service and replacing it with an 800-amp service. The evidence demon- strated that the contractor had chosen a standard chiller model to meet cooling tonnage requirements and submitted this model for approval. The Navy approved the chiller and never notified the contractor that its choice of chiller could not be powered by the 600-amp service that was called for on the Navy’s electrical drawings. As a result, the court did not think it would be equitable for the Navy to be unscathed and leave all of the cost for this problem to the contractor. 177 987 F.2d 743 (Fed. Cir. 1993). These drawings also included the following notes: 1) the drawings are “diagrammatic”; 2) “All feeder details & sections are diagrammatic. Contractor shall relocate any/all conduits as per existing conditions to coordinate with all other trades”; and 3) “All feeder locations are diagrammatic. Contractor shall relocate feeders as per existing conditions and shall coordinate with other trades.”178 Before the building work started, the contractor’s electrical subcontractor began installation of the elec- trical feeder system in an underground concrete duct bank along the planned path of the corridor. When the Navy challenged this installation method, the subcon- tractor stated that the contract’s “diagrammatic” notes permitted the contractor to relocate the electrical con- duits so as to avoid conflict with other trades, such as mechanical and plumbing, which were to be installed in the corridor. The Navy issued a stop-work order and directed that the conduits be installed overhead, as de- picted in the drawings. In filing a claim, the contractor argued that the drawings, by characterizing the location of electrical feeder lines as “diagrammatic,” were performance speci- fications that described the requirement “that the elec- trical feeder system be installed in a manner which avoids conflict with the other trades.”179 It cited as sup- port the above-referenced drawing notes, as well as the fact that the drawings did not detail the exact manner in which the conduit was to be installed. The contractor argued that it had discretion to do whatever was neces- sary to best achieve this goal, including underground installation. It also argued that because the electrical feeder system could not be installed exactly as depicted by the Navy’s drawings, and because some alterations were needed to avoid conflict with other trades, the specifications did not provide the “road map” character- istically associated with design specifications. The court rejected both arguments. As to the second argument, the court concluded that just because a specification cannot be followed precisely does not make it a performance specification: Were this true, any specification intended to be a design specification would be transformed into a performance specification if it were faulty. This is nonsensical; com- mon sense dictates that the contractor does not acquire unfettered discretion to complete the contract in any manner it sees fit, just because one aspect of the specifi- cation might be defective. …The fact that the electrical conduits could not be installed overhead in the precise manner depicted by the drawings, and at some points had to be installed outside the corridor itself, did not auto- matically relieve Blake of the obligation to install them overhead.180 As to the question of whether the performance speci- fications gave the contractor discretion over the location of the conduits, the court also flatly rejected the con- 178 Id. at 744. 179 Id. at 745. 180 Id. at 746.

44 tractor’s arguments. Regardless of the label of “design” or “performance,” the court stated that a specification is to be construed reasonably and consistent with the en- tire contract: There is no question that the diagrammatic notes gave the electrical contractor some discretion to work around the other trades…[however], we believe that a reasonable contractor would understand that the contract required more than mere avoidance of conflict with the other trades. The specifications, viewed as a whole, additionally required installation of the conduits overhead within the confines of the corridor. This is the only conclusion that gives meaning to the drawings. …All the drawings de- picted overhead installation of the electrical conduits and, more specifically, showed either an exposed or concealed installation depending on their position along the length of the corridor. An interpretation permitting underground installation renders these drawings meaningless.181 The Blake decision reinforces several issues about performance specifications that are addressed in earlier precedent. First, the primary issue to be considered is how much discretion the contractor has to do its work. Second, if the contractor’s discretion has been limited by prescriptive elements of the specifications (i.e., es- sentially making the specification a composite specifica- tion), then the contractor is obligated to meet those pre- scriptive elements. D. Brand Name or Equal Specifications When a contract contains “brand name or equal” specifications, bidders can often obtain a competitive edge by basing a bid on an equal product that is less expensive than the brand-named product specified. As a result, these specifications can create liability chal- lenges. The identification of a brand name (without an equal) is a classic example of a design specification, as the contractor has no choice but to use the brand name. However, the use of a “brand name or equal” specifica- tion creates the equivalent of a composite/mixed specifi- cation. Consequently, courts considering this issue often fall back on the analysis set forth above on compos- ite/mixed specifications, and determine exactly how much discretion the contractor has in selecting the equal. Much of the litigation in this area revolves around what happens when there are challenges in finding an “equal,” and who bears the consequences of that prob- lem. For example, in Aerodex, Inc. v. United States,182 the contract named a particular brand of thermal resis- tors “or approved substantial equal.” The only brand name product was not available, and the government could not provide the contractor with the detailed mate- rial specifications of that named product so that the contractor could readily find the “substantial equal.” The contractor eventually located a manufacturer that would manufacture an equal, but there was no avail- able test procedure or equipment that could perform 181 Id. at 746–47. 182 189 Ct. Cl. 344, 417 F.2d 1361 (1969). tests to demonstrate compliance with the performance requirements. While the government and contractor eventually created an acceptable test procedure, the contractor incurred delay costs in doing so and, in es- sence, proved that the product was “equal.” Even though the court implicitly accepted that it was a performance specification, it ruled in favor of the con- tractor. In doing so, it balanced the contractor’s pre- award duty of inquiring about applicable test proce- dures against the government’s duty to inform bidders of the lack of availability of the originally specified brand name part, material specifications against which to measure the “or equal” requirement, and testing pro- cedures to establish the acceptance of the “or equal” product. Eslin Co.183 involved a dispute over windows. The specification called for “Pella Clad TD Double-Hung and Pella LD units” or equal. The specification did not list salient characteristics of the window, but did provide a series of performance criteria for the windows, includ- ing manufacturing standards, water tightness, and air leakage. The government refused the contractor’s re- quested “equal” because it was not aluminum clad on the exterior sides of the glazing bars and the sash was 1 3/8 in. instead of 1 3/4 in. These were standard features for Pella, but all other manufacturers would have to specially manufacture the windows to meet these re- quirements. None of these were identified in the per- formance criteria. The contractor filed a claim based on the additional costs of furnishing the Pella windows. The Board of Contract Appeals rejected the govern- ment’s position, and concluded that the list of perform- ance criteria was the list of “salient” characteristics to meet the government’s minimum needs. Citing to Aerodex, the Board stated: When a brand name or equal purchase description is used, the specification becomes, in reality, a performance specification. The standard of performance applicable to the “or equal” is that it must be functionally equivalent to the brand name product, but not necessarily the same in every detail. The Court of Claims has specifically rejected the Government defense that it is entitled to get exactly what it specifies. The substitute does not have to comply with every detail of the specification, but only function as well as the specified product.184 It specifically rejected the government’s argument that the sash requirement was necessary to provide strength and the lack of aluminum cladding made the windows less cost-effective and detracted from their useful life. There was nothing that notified the bidders of these concerns or indicated that they were “critical or salient.” While an abundance of caselaw at the federal level supports the above principles, there are fewer cases at the state level. One that provides a different twist on the issue is Florida Board of Regents v. Mycon Corpora- 183 AGBCA No. 90-222-1, 93-1 BCA ¶ 25,321. 184 Id.

45 tion,185 where the specifications required the contractor to “provide a skin plate with a smooth, non-corded ‘true radius’ forming surface, equal to that manufactured by Symons.” The contractor used the entire Symons form- ing system, and encountered difficulty in installing the architectural concrete within the specified contract tol- erances. The contractor contended that the specification was a proprietary, design specification and that the owner bore responsibility for the failure of the Symons system to meet expectations. The jury agreed with the contractor, and the case was appealed. The appellate court overturned the decision, finding that the specification did not require the contractor to use a proprietary product. The court stated that, “a con- tract provision calling for quality of the product to be the equivalent of a specific manufactured product is a performance specification, involving no implied war- ranty, unlike a design specification.”186 In so ruling, the court found that the specification referred to the con- crete surface produced by Symons, and not to the form- ing system. The court stated that the contract did not give the contractor elaborate, detailed instructions on how to perform the contract, and that “oblique refer- ences” in the contract and drawings to the specified manufacturer’s forming system did not transform the specification into a proprietary or design specification that would give rise to an implied warranty by the owner.187 E. The Relation Between Claims for Differing Site Conditions and Defective Specifications Geotechnical conditions are one of the biggest risks on a construction project. As a result, it is not unusual for a contractor that encounters a problematic site con- dition to argue that the owner owes it contractual relief under both a defective specification and a differing site condition (DSC) theory. Several cases explain this in the context of performance specifications. One of the leading cases in this area is Kiewit Con- struction Company v. United States.188 The contractor was to build and implement a dewatering system to control groundwater in conjunction with the completion of a cofferdam, with the groundwater to be within 5 ft of the bottom of the work area. The contract documents included extensive specifications providing mandatory minimum performance and design information regard- ing the dewatering system, as well as design assump- tions for the minimum dewatering system. The contrac- tor followed the specifications and was only able to lower the groundwater to an elevation within 13.5 ft of the excavation’s floor. This prompted a claim to be filed on both DSC and defective specification theories. The court first noted that while the two theories had similarities, justification of a claim was based on differ- ent operative facts. Under a DSC theory, the contractor 185 651 So. 2d 149 (1995). 186 Id. at 153. 187 Id. at 154. 188 56 Fed. Cl. 414 (2003). must show that 1) the conditions indicated in the con- tract differed materially from conditions encountered by the contractor during performance of the contract; 2) the conditions actually encountered were not reasona- bly foreseeable; and 3) the contractor reasonably relied upon its interpretation of the contract, and was thus damaged from the material variation between expected and encountered conditions. In the context of this case, the court concluded that the operative facts to prove a DSC claim would focus on the contract’s description of the work site, particularly with respect to subsurface conditions, and the contractor’s reliance on that de- scription. In contrast, a defective specifications claim requires a showing that the contractor was misled by design specification errors, and the focus is on the vi- ability of design requirements. In the context of this case, the court concluded that the operative facts to prove a DSC claim would concern the functioning of the contract’s dewatering system specifications. The contractor argued that the dewatering system was comprised of design specifications, citing detailed instructions on construction and installation of the sys- tem that significantly limited its discretion. It also ar- gued that following the minimum dewatering system should have resulted in the site being adequately dewa- tered. The court acknowledged that the minimum re- quired dewatering system was a design specification, because it provided mandatory detailed instructions and construction drawings in the building and opera- tion of such system. However, the court rejected the notion that the alleged failure of the minimum system to achieve the overall dewatering goals of the contract meant that these specifications were defective. The con- tract warned the contractor that the minimum pre- scribed system was not warranted to satisfactorily de- water the work site. It also warned that it was the contractor’s responsibility to augment the minimum prescribed system, if necessary, to control water seep- age in accordance with guidelines provided by the con- tract. In ruling against the contractor, the court cited to many performance specifications in the contract per- taining to the design, construction, and implementation of the dewatering system. These specifications gave the contractor ample discretion to augment the contract’s specifications and encouraged the contractor to supple- ment the minimum prescribed dewatering system to meet its dewatering obligations under the contract.189 An often-cited example is Stuyvesant Dredging Co. v. United States,190 where a contractor was to restore a channel by dredging it to its original shape and size. This particular channel had been impacted by several storm events and prior dredging efforts by the Corps of Engineers. The Corps’ specifications identified, among other things, average density readings at certain loca- 189 The differing site conditions claim was also rejected, on the grounds that the contractor failed to demonstrate that there were any indications in the contract upon which the con- tractor could reasonably rely to support its position. 190 834 F.2d 1576 (Fed. Cir. 1987).

46 tions in the channel. The contractor developed its pro- duction rates and equipment plans based on this infor- mation. When the actual material to be removed had densities much higher and more difficult to remove than the contractor expected, the contractor filed a claim against the Corps based on both differing site conditions and defective specifications. The court rejected the differing site conditions ar- gument on several grounds, including the fact that the specifications only provided average densities, and warned that the average values should not be used as representatives of minimum or maximum densities. The court noted that density of material is only one of several factors that determine the difficulty of dredging. The court was particularly swayed by the contractor’s failure to investigate the Corps’ records of previous dredging for the channel, which would have shown that harder densities were likely to be encountered and that the type of material the contractor encountered was similar to what the Corps experienced during its previ- ous dredging programs. The contractor’s defective specification argument fo- cused both on the alleged inaccuracies of the average densities and the following specification: The material to be removed…is that composing [sic] of shoaling that has occurred since the channel was last dredged, however, some virgin material [earth never be- fore dredged in that particular channel] may be encoun- tered in the prescribed prism, and/or side slope dredging. Bidders are expected to examine the site of the work and the records of previous dredging…and after investigation decide for themselves the character of the materials.191 The contractor argued that this was a design specifi- cation, and that the term “shoaling” inaccurately de- scribed the material to be removed. The court concluded that the above specification was a performance specification and rejected the contrac- tor’s argument. This provision did not instruct Stuyvesant how it should perform the dredging of the channel. It merely stated the result to be achieved, namely, that the channel was to be dredged to its acceptable prism. Stuyvesant had complete discretion to determine how it would perform that work. Its only ob- ligation was to accomplish the designated result.192 Another case, Tri-State Consultants, Inc.,193 involved a contract to repair a breach in a sand dune in New Jersey using sand dredged from a designated borrow area. The contractor encountered subsurface currents that caused sand movement and scouring, some of which damaged its dredging equipment and ultimately caused it to dredge a significantly larger amount of ma- terial and use different equipment. Arguing that it ex- perienced both a differing site condition and a defective specification, the contractor relied upon bidding docu- ments indicating that the contractor should dredge to a particular depth and discharge the dredged material 191 Id. at 1578. 192 Id. at 1582. 193 ASBCA No. 55251, 08-1 BCA ¶ 33,800. within a particularly sized embankment—neither of which were possible given the actual water currents. The Board of Contract Appeals rejected the differing site condition claim on the basis that the contract made no representations of any type about the water current that would be experienced by the contractor. It declined to find that the specified dredging depth limit and ini- tial embankment width would lead a contractor to con- clude anything about the water current. Finding that the contract left it to the discretion and expertise of the contractor to select the type and size of dredge to be used to perform the dredging work, the Board con- cluded that these were performance specifications and also rejected the defective specification argument. F. Design-Build and Its Implications on Performance Specifications As discussed earlier in this digest, performance specifications are an important part of the design-build process. They not only give the design-builder discre- tion to determine the right solution for the owner’s stated goals, but can also serve as a way to help shift the risk of performance away from the owner and to the design-build team. Several cases have evaluated the issues arising from performance specifications on design-build projects. Although these decisions generally reaffirm the princi- ples set forth above, it is instructive to consider how courts and boards of contract appeals have expressed these principles relative to 1) the application of the Spearin doctrine to design-build; 2) the duty to meet the prescriptive elements of a performance specification; and 3) the failure to meet performance guarantees on a design-build contract. 1. The Application of the Spearin Doctrine to Design- Build Many agencies have the view that the use of design- build makes them immune from liability under the Spearin doctrine. Caselaw (as well as logic) dictates otherwise. The principles behind the Spearin doctrine apply to any situation where an owner provides a de- tailed specification that has been reasonably relied upon by a bidder to its detriment. The fact that a de- sign-builder will ultimately be the designer-of-record does not alter this principle. The seminal case in this area is M.A. Mortenson Co.194 This case involved a design-build contract awarded by the Corps of Engineers to Mortenson for a medical clinic replacement facility at Kirkland Air Force Base, New Mexico. The solicitation contained design documents that were approximately 35 percent complete, with the solicitation informing proposers that such documents expressed the minimum requirements for the project. The Corps’ design criteria informed all proposers that, “[these] requirements may be used to prepare the proposals.” The design documents fur- nished by the Corps contained a number of options for 194 ASBCA No. 39978, 93-3 BCA ¶ 26,189.

47 structural systems, including calculations for these sys- tems. Mortenson’s estimators, in originally pricing the work, did a take-off of the structural concrete and rebar quantities indicated in the solicitation design docu- ments. The final design was similar to that shown in the solicitation documents and was approved by the owner. Mortenson ultimately submitted a request for equitable adjustment based on the increased quantities of concrete and rebar associated with building to the final design. The Corps rejected the claim, believing that Mortenson assumed the risk of any cost growth due to these quantities because of the fixed-price nature of the design-build contract. The ASBCA agreed with Mortenson, finding that, while the solicitation did not require that the proposers use the information in the drawings, it also did not in- dicate that the information was to be used at the pro- poser’s risk. The Board held that Mortenson had acted reasonably in relying on the technical information pro- vided by the Corps, and rejected the notion that Mort- enson was obligated to place a contingency in its bid or have an engineer involved in the proposal process: The Government suggests that “some sort of review by a structural engineer would have been prudent”…It also suggests that [Mortenson] should have included a contin- gency in its proposal to cover any increase in quantities. This interpretation is not reasonable. It was not estab- lished as a factual matter that an interpretation of the so- licitation requiring preproposal engineering or a contin- gency for the quantities in question in this appeal would be reasonable and prudent from a contractor’s point of view. The contract required [Mortenson] to verify and validate the design as part of the design work, not the proposal effort.195 In so ruling, the Board concluded that the govern- ment had warranted the adequacy of information on the solicitation design documents. Because the solicitation documents in Mortenson specifically stated that the design could be used for pric- ing purposes, the precedential value of the case could have been quite narrow. However, later cases that have examined allegedly defective design specifications on design-build projects have cited Mortenson as the au- thority that determined that the owner impliedly war- rants these specifications. They also have used Morten- son as the controlling caselaw to confirm that a proposer does not have to go through an engineering effort during the proposal stage to determine that the design in the solicitation documents is flawed. Note that this is similar to the logic that was used by the Dunn196 court in determining liability for composite curtainwall specifications and in Trataros Construction197 relative to the fiberglass panels. 195 Id. 196 GSBCA No. 14477, 00-1 BCA ¶ 30,806. 197 GSBCA No. 14875, 2001-1 BCA ¶ 31,306. Another significant case is White v. Edsall Construc- tion Company, Inc.,198 which involved the construction of an aviation support facility for the Army. The issue in dispute was the design of the storage hanger tilt-up canopy doors. The drawings showed a three-point pick system to lift the doors. The design-builder eventually concluded that the three-point system was deficient and made a claim for its costs in modifying the lifting sys- tem. Arguing that it was a performance specification, the government claimed that responsibility for the defi- cient three-point pick system was to be borne by the design-builder because a note on the canopy door draw- ings required the design-builder to verify details and loading prior to bidding. The court found the three-pick design system to be a defective design specification because of the level of detail in the design: If the three-pick-point design had been merely a perform- ance specification (i.e., it did not specify an actual method of performance), Edsall could have chosen any method of building a workable tilt-up canopy door, including a four- pick-point design. Because the Army made the three-pick- point door design, including the weight distribution to points on the truss, a design requirement, it warranted the adequacy of the design. The Army is thus responsible for the consequences of design defects absent an express and specific disclaimer shifting the design risk to Ed- sall.199 Citing Spearin, the court concluded that the design- builder was entitled to recover its costs in remedying this defect. The board of contract appeals in another well- recognized design-build case, Donahue Electric, Inc.,200 relied upon both Mortenson and Spearin to find in favor of the design-builder under a composite specification dispute. The dispute revolved around the requirements for a steam boiler to power a sterilizer on a VA ambula- tory care center. The 50 percent design documents specified that the design-builder was to install a gov- ernment-furnished sterilizer unit manufactured by Steris. The HVAC equipment schedule in the contract listed a Parker B-3 steam boiler to power this sterilizer. The Parker B-3 is a 7-HP boiler. During design devel- opment, the design-builder concluded that the 7-HP boiler would not meet the instantaneous burst require- ments of the Steris equipment. After it was agreed that a 25-HP boiler would be supplied, the design-builder argued that it should be entitled to the additional costs associated with the change from a 7-HP to 25-HP boiler. The government rejected the claim, believing that the design-builder had no right to rely on the VA’s 50 percent drawings because the “information only” note on the drawings effectively prevented bidders from us- ing or relying on the drawings in any way. It concluded that the design-builder should have obtained the Steris sterilizer specifications, developed its own design, and 198 296 F.3d 1081 (Fed. Cir. 2002). 199 Id. at 1085–86. 200 VABCA No. 6618, 2003-1 BCA ¶ 32,129.

48 purchased whatever was necessary for the installation of the VA-furnished sterilizer. The Board of Contract Appeals disagreed with the government, holding it liable for the additional cost of upsizing the boiler, stating: Specifications included in a design-build contract, how- ever, to the extent specific requirements, quantities, and sizes are set forth in those specifications, place the risk of design deficiencies on the owner. Thus the VA reassumed the risk and warranted the accuracy of the specifications with regard to the 196 LB/hr boiler output.201 Using logic similar to the board in Edsall, the Dona- hue board acknowledged that the government could have transferred the risk of design defects to the con- tractor with a properly written contract. More specifi- cally, the Board noted that the government could have avoided liability by drafting the boiler requirement as a pure performance specification rather than by including a prescriptive design requirement: The VA could simply have stated, “install the Steris 3400 GFP sterilizer and a boiler to operate it.” Such a specifi- cation would have made [the design-builder] responsible for choosing a boiler that would properly operate the sterilizer. When, as here, the VA specifies a 196 LB/hr boiler, absent actual knowledge to the contrary a bidder may rely on that information.202 While design-builders can use the Spearin doctrine in support of their claims, the facts of the specific case will determine whether this theory will be successful. Stated differently, just as in design-bid-build cases, the contractor cannot always demonstrate that the compos- ite specification restricted its discretion enough to jus- tify holding the owner liable for the problems experi- enced on the project. Consider Strand Hunt Construction, Inc.,203 which involved the installation of windows at a Corps of Engi- neers complex in Alaska. The specifications called for windows that met certain thermal and blast-resistance performance requirements. There were delays in pro- curing and installing contract-compliant windows. Strand Hunt Construction (SHC), the design-builder, sought extra costs for the delays, claiming that the specification was defective because the windows meet- ing the specified criteria were not available “off the shelf” from manufacturers at the time of the contract award. Interestingly, the design-builder’s architect cre- ated design specifications directly from the RFP, and these documents were submitted, reviewed, and ap- proved by the government. It was only after these speci- fications were sent to subcontractors for bidding pur- poses that it was discovered that they could not be met by an off-the-shelf product. The Board rejected this claim, finding that there was a performance specification that the contractor was bound to meet. Specifically, the Board found that while there were several specific design characteristics that 201 Id. at 34. 202 Id. at 35. 203 ASBCA No. 55671, 08-2 BCA ¶ 33,868. the windows had to meet, the specifications gave the contractor discretion over their location, size, manufac- turer, and installation. The fact that windows meeting these specifications were not available “off the shelf” and had to be custom-made did not shift this risk to the owner: SHC apparently assumed, even though the RFP made no such representation, that a ready-made window existed or that a compliant custom made window could be ac- quired within its budget that met the RFP requirements. It (as well as its designer and its window subcontractor) did little investigation prior to submitting its proposal or even before substantially completing its design during the performance period. …The RFP does not require nor promise the availability of ready-made windows. There is evidence that windows meeting all RFP performance re- quirements could be manufactured given enough time. The evidence shows only that SHC could not find an off- the-shelf ready-made window meeting the requirement of CRF 67 and which was within its proposed budget. Had SHC, its architect of record and its window subcontractor investigated window availability in the proposal phase they would have discovered that it was unlikely they would find windows meeting all the RFP requirements without having them custom manufactured with atten- dant cost and long lead times. However, SHC and its sub- contractors did not fully investigate window availability until late in the design process. SHC must now bear the burden of its failure to investigate the availability of the required windows (citations to findings omitted).204 The Board also responded to the design-builder’s ar- gument that it had no choice but to make sure its pro- posal and design specifications mirrored the RFP re- quirements: [If] SHC indicated in its proposal and design specification submissions that it would meet the RFP performance re- quirements without adequate investigation, it did so at its own risk. SHC was obligated to not just say that it would meet requirements, but also to be sure it could ac- tually do so.205 Underlying the Board’s decision was evidence pre- sented during the hearing that the contract-compliant windows could be designed and manufactured given enough time and appropriate planning. A recent case discussing performance specifications in the context of design-build delivery is Fluor Intercon- tinental, Inc. v. Department of State.206 The project in- volved the design and construction of a United States embassy complex in Astana, the capital of Kazakhstan. Among the many issues involved in this case were claims by the design-builder, Fluor Intercontinental (Fluor), that it had the right, under the Spearin doc- trine and Mortenson decision, to rely upon information in the bidding documents that was faulty and that had to be changed during the development of its design. The RFP documents provided a set of standard De- partment of State (DOS) drawings and specifications that depicted the DOS’s design intent, and which were 204 Id. 205 Id. 206 CBCA 490, 492, 716, 1555, 1763, 12-1 BCA ¶ 34,989.

49 to be “site adapted” for specific projects, including the Astana project. The design-builder was specifically charged with conducting its own geotechnical investiga- tion and advised not to rely upon any geotechnical in- formation provided by DOS. During bidding, Fluor relied upon the DOS’s geo- technical information in the RFP. The RFP provided general information about the standard construction practices in Astana, and noted that reinforced concrete is the most common material for piles. The record in the case shows that Fluor planned to use precast concrete piles, reinforced with rebar, and that its geotechnical engineer (hired by the design-builder after contract award) confirmed that the majority of buildings in As- tana were supported by reinforced concrete piles. The geotechnical report noted that Fluor’s ultimate pile ca- pacities were 80 to 120 metric tons, whereas the local practice was 60 to 70 metric tons. As a result, the geo- technical report cautioned that such high capacities could make driving difficult, and that the local contac- tors might not have equipment to do so. Fluor issued a solicitation for subcontractors that could manufacture and drive precast concrete piles. It specified that the manufacturer had to use portland cement, which was a concrete mix not readily available in Astana. The record indicates that Fluor had no bid- ders, and eventually shifted to the use of steel H piles. After a period of time, Fluor filed a claim against the DOS, arguing, among other things, that DOS had war- ranted that precast concrete piles would be available from a local source. The Board of Contract Appeals flatly rejected this argument. It distinguished Mortenson, where the gov- ernment had advised the design-build bidders that they could rely upon the 35-percent documents for pricing purposes, and provided significant details in the RFP documents about the design. Here, Fluor was required to fully design the project, and was given only basic information that was not to be relied upon: This contract placed all of the responsibility for design and construction (and, as a consequence, all of the risk) on Fluor. While the Government provided Fluor with standard design documents and basic technical specifica- tions developed for use for all embassy construction, the contract made plain that Fluor would be responsible for adapting the design to the specific location in producing the project construction documents. Bidders were ex- pressly told in many different sections of the RFP not to rely on the drawings, as illustrated by the following: “drawings are for the sole purpose of illustrating the de- sign intent of the owner”; “the Contractor remains solely responsible and liable for design sufficiency and should not depend on the reports provided by the [Government] as part of the contract documents”; and noting that the contractor would be responsible for adapting the design “according to the unique conditions of the site and other local and regional factors.”207 The Board concluded that nothing about the RFP documents could be construed as a warranty that pre- 207 Id. cast concrete piles would be available from a local source. The RFP provided only general information about the standard construction practices in Astana and, while noting that reinforced concrete was the most common material for piles, it did not make any recom- mendations concerning how to build the project. “Pre- sumably, this is why the solicitation required bidders to use their own geotechnical engineers for advice in this area.”208 Likewise, the RFP documents did not confirm that the locally available precast concrete piles would be available for use by the successful bidder or that, if piles were available, they would meet contract perform- ance requirements: Fluor needed to make that determination after it created the detailed drawings and specifications required per- forming the contract. Likewise, Fluor had the responsibil- ity to “investigate and select sources of supply prior to bidding and obtain assurances that the materials needed to perform the contract in accordance with the contract terms will be available.” …Fluor failed to do this.209 The Board concluded that under the design-build contract, “the risk of developing a design, and the con- sequences of miscalculating the resources available for constructing to the design, fell solely upon the contrac- tor.”210 Fluor assumed the risk that its plan for con- struction would work. The fact that it had to change its design based upon site conditions was Fluor’s prob- lem.211 The preceding cases are examples of how the issue of composite specifications on design-build projects has been interpreted, and the ultimate responsibility that flows to a design-builder. Readers should note that many design-build cases are resolved in alternative dispute proceedings that do not result in a reported decision. Consequently, the industry does not get the benefit of using these cases as precedent.212 However, at 208 Id. 209 Id. 210 Id. 211 Note that Fluor raised another claim on the same theory, related to the use of a deep foundation instead of the shallow foundation that it envisioned at the time of bid. Although the RFP documents had some prescriptive components, such as the requirement that Fluor comply with the 2003 International Building Code and local law, Fluor had the ultimate discretion and obligation to determine the type of foundation that would support the perimeter walls of the facility. 212 An excellent example of this is Acquest Gov’t Holdings U.S. Geological, LLC v. Gen. Servs. Admin., CBCA 439, 07-1 BCA ¶ 33,576, http://www.cbca.gsa.gov/2007app/A439.pdf. This case involved a 20-year lease for an office and laboratory facili- ties that contained detailed performance and design HVAC specifications. Because the lessor (i.e., the design-builder) was unable to achieve the temperature requirements in some ani- mal holding rooms, the government withheld rent on that por- tion of the facility. The ultimate issue was whether the gov- ernment had warranted that the initial design documents were sufficient to achieve the requirement temperature. The gov- ernment had approved all of the HVAC design documents, which were consistent with the RFP documents, and the lessor had attempted to add HVAC equipment to address the prob-

50 this point in time, given the general principles behind Spearin and performance specification responsibility, it is clear that Spearin theories of recovery are available to the design-builder when the owner has been pre- scriptive in the design (i.e., has created a roadmap or has given the design-build proposers RFP documents that are detailed) and has taken discretion away from the design-builder in terms of what is to be ultimately designed. 2. The Duty to Meet the Prescriptive Elements of a Performance Specification Some design-builders have argued that because of the “design-build” nature of the project, they are free to ignore prescriptive elements of a specification, as long as they are ultimately successful in achieving the per- formance specification. Just as in non-design-build cases, this argument has not been successful. One of the first cases addressing this was Dilling- ham Constr., N.A. v. United States.213 Dillingham, the design-builder, sued the VA on behalf of its electrical subcontractor for costs arising from the VA’s enforce- ment of more stringent electrical specifications than the electrical subcontractor contended were required by the contract. The electrical specifications in the solicitation re- quired the use of raceways to run conduit through the facility. They also described the conduit size and char- acteristics, and supports for the raceways. The subcon- tractor proposed to use metal-clad cable in lieu of the raceways.214 The VA rejected this proposal. It also re- jected the conduit supports installed by the subcontrac- tor, claiming they were nonconforming to the specifica- tions. The total cost of complying with these VA requirements, which was over $600,000, was the subject of the claim. The subcontractor argued that the electrical specifi- cations were performance specifications and that, as a result, were merely “general guidelines” that gave the subcontractor “wide latitude” in interpreting them. Its primary argument was based upon the cover page of the solicitation, which stated, “Contractor shall provide complete construction drawings and specifications for the [Project] based on the preliminary drawings and lem, to no avail. The lessor argued under Dunn and Spearin that it was entitled to be paid its rent and the costs of trying to make the facility meet the performance specifications (even though its efforts were fruitless). The Board declined to decide the case on summary judgment, concluding that this issue was dependent upon the facts of whether the lessor had discretion to change the initial design criteria provided by the govern- ment, and whether it should have discovered this during the bidding process. The case was ultimately settled in an alterna- tive dispute resolution (ADR) proceeding (see Acquest Gov’t Holdings U.S. Geological, LLC v. Gen. Servs. Admin., CBCA 404, 413, 08-1-BCA ¶ 33,720. 213 33 Fed. Cl. 495 (1995). 214 Metal-clad cable is a factory assembly of conductors, each individually insulated and enclosed in a metallic sheath of interlocking tape or tubes. performance specifications included with this solicita- tion.” The court rejected this out-of-hand, stating that the cover page did not say that the contractor was ex- cused from complying with design specifications in the contract. In fact, the court noted that the contract spe- cifically required that the design comply with the de- sign-build criteria and the electrical specifications con- tained in the contract. Citing to the general rule and the Blake decision discussed above, the court stated that “design specifications” and “performance specifica- tions” are just labels which “do not independently cre- ate, limit or remove a contractor’s obligations.”215 The electrical specifications specifically required the use of raceways and gave the design-builder no flexibil- ity to instead use metal-clad cable. With respect to the support clips, the court concluded that the types of al- lowable supports were also specifically identified in the specifications and consisted of ceiling trapeze, strap hangers, and wall brackets. The fact that the support clips offered by the electrical subcontractor performed the same function as those identified in the specifica- tions was irrelevant, as the specifications did not state that “an equivalent” could be used.216 A similar result was reached in FSEC, Inc.217 This case involved a dispute arising out the installation of a ventilation system during construction of a new abra- sive-blast-and-spray facility for the Navy. The plans and specifications called for two exhaust fans and two dust collectors for each room and also specified, among other things, a cross-draft ventilation rate of air flow. The design-builder assumed that because this was a design-build project, it had the flexibility to design a ventilation system that would meet the performance specifications. Therefore, it concluded that each room needed only one exhaust fan and dust collector to meet the air handling requirements. When the Navy rejected the design-builder’s proposed design and required it to supply all four exhaust fans and dust collectors, the design-builder filed a claim for the additional costs. The Board of Contract Appeals rejected the notion that the design-builder could change the specified de- sign as long as it met the performance requirements. It noted that the contract very clearly contained both de- sign and performance specifications, and that the de- sign-builder had to comply with both. The Board was also persuaded by testimony from the Navy that it wanted the ventilation system design to be prescriptive to “insure that the end result would meet applicable air pollution standards…and not leave it to chance for the design-build contractors to design it.”218 This logic was also used in United Excel Corpora- tion,219 which involved the construction of a Federal Government healthcare facility for the VA. The RFP 215 Dillingham, 33 Fed. Cl., at 501; see Blake, 987 F.2d, at 746. 216 Id. at 502. 217 ASBCA No. 49509, 99-2 BCA ¶ 30,512. 218 Id. 219 VABCA No. 6937, 04-1 BCA ¶ 32,485.

51 contained detailed specifications, including require- ments for components of the HVAC system. During the 90-percent design review, a dispute arose between the design-builder and the VA over whether the registers, grilles, and diffusers in the operating rooms were re- quired to be aluminum or stainless steel. The numerous specification sections that addressed these requirements were in conflict. Some required that the components be stainless steel, others required that they be extruded aluminum, and yet others gave a choice of stainless steel or aluminum. The design- builder’s mechanical subcontractor had identified these conflicting provisions prior to submitting its bid and priced aluminum diffusers to provide “best value.” However, when the design was developed, the VA in- sisted that stainless steel be used in the operating rooms. The VA conceded that the specifications for the oper- ating room HVAC materials were ambiguous, but con- tended that the conflicts were so “obvious” and “glaring” that they should be considered “patent ambiguities” and that the design-builder was obligated, pre-award, to inquire about what materials were required. The de- sign-builder argued that the ambiguity was not patent, since the specifications reasonably led one to believe that aluminum was an acceptable material. The design- builder also argued that, because this was a design- build contract and the RFP drawings and specifications only established “design parameters,” it was entitled to choose aluminum diffusers as the most economical way to achieve the design intent. The Board of Contract Appeals concluded that the design-builder had the obligation to meet the design requirements of the specifications, notwithstanding that this was a design-build project: “The Contract is clear that, in executing the final Construction docu- ments, [the design-builder] was constrained to follow the requirements of the RFP specifications and draw- ings and this constraint required [the design-builder] to design a diffuser configuration, using stainless steel diffusers, which would meet the sterile air curtain re- quirements.”220 The Board found it unnecessary to de- cide whether the conflicts in the specifications were patent or hidden. In holding against the design-builder, the Board concluded that since the mechanical subcon- tractor had actual knowledge of the ambiguity, its fail- ure to raise this ambiguity prior to bid was fatal to the claim. It specifically rejected the notion that because the contract was design-build these duties to inquire before bid were no longer relevant: We also see nothing in the case law, and [the design- builder] has provided none, for the proposition that the well-settled law relating to the contract interpretation is suspended or abrogated in a design-build contract. To the contrary, the case law indicates that a design-build con- tract shifts risk to a contractor that a final design will be more costly than the bid price to build and that the tradi- tional rules of fixed-price contract interpretation still ob- tain. [The design-builder] was not relieved of its obliga- 220 Id. tion to inquire about the aluminum stainless steel dif- fuser discrepancy because the Contract was design- build.221 3. Failure to Meet Performance Guarantees on Design- Build Contracts As noted previously in this digest, some industries use design-build with performance guarantees because the owner is able to rely upon the design-builder meet- ing specific requirements that are needed to make the project viable (e.g., electrical capacity and heat rates in a power plant). Despite the widespread use of these contracts in the power, petrochemical, and process in- dustries, relatively few cases address the obligation to meet the performance guarantee directly. Instead, the cases generally discuss this obligation in the context of responsibility for delays, liquidated damages for per- formance, and excuses by the design-builder as to why it should not be held to the guarantee.222 Despite this, a number of cases directly explain the proposition. For example, in Fort Howard Paper Co. v. Standard Havens, Inc.,223 a paper company brought suit against a firm that designed, built, and installed a pol- lution control device in the company’s plant. The device was designed to remove fly ash from the flue gases of the plant prior to their emission into the atmosphere. Buildup of fly ash on the filters of such devices can lead to higher operating costs, due to the greater power re- quired to move the flue gases through the filter system. Consequently, the filter manufacturer warranted the device against filter cloggage, as measured by the pres- sure drop of the flue gases across the surface of the de- vice. Under this warranty, the maximum allowable pressure drop was not to exceed 6 in. of water. The pa- per company successfully sued when the pressure drop consistently exceeded this level. Aiken County v. BSP Div. of Envirotech Corp.224 in- volved the design and supply of a thermal sludge condi- tioning system on a wastewater treatment plant that failed to meet its performance guarantees. The guaran- tees required that the system operate continuously on a 24-hour basis with not more than 15 percent of total time required for maintenance. The maintenance time for the first 3 months after startup was 42 percent, 36 percent, and 42 percent. Upon learning that the sup- plier had, despite its representations to the contrary, provided a new process that had never been success- fully used or tested in a wastewater application, the 221 Id. 222 Readers should also remember that many of these types of contracts have their disputes resolved in ADR, as noted ear- lier. 223 901 F.2d 1373 (7th Cir. 1990). See Michael C. Loulakis, ch. 1, The Current State of the Design-Build Industry, in DESIGN-BUILD CONTRACTING HANDBOOK (Robert F. Cushman & Michael C. Loulakis eds., Aspen Law & Business, 2d ed. 2001) (“Design-Build Industry” hereinafter). 224 657 F. Supp. 1339 (D.S.C. 1986).

52 owner sued for breach of warranty and fraud. The owner prevailed on both theories. Gurney Industries, Inc. v. St. Paul Fire & Marine Ins. Co.225 involved a design-build contract for a yarn manufacturing plant that had specific production re- quirements in terms of output and quality standards. When the design-builder did not achieve these, the owner terminated the contract and successfully pursued a claim against the surety. The surety argued that the only recourse for the failure of its principal to meet these requirements was that it would not receive its 10- percent retainage. The Fourth Circuit Court of Appeals found that the design-builder’s agreement to meet the stated production objectives constituted warranties, not simply conditions to receiving retainage, and held the surety liable for the owner’s operating losses resulting from the deficient performance output. Another example is CIT Group/Equipment Financ- ing v. ACEC Maine,226 where the design-builder of a power facility was required to meet two sets of perform- ance tests as a condition to acceptance. One set of per- formance tests established substantial completion and the start of commercial operation. The second set, which would determine the plant’s efficiency and reli- ability, was to be undertaken on the 1-year anniversary of substantial completion (with a 30-day grace period). Shortfalls in electrical capacity or heat rate were to be handled through liquidated damages. The plant achieved substantial completion and was in commercial operation when, 9 months after substan- tial completion, one of the turbine generators failed. The turbine was not finally repaired until 1 year and 56 days after the original substantial completion date and, as a result, the second set of performance tests could not be undertaken on the date scheduled in the con- tract. The owner alleged that this was a breach of con- tract and triggered $32,276,440 in liquidated damages. The design-builder attempted to defend on the basis that the liquidated damages were not contemplated for this type of defect and were unenforceable as a penalty. The court found for the owner, describing the allocation of risk in the following manner: The parties agreed that if the Facility performed at the Guaranteed Performance Level the Contractor would be relieved of its liability under the Construction Contract for the plant’s failure to perform at the specified levels over the plant’s lifetime, including incidental and conse- quential damages. On the other hand, if the Facility was unable to meet the performance standards, as it was un- able to do in this case, the Owner would be compensated by a one-time payment according to a formula.227 The court rejected the notion that the liquidated damages were a penalty, stating, among other things, that it was difficult to put a price on the lack of reliabil- 225 467 F.2d 588 (4th Cir. 1972). 226 782 F. Supp. 159 (D. Me. 1992). See Design-Build Indus- try, supra note 223. 227 Id. at 163. ity of the plant given that a turbine failed in its first year of operation. G. Liability of Design Professionals for Performance Guarantee Failures The liability issues that have arisen on performance specifications generally relate to the contractual rela- tionship between the owner and contractor/design- builder. However, the question that has been frequently posed is the nature of the risk a design professional takes on if it is involved in a project where a perform- ance guarantee is established. While it is beyond the scope of this digest to conduct an in-depth review of design professional liability, suf- fice it to say that the general theory of design profes- sional liability is based on “professional negligence.” This means that a plaintiff suing a design professional has to demonstrate that the design professional failed to meet its duty to exercise the ordinary skill and com- petence of similarly situated members of its profes- sion.228 Stated differently, absent a specific express warranty in a contract, a designer does not guarantee that its design will meet a given result. One case where such a guarantee was found to have been given by the designer is Arkansas Rice Growers v. Alchemy Industries, Inc.229 It involved the construction of a pollution-free rice hull combustion plant capable of generating steam and marketable ash from the rice hull fuel, with the rice hulls being the only fuel for the plant’s furnace. The plant’s owner executed a contract with the process technology owner (Alchemy), whereby Alchemy agreed to hire the engineering firm that had developed the process technology (Pitt), and each com- mitted to provide: [The] necessary engineering plant layout and equipment design and the onsite engineering supervision and start- up engineering services necessary for the construction of a hull by-product facility capable of reducing a minimum of 7½ tons of rice hulls per hour to an ash and producing a minimum of 48 million BTU’s per hour of steam at 200 pounds pressure.230 The plant’s owner acted as its own general contrac- tor to build the plant to Pitt’s design, including procur- ing and installing pollution control equipment. The completed plant was to be operated in accordance with the instructions and procedures provided by Alchemy, and Alchemy was to receive all of the ash produced from the plant. The plant, which was designed to operate daily on a 24-hour basis, never performed as anticipated. It was repeatedly shut down because of a buildup of hulls in 228 See John R. Heisse, The Measure of Malpractice: A Re- buttal to the “Threshold Approach” to Evaluating Errors in Design, 5. J. AM. C. CONSTR. LAW. (2011), http://www. pillsburylaw.com/siteFiles/Publications/BylinedArticleThe MeasureofMalpracticeJournaloftheAmericanCollegeof ConstructionLawyersSummer2011.pdf. 229 797 F.2d 565 (8th Cir. 1986). 230 Id. at 566.

53 the furnace and an inability to comply with state air pollution control standards. The primary reason for this was that the furnace system designed by Pitt could not support combustion at a temperature low enough to produce quality ash without the aid of fuel oil when the outside temperature fell below a certain level. For 3 years, Alchemy and Pitt tried unsuccessfully to get the plant to operate per the specifications. The plant was eventually closed. The plant’s owner successfully sued Alchemy and Pitt for breach of contract and negligence on the basis that these parties failed to design a plant capable of meeting the performance requirements. Citing to Spearin, the 8th Circuit Court of Appeals upheld this verdict. It found that Alchemy and Pitt had provided a warranty that Pitt’s design would achieve the perform- ance criteria and that they should be liable for the con- sequences of failing to do so.231 Significantly, the court never looked at Pitt’s liability from a standard-of-care perspective. Finding that the plant’s owner was a third- party beneficiary of the Alchemy–Pitt contract, the court only focused on Pitt’s contractual obligation (i.e., warranty) to deliver a design that met the performance criteria. A similar problem occurred in the construction of a plant to make blocked iron through a new and recently patented process. In Day and Zimmerman, Inc. v. Blocked Iron Corporation of America,232 Day and Zim- merman (D&Z) signed what appeared to be a standard EPC contract that committed to make the blocked iron with specific performance requirements, including a specific capacity. For more than a year after start-up, the plant failed to operate profitably. The parties ar- gued about whether D&Z had guaranteed the produc- tion rates and the maximum cost of the project. The court ultimately concluded that D&Z had not warranted the plant’s performance and held it to a “professional negligence” standard. The court did nevertheless con- clude that D&Z was negligent, as it purchased equip- ment that was “wholly incapable of furnishing the nec- essary heat required by the duty specification.”233 A recent case that has considered an engineer’s li- ability under a performance specification/guarantee is Evergreen Engineering, Inc. v. Green Energy Team 231 Id. at 569. Alchemy and Pitt never contested that Pitt’s design did not meet the performance criteria and that fuel oil was needed. However, they argued that the air pollution con- trol equipment selected by the plant’s owner contributed to the problems. Both the district court and the appellate court found that the problems attributable to the faulty air pollution con- trol system, as well as some other problems caused by owner- furnished equipment, did not manifest themselves until several years after it was evident that the plant was incapable of achieving the performance criteria on a sustained basis. More importantly, these courts found that even if this other equip- ment had worked properly, the entire plant would not have been able to perform in accordance with the terms of the con- tract because of deficiencies in Pitt’s design. Id. at 570. 232 200 F. Supp. 117 (E.D. Pa. 1960). 233 Id. at 122. LLC.234 The project involved a biomass-to-energy plant, on the Island of Kauai, which would be fueled by locally produced wood waste products. The plant’s owner hired an engineering firm to do front-end engineering and conceptual design of the plant. Based on the engineers’ recommendations, the owner contracted with an equipment vendor for the gasification/boiler system that guaranteed that the plant would not have to use more than 201 tons per day of wood feedstock. This system ultimately proved faulty, and it was learned that 240 tons of fuel per day were needed to operate the gasifier system at the required efficiency level. The owner claimed that this affected the pro forma financials and economic viability of the project, not only because of the added cost of the feed- stock, but also because compliance with its air permit would require the plant to operate fewer hours or at a lower output than intended under its power purchase agreement. As a result of the miscalculation in tonnage, the par- ties became involved in litigation over a number of is- sues. Central to the case was the interpretation of the following clause in the owner-engineer contract, which came from the engineer’s proposal and was incorpo- rated into the contract: Overall plant performance guarantee will be achieved via guarantees by suppliers of individual equipment and the undertakings of the Contractor and certain project inves- tors as well as by the undertaking of Evergreen in this Agreement. Equipment performance guarantees will be written into the specifications for each piece of major equipment with financial penalties for performance short- falls. Factory performance tests combined with onsite per- formance testing will verify that equipment is achieving desired performance. A highly qualified design team is being proposed for this project with the necessary experi- ence to design and support your project during construc- tion. The design will be performed in our Eugene, OR of- fice. Evergreen will work together with your Construction Manager, Contractor and Owner’s Representative to en- sure that your project is designed and built to the high standards you require in order to achieve your continual goals.235 The owner claimed this created a performance guar- antee of performance of the plant, and made the engi- neer liable for the performance of the equipment ven- dor. The engineer argued that this was not a design- build or EPC contract where the risk of performance was shifted to the designer, but was in fact a modified design-bid-build delivery system, and that no guaran- tees of performance were provided. The engineer moved for summary judgment on the owner’s breach of war- ranty count, alleging that its only duty was a profes- sional negligence standard and that it had not given a guarantee. The court ultimately declined to grant summary judgment, concluding that the above provision was am- biguous and that what was intended by its terms would 234 2012 U.S. Dist. LEXIS (D. Haw. 2012). 235 Id. at 4–5.

54 have to be decided in a trial. However, the court did note that by including the term “overall plant perform- ance guarantee,” the agreement memorialized the engi- neer’s “assurance” regarding overall plant performance. What was unclear was the scope of the guarantee or assurance or the specific contours of “overall plant per- formance.” It indicated a concern about using this lan- guage to create the same obligation as would arise un- der a turnkey contract, and distinguished the result in Arkansas Rice Growers, where the guarantee was much more clearly stated. However, it also indicated a con- cern about the significance of this being a modified de- sign-bid-build contract, as argued by the engineer, since this type of delivery could also give rise to performance guarantees and liability to the engineers. The above three cases provide some interesting per- spectives. While the designers in Arkansas Rice Grow- ers and Day & Zimmerman each had liability for ulti- mately failing to meet performance guarantees, the different ways the courts reached these results is sig- nificant, and demonstrates the importance of a con- tract’s working. Arkansas Rice Growers used a “black and white” liability assessment, finding the designer liable simply because the plant did not meet the guar- antees. Day & Zimmerman looked at this from the lens of what a “reasonable engineer” would have done to meet the standard of care. Evergreen is a classic exam- ple of the need to understand what the contract meant before assessing liability. H. Defenses to Meeting a Performance Specification Despite the general principle that makes parties re- sponsible for meeting performance specifications, there are questions as to how far this obligation will actually extend when the contractor is confronted with factors beyond its reasonable control. Although there are few cases on this subject, two lines of defense have sur- faced—impossibility/impracticability of performance and owner interference. 1. Impossibility and Impracticability of Performance If an owner creates a specification that is, for techno- logical or financial reasons, impossible or impracticable to perform, courts may excuse the contractor’s nonper- formance. This is an equitable (i.e., fairness) doctrine that is intended to void contracts that are impossible or commercially senseless to enforce. The general principle behind the doctrine applies to performance specifica- tions.236 Among the factors courts consider in evaluating an impossibility defense are 1) whether any other contrac- tor was able to comply with the specifications; 2) whether the specifications require performance beyond 236 See, e.g., Concrete Placing Co. v. United States, 25 Cl. Ct. 369, 374 (1992), which noted: “Only in the relatively rare case where the specifications call for a performance which is impossible to achieve can a contractor obtain an equitable ad- justment for defective performance specifications.” the state of the art; 3) the extent of the contractor’s ef- forts in meeting the specifications; and 4) whether the contractor assumed the risk that the specifications might be defective.237 Commercial impracticability is a subset of the legal doctrine of impossibility. It excuses a party’s delay or nonperformance when the “attendant costs become excessive and unreasonable by an unfore- seen supervening event not within the contemplation of the parties at the time the contract was formed.”238 While there are discrete standards for proving the theories of impossibility and commercial impracticabil- ity, cases often meld the theories together. Consider Guy F. Atkinson, Co.,239 where the general rule was stated as follows: Performance may be so difficult, so expensive, or so time- consuming, even though not literally impossible, that per- formance is practically impossible or commercially sense- less within the original reasonable anticipation of the contracting parties. Legal impossibility may be estab- lished without showing actual or literal impossibility. Thus, a finding of legal impossibility may be based on “commercial impracticability.” [citations omitted] The principle of practical impossibility consists of the theory that the object of the contract could not be accomplished without commercially unacceptable costs and time input far beyond that contemplated in the contract. [citations omitted] Absolute impossibility is not required, if the specifications are so time consuming as to be outside the basic objectives contemplated by the parties.240 The Board of Contract Appeals in this case agreed that the contractor had proven performance impossible when it could not meet the contractually required mois- ture content in aggregate and the government refused to relax the requirement.241 Another case used a similar analysis to find that a foundation contractor that en- countered a Type 2 differing site condition was excused from performing the contract on the basis that it was commercially impracticable to do so.242 A handful of other construction disputes have recog- nized these doctrines when an owner-furnished design specification created the hardship.243 The issue of im- 237 Hauser & Tinsley, Jr., supra note 129, at 36; Oak Adec, Inc. v. United States, 24 Cl. Ct. 502 (1991). 238 L. W. Matteson, Inc. v. United States, 61 Fed. Cl. 296 (2004). See also RESTATEMENT (SECOND) of CONTRACTS § 266(1), which states, Where, at the time a contract is made, a party’s performance under it is impracticable without his fault because of a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty to render that performance arises, unless the language or circum- stances indicate to the contrary. 239 Guy F. Atkinson Co., ENGBCA 4171, 88-2 BCA ¶ 20,714. 240 Id. 241 Id. 242 Soletanche Rodio Nicholson (JV), ENGBCA Nos. 5891 and 5796, 94-1 BCA ¶ 26,472. 243 See, e.g., S & M—Traylor Bros., ENGBA No. 3852, 78–2 BCA ¶ 13,495 (recognizing right to recovery for Government’s defective drawings and design that required contractor to ob- tain item impossible to produce); Southern Paving Corp.,

55 possibility and commercial impracticability has also arisen under a number of government contract cases, often focusing on contracts for research and develop- ment (R&D) or for technology creating or advancing the state of the art.244 Included among the cases finding impossible or impracticable contracts are manufactur- ing contracts where an extensive R&D effort makes it impossible to meet production rates and when no con- tractor would be able to meet specified tolerances with- out significant waivers of contract requirements.245 The caselaw does contain some examples of perform- ance specification cases where the doctrine of impossi- bility/commercial impracticability has been upheld.246 One of the leading cases is Foster Wheeler Corp. v. United States,247 where the court held that the govern- ment had assumed the risk that the contractor could manufacture a shock-hardened boiler using a govern- ment-specified technique that met the government’s performance specifications. After finding the task im- possible to perform, the court stated that two factual questions were relevant to the answer of who bears the risk: 1) which party had the greater expertise in the subject matter of the contract; and 2) which party took the initiative to draft the specifications and promote a particular method or design? The court found that, as between the contractor and the government, the gov- ernment had more expertise than the contractor and that the contract’s “extremely detailed performance specifications” were prepared by the government. While some courts have agreed with contractors on impossibility/commercial impracticability vis-à-vis per- formance specifications, most courts have generally expressed a reluctance to do so. They find, in essence, that the “deal is the deal,” and that by agreeing to the AGBCA No. 74-103, 77–2 BCA ¶ 12,813 (finding implied war- ranty pursuant to defective or impossible specification); Thur- mont Constr. Co., ASBCA No. 13417, 69-1 BCA ¶ 7,602 (re- manding for damages resulting from defective specification requiring contractor to procure item, listed in contract as “standard product” that had never been manufactured). 244 See generally JOHN CIBINIC, RALPH C. NASH & JAMES F. NAGLE, ADMINISTRATION OF GOVERNMENT CONTRACTS, 314– 322 (4th ed.), Wolters Kluwer Law & Business, 2006. 245 Id. at 317–18. 246 See, for example, Stewart & Stevenson Servs., Inc., ASBCA No. 43631, 97-2 BCA ¶ 29,252, where the contractor sought additional costs in connection with production and de- livery of field generators for the Army. The Board concluded that the contract documents contained a mix of design and performance specifications, which gave the contractor the de- sign discretion to choose and to assemble those components it believed would accommodate the government’s performance requirements within the design parameters the government provided. The Board ruled that the contract was impossible or commercially impractical to deliver within the 150-day delivery schedule, and that because the government had greater exper- tise and experience and drafted the mix of design and perform- ance specifications, it took on the risk of impossibility. 247 206 Ct. Cl. 533 (1975). specification, the contractor/design-builder assumed the full risk of performance. An example of this is Colorado-Ute Electric Associa- tion v. Envirotech Corp.,248 where the design-builder agreed to meet certain performance requirements in its contract to provide the owner with a hot-side electro- static precipitator at a coal-fired electric power plant. The design-builder agreed to comply with state air qual- ity standards requiring that emissions opacity would not exceed 20 percent and warranted that it would bear the cost of all corrective measures and field tests until continuous compliance could be achieved. When the design-builder failed to achieve continuous compliance, it claimed that such compliance was “impossible” to accomplish. The court held that the design-builder had expressly warranted that it could provide Colorado-Ute with a satisfactory precipitator and thus assumed the risk of impossibility. The court stated that the design- builder’s impossibility defense was “inconsistent with its express warranties and cannot be employed to avoid liability.”249 Another instructive case in this area is J.C. Penney Company v. Davis & Davis, Inc.,250 where the issue in- volved the quality of workmanship of certain sheet metal and coping work. The project specifications pro- vided that the work must “be true to line, without buck- ling, creasing, warp or wind in finished surfaces.”251 The owner refused to accept the work because it did not comply with the specifications. The design-builder did not dispute the assertion that the work did not comply with the specifications, but instead claimed that it was impossible to comply with the specifications. The court found that impossibility is not a basis to allow the de- sign-builder to recover its additional costs from the owner for attempting to comply with the specifications. The court reasoned that the specifications, although impossible to meet, were negotiated by the parties at arm’s length. Therefore, the owner was totally within its rights to refuse a product that did not meet all of its bargained-for specifications. Many contractors have tried to argue that specifica- tions are commercially impracticable because they spend more money to perform than planned. This was the case in Wilson Construction, Inc.,252 where a road construction contractor was required to process cleared trees through a chipping machine and distribute the chips onto the roadway embankment. The Board of Contract Appeals found this to be a performance speci- fication, in that it provided no guidance as to the type of chipping machine or processes the contractor should use. The Board also commented on the commercial im- practicability argument of the contractor and, citing other precedent, stated: 248 524 F. Supp. 1152 (D. Colo. 1981). 249 Id. at 1159. 250 158 Ga. App. 169, 279 S.E.2d 461 (1981). 251 Id. at 463. 252 AGBCA No. 89-178-1, 92-2 BCA ¶ 24,798.

56 Because of the potential for abuse, the boards and courts have not applied the commercial impracticability stan- dard with frequency or enthusiasm. The mere fact that performance is more expensive than originally contem- plated is not sufficient to invoke the standard. …Rather, to recover on this basis the contractor must show that performance was commercially senseless and that to hold it to the terms of the contract would be positively un- just.253 The court found that while the contractor’s crew had spent additional monies overcoming obstacles in chip- ping, these obstacles did not give rise to the type of hardship that warranted a commercial impracticability finding. Specifications that cannot be met by the contractor’s proposed system also do not fall into the impossibil- ity/impracticability defense. For example, in Ruscon Constr. Co.,254 the contractor had an obligation to install a Halon fire suppression system that would, among other things, be a central storage type system that would produce a maximum of 6 percent Halon initially and 5 percent after 10 minutes in the fire area. The contractor was unable to build a central storage system that met the maximum Halon requirements, and claimed that the government should pay for the addi- tional costs it incurred in creating a system that was located in each protected room. The Board of Contract Appeals held that while it might be impossible for the system the contractor chose to install to comply with the central storage system shown on the drawings, other systems could have achieved this, even if such performance was complicated and extremely difficult.255 Courts have been particularly reluctant to absolve a contractor/design-builder from liability under an impos- sibility defense when that party has participated in the drafting of the specifications. While different courts have articulated different reasons for this, a straight- forward reason is that authorship of a specification tends to show that the author has superior knowledge concerning what is necessary to meet the contract’s objectives and believes the specification sets forth what is necessary.256 253 Id. 254 ASBCA No. 39546, 90-2 BCA ¶ 22,768. 255 See also S & D Mechanical Contractors, Inc. v. Enting Water Conditioning Sys., 593 N.E.2d 354 (1991), where an equipment vendor agreed to provide all water softening and dealkalizer equipment for a boiler replacement system at a VA hospital. The composite specifications contained specific per- formance requirements that established minimum levels of performance. The vendor was unable to meet all of the per- formance requirements, even though it provided, in some in- stances, substantially more than the minimum performance for some of the individual requirements. The court concluded that given that the overall design of the system was left to the dis- cretion of the vendor, it had to determine how to achieve the entirety of the performance metrics. 256 Golden & Thomas, supra note 111. See also Austin Co. v. United States, 161 Ct. Cl. 76, 81, 314 F.2d 518, 520–21 (Ct. Cl. 1963), discussed further below, where the court made its rea- son quite clear: One of the leading cases on this point is Bethlehem Corp. v. United States,257 where the government had contacted several contractors, including Bethlehem, for consultation on the development of an environmental test chamber. During the course of those discussions, Bethlehem assured the government that it was possible to build a test chamber meeting the government’s pro- posed specifications. The court held that those assurances, coupled with the fact that Bethlehem was an expert in the field, con- stituted an assumption of the risk of impossibility. The court reasoned: Acceptance of [the contractor’s] argument would mean that though a purchaser makes his choice because of the attractiveness of a manufacturer’s representation and will be bound by it, the manufacturer is free to express what are only aspirations and gamble on mere probabili- ties of fulfillment without any risk of liability. In the fields of developing technology, the manufacturer would thus enjoy a wide degree of latitude with respect to per- formance while holding an option to compel the buyer to pay if the gamble should pan out.258 This principle was also cited in Aleutian Construc- tors v. United States.259 Here, the Court of Claims held that by altering the government’s initial design specifi- cations for the design features at issue, the contractor had impliedly assumed the risk that performance under its proposed specifications may be impossible. The con- tractor agreed to construct an airplane hangar and dormitory building in Alaska, in an area known for its extreme weather conditions and high winds. During construction, the contractor obtained the government’s approval to change the design of the roofing system provided that it warranted the materials and workman- ship for a 5-year period and verified that the proposed design would withstand a certain wind uplift pressure. Soon after installation, the roofing system failed and the contractor was forced to make substantial repairs and modifications to the roofing system. The contractor claimed for the repair costs, alleging defective specifica- tions and impossibility. The court rejected the claim, reasoning that when the contractor persuaded the owner to change its design to one proposed by the con- tractor, the contractor assumed the risk that perform- ance under its proposed design may be impossible. Ac- cordingly, by assuming responsibility for the design, the contractor assumed liability for all damages and losses This court has always held that the Government is responsi- ble for its own specifications and, if for any reason, plaintiff had been hindered in performance or suffered losses by reason thereof, due to defective specifications, the Government is liable for such losses. [citations omitted] We can think of no reason why the converse of this should not apply to plaintiff. * * * In other words, plaintiff drew up the specifications and thereby undertook a firm obligation to perform thereunder. In this cli- mate plaintiff must turn the same square corners as required of the Government and is bound by specifications of its own mak- ing. 257 199 Ct. Cl. 247, 462 F.2d 1400 (1972). 258 Id. at 255. 259 24 Cl. Ct. 372 (1991).

57 arising from the inability of the design to meet the owner’s performance goals. Austin Co. v. United States260 involved a contractor seeking costs it incurred in developing a digital data recording and transcribing system. The contractor re- viewed the original government specifications and con- cluded that it would not be possible to meet them. It proposed its own approach, which the government ac- cepted and incorporated into the contract. After the contractor made efforts to develop the system, the gov- ernment terminated the contract after it became appar- ent that the contractor could not make the system work as required. The court concluded that even though the original specifications were impossible to meet, the con- tractor assumed the risk of impossibility of performance when it proposed and promised to perform under its own substitute approach: [Austin] not only believed it possible, but promised to per- form under its own substituted specifications. Under these circumstances, we are faced with the fact that [Aus- tin] had full knowledge of the perils of performance and entered into the contract with its eyes wide open. This, in our opinion, would indicate that plaintiff fully assumed the risks of impossibility of performance.261 Other cases in both construction and technol- ogy/R&D contracts have reached similar results.262 Finally, it should be noted that some contrac- tors/design-builders have argued that if their ability to meet a performance specification costs a substantial amount of money, they should be relieved based on commercial impracticability. While it is true that the amount of money to comply with a specification is a factor, the courts have looked at the overall nature of the undertaking and what has been promised before accepting this excuse. One of the most interesting design-build cases to make this point is Lockheed Martin Idaho Technologies Co. v. EG&G Idaho Inc.,263 where a $178 million turn- key environmental remediation subcontract contained a number of performance specifications and guarantees. Although it spent substantial money and time trying, the subcontractor, which was a division of Lockheed, was never able to meet its contractual obligations and was ultimately terminated for default. It raised a num- ber of defenses in the lawsuit that followed, including the argument that the cost of meeting the specifications was so high (almost $250 million) that the subcontrac- tor’s lack of performance should be excused on the basis of commercial impossibility. After a 4-month trial, the court rejected the notion that there were any legitimate excuses to the subcon- tractor’s nonperformance and required, among other things, that the subcontractor return all of the money it had been paid under the subcontract ($54 million). The 260 161 Cl. Ct. 76, 314 F.2d 518 (1963). 261 Id. at 81. 262 See, e.g., Oak Adec, Inc. v. United States, 24 Ct. Cl. 502 (1991). 263 2004 U.S. Dist. LEXIS 24460 (D. Idaho 2004). court looked to the binding nature of the performance specification, the subcontractor’s contractual commit- ment, and the fact that the subcontractor knew the risks it was taking yet still signed a fixed-price contract: “Perhaps it was unwise for [the subcontractor] to accept such risk. But that is the deal it struck and this court will not re-write the deal.”264 In rejecting the subcon- tractor’s commercial impracticability defense, the court stated that “given the resources of [the subcontractor], the gap between $760 million and $517 million (or more) is not great, and certainly does not indicate that the project is commercially impracticable.”265 2. Owner Involvement and Interference An owner can potentially jeopardize its rights to shift the risk of achieving performance specifications to the contractor by interfering with the design or con- struction process. Consider, for example, Armour & Company v. Scott,266 which arose out of a design-build contract for the construction of a meatpacking plant. The court found that the owner became so actively in- volved in the design process by modifying the electrical and mechanical systems and ultimately increasing the facility size that it assumed the role of a de facto part- ner of the design-builder. These substantial interfer- ences constituted a breach of contract by the owner and effectively negated the performance specification’s risk- shifting process. Sometimes, despite the best efforts of the owner to develop a performance specification and enable the de- sign-builder to meet it, circumstances related to owner involvement can impact the single point of responsibil- ity. Consider, for example, Allen Steel Co. v. Crossroads Plaza Associates,267 which involved a commercial facility in Salt Lake City, Utah. In response to an owner’s so- licitation for design-build proposals for structural steel work, a contractor submitted a proposal containing three structural design alternatives. However, the pro- posal specifically stated the following: This proposal is offered for the design, fabrication, and erection of the Structural Elements only for the tower and mall. …Owner’s engineer is to check this design and make changes if necessary to enable him to accept overall responsibility for the design. Changes that effect [sic] quantity, weight, or complexity of structural members will require an adjustment in price.268 The proposal was accepted and the contractor was directed to prepare detailed plans for steel fabrication based on its proposal. During the course of perform- ance, however, inspectors from Salt Lake City stopped 264 Id. at 93 265 Id. at 74. 266 360 F. Supp. 319 (W.D. Pa. 1972). 267 119 UTAH ADV. REP. 6 (1989), withdrawn, 1992 LEXIS 30 (Utah 1991). While this case was withdrawn and has no precedential value from a litigation perspective, it provides an example of how an owner’s involvement can be perceived by a trier of fact. 268 Id. at 5.

58 construction due to what they perceived as structural defects. The owner retained its own engineer to correct the defects. Steel had to be torn down to remedy the problem, resulting in delays to the project and substan- tial cost overruns. The owner backcharged the contrac- tor for such costs, prompting litigation between the par- ties. The sole issue in the case was whether the contrac- tor had effectively disclaimed responsibility for design defects by placing responsibility for the design within the control of the owner through its proposal. The court found that although the owner had only provided gen- eral design parameters for the structural steel, the con- tractor had effectively disclaimed its responsibility, since it had provided a design for purposes of the bid and transferred the risk of verifying adequacy of the design to the owner. Another case that demonstrates how an owner’s in- volvement can jeopardize its position on a performance specification is P.J. Dick Incorporated v. General Ser- vices Administration,269 where a performance specifica- tion was essentially changed to a design specification that the owner was deemed to have warranted. The original specification for this courthouse renovation project called for crack control joints that subdivided areas into a maximum of 200 ft2, giving the contactor discretion as to the placing of these joints in areas of less than 200 ft2. The government modified this specifi- cation to require crack control joints only at the center line of the columns. The Board of Contract Appeals con- cluded that the principal causes of the severe cracking and debonding of the concrete topping were the im- proper control joints, and that the government, by re- quiring the location of these joints, bore responsibility. An interesting perspective on the impact of owner involvement is demonstrated by Seaview Electric Com- pany,270 which involved the manufacturing of wind measuring sets for the Army. The contract called for an end product that met the performance and other re- quirements of the specifications. While the contractor ultimately met the requirements, it argued that it cost more money than expected as a result of inadequacies in the model that the Army furnished during the bid- ding process. The Board of Contract agreed that the Army’s model was unsuitable for its intended purpose and that the contractor was entitled to an equitable price adjustment. I. Proving Causation Many of the cases discussed above describe how courts decide the question of whether a specification is sufficiently detailed to invoke the Spearin doctrine. Contractors who do not meet their burdens to prove the existence of a design specification typically fail to get contractual relief. However, it is important to note that even if the contractor can prove that it was confronted with a design specification, it must still show the “cause 269 GSBCA Nos. 11697, 12132, 94-3 BCA ¶ 26,981. 270 ASBCA No. 6966, 61-2 BCA ¶ 3,151. and effect” between deficiencies in the design specifica- tion and the problems it ultimately encountered. An example is Caddell Construction Co. v. United States,271 where the court was confronted with a claim by a steel subcontractor based upon defective design documents on a VA hospital. The court concluded that the structural steel portion of the contract was a design specification. It noted that the VA had not dictated every aspect of the hospital’s construction and had left key aspects of the construction, such as sequencing and scheduling, up to the contractor. However, there were nine pages of structural steel specifications with specific instructions on what type of bolts, washers, nuts, welds, finishes, and connections, among other things, could be used for the construction. The court stated that “this was clearly a ‘road map’ for the structural steel fabrica- tor to follow.”272 Notwithstanding this finding, the court concluded that the contractor had not demonstrated that the steel design caused the additional costs and project delays. It found that the large number of requests for information (RFIs) generated by the steel specifications were not sufficient to demonstrate that the plans were defective, and that the alleged defects in the specifications were not significant. The court attributed the RFIs to the steel subcontractor’s questionable schedule and general contractor’s misunderstanding as to erection sequenc- ing. It is beyond the scope of this digest to discuss the many cases addressing cause-and-effect requirements for proving Spearin claims. Caddell is a good example of why simply providing that there are some defects in the design specification is not enough. The contractor must show that the defects are significant and affected its work. The contractor must also meet myriad re- quirements in the contract relative to notice, proof of delay, and critical path impact, and demonstrate that its additional costs were directly related to the defective specification. It must also generally show that it fully complied with the design specification in order to argue that Spearin applies.273 J. The Effect of Disclaimers As is evident from the many cases discussed above, an owner’s attempt to disclaim Spearin liability will generally be unsuccessful. This was evident from Spearin itself, where the United States Supreme Court made clear that the owner’s implied warranty was a fundamental obligation that could not be overcome by contract language. There are myriad construction law 271 78 Fed. Cl. 406 (2007). 272 Id. at 414. 273 See, for example, Jonovich Cos., Inc. v. City of Coolidge, No. 2, CA-CV 2011-0029 (Ariz. Ct. App. Oct. 31, 2011), where a contractor was not able to claim that the specifications were defective when it used native soil as embedment and backfill material for a pipeline construction, contrary to the require- ments in the design that the sand and gravel be certain ap- proved materials.