How The Courts Interpret Specifications
Construction projects - and construction problems - begin at about the same time: When the drawings and specifications are prepared. Drawings and specifications begin the project, as they define the scope of work and provide the basis for bidding and negotiating a price. This is the process by which the market calculates the cost and risk of the project and determines who is interested in taking it forward to construction. However, often oversights in the drawings and/or specifications do not appear until construction is well underway - when rectifying the drawings and specifications is more costly, time-consuming and prone to generate disputes.
So we must ask: Why do specifications fail? Why is it that, on occasion, specifications do not achieve their intended result? I believe that there are two answers. Specifications fail, first, because the specification is technically defective. If you liken the specification to a cook’s recipe, there’s too much salt. Or, in project terms, the gauge of sheetmetal chosen by the specifier for the turbine duct system does not meet what ASME requires, and/or cannot be welded to withstand the anticipated pressure of what passes through the system. The specification (recipe) is technically flawed, which can only lead to failure - in other words, if they are followed, the specification will not produce the intended result.
The second reason specifications fail is that they are ambiguous and ultimately found to be legally unenforceable. In other words, the recipe had all the right ingredients and preparation steps, but they were not written in a way that conveyed the intended meaning and, thus, not enforced. Here, the specifier’s intent is frustrated by his/her choice of language. Specifications that are unenforceable cannot and will not achieve their intended result.
When specification problems manifest - that is, when they are found during construction - the job cannot ordinarily be stopped while the specifier develops a new and clearer specification. This approach would be time-consuming and costly. Moreover, the job was “bought” by the contractor on the basis of the old, flawed specification, not the new, rewritten specification.
To avoid defective specifications, specifiers need to write technically-correct specifications that are unambiguous and precise. To best accomplish that, specifiers need to understand how specifications will be interpreted by a court. Specifications are contracts and, therefore, are interpreted like any other contract. This article describes the legal framework for analyzing specifications and outlines the application of general rules of contract interpretation to specifications. Knowledge of how courts will interpret specifications will aid in drafting unambiguous, precise and enforceable specifications.
The Spearin DoctrineIn United States v. Spearin, 248 U.S. 132, 136 (1918), the United States Supreme Court held that, “if the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications.” The “Spearin doctrine,” as this principle has come to be known, is recognized throughout the United States and holds that an owner who prepares, or has its consultants prepare, specifications for a construction project, impliedly warrants that (i) if the contractor follows [the owner-provided] specifications, the resultant product will not be defective or unsafe, and (ii) if the resultant product proves defective or unsafe, the contractor will not be liable for the consequences. Hercules Inc. v. United States, 24 F.3d 188, 197 (Fed. Cir. 1994), aff’d, 516 U.S. 417 (1996).
Moreover, “general disclaimers requiring the contractor to check plans and determine project requirements,” do not overcome the protection afforded by the Spearin doctrine, “and thus do not shift the risk of design flaws to contractors who follow the specifications.” White v. Edsall Constr. Co., 296 F.3d 1081, 1085 (Fed. Cir. 2002).
However, the protection offered to contractors by the Spearin doctrine only applies if the contractor is truly misled and truly damaged by the owner’s deficient specifications. Furthermore, the “cumulative effect or extent of [design specification] errors [must also be] unreasonable or abnormal” when compared to complexity or scope of a particular project. Wunderlich v. United States, 351 F.2d 956, 964 (Ct. Cl. 1965).
Some examples follow:
Caddell Construction Co., Inc. v. The United States, 78 Fed. Cl. 406 (Ct. Cl. 2007): The government hired a general contractor who subcontracted the structural steel work. The subcontractor issued a large number of RFIs to resolve inconsistencies and inadequate details in the government’s plans. The general contractor, on behalf of the subcontractor, sought an equitable adjustment to the contract due to the allegedly defective plans. Despite the large number of RFIs, the court found that the general contractor was not able to show that the specification errors were “abnormal or unreasonable considering the complexity of the project.”
Robins Maintenance, Inc. v. United States, 265 F.3d 1254 (Fed. Cir. 2001): The Air Force sought proposals for a groundskeeping contract. The contractor knew, and informed the government, that the estimates of the square footage of the grounds in the specifications were inaccurately low, but was allegedly told to bid on the specifications as written. The contractor was awarded the contract and, at the end of the project, sought an equitable adjustment for additional work caused by the inaccurate specifications. The court ruled that the contractor could not recover based on a defective specifications theory because the contractor “made an affirmative decision to bid on a specification, which it knew to be inaccurate.”
Franklin Pavkov Constr. Co. v. Roche, 279 F.3d 989 (Fed. Cir. 2002): The bid documents included specifications from a failed 1991 attempt at the project, not the 1995 version on which the contractor was supposed to bid. The contractor’s claim for increased costs was denied because (i) the 1991 specifications called for a project of greater scope and cost than the 1995 specifications, therefore the contractor could not have suffered increased costs, and (ii) the 1991 specifications in and of themselves were not defective.
Kiewit Constr. Co. v. United States, 56 Fed. Cl. 414 (2003): The Spearin doctrine only applies to government design, not performance, specifications. Performance specifications dictate an ultimate result that a contractor must achieve, leaving the contractor with discretion to determine the means to achieve that result, whereas design specifications set forth in detail the materials and means that a contractor must use, leaving the contractor with virtually no discretion to deviate from these details. In Kiewit, the contractor argued that the specifications for a dewatering system were design specifications because the contract provided detailed instructions on construction and installation of the system. The court held that the minimum required dewatering system was a design specification; however, the overall dewatering system specifications were performance specifications because “they provided [the contractor] with ample discretion to augment the Contract’s specifications.”
Brunswick Construction Ltd. v Nowlan, 21 Build LR 27 (1974). In this English case, the contractor built a house in accordance with drawings and specifications prepared by an architect, but no architect or engineer oversaw construction. Leaks developed in the roof because the design had provided for insufficient ventilation, which caused serious rot. In the ensuing lawsuit, the contractor contended that it was not liable for the inadequacy of the plans and specifications. However, the court held that a company of the contractor’s experience should have detected the defective design, and without an architect or engineer, the homeowner had relied on the contractor’s expertise. The contractor was liable for the failure of the work, even though it was carried out in accordance with the plans and specifications.
Rules of InterpretationAs noted above, specifications are interpreted in the same way as contracts, and courts throughout the United States agree that their job is to interpret, not rewrite, contracts. Accordingly, the courts have developed a number of rules, including the following, which they use to resolve problems of interpretation and ambiguities in specifications.
1) The Whole Agreement: Courts presume that each word in a contract is included for a reason and is intended to convey some part of the parties’ intentions. Accordingly, in interpreting contracts, courts will not merely disregard language that is ambiguous or conflicts with other language in the contract. Instead, in an effort to reconcile ambiguities and conflicts, courts will look to the entire agreement – the master agreement, general conditions, supplemental conditions, special conditions, specifications, drawings, etc. - and attempt to give each provision the meaning the parties intended, rather than trying to interpret each provision in isolation. This rule is illustrated by the following cases:
Miller v. Borner  1 Q.B. 691. In this English admiralty case, the plaintiff ship owners entered into a contract to transport a cargo of ore for the defendant. The contract stated that the defendant would load a “cargo of say about 2800 tons” onto the ship, which had a capacity of 2880 tons. When the defendant loaded 2840 tons, the owners brought suit to recover damages for the defendant’s failure to load the ship to full capacity. On appeal, the court concluded that the contract must be read as a whole and the phrase “of say about” could be interpreted to mean less than a full load.
Roy McGinnis & Co., Inc. v. Secretary of the Army, 1998 U.S. App. LEXIS 1772 (Fed. Cir. 1998): The drawings and specifications appeared to be in conflict as to whether the government or the contractor was required to furnish fume hoods and exhaust fans for the construction of a laboratory. The court concluded that one section’s specification requiring the contractor to install a complete operational system of hoods, fans, and ductwork was merely a summary statement. Instead, another section’s specification directed the contractor to look to other portions of the contract, including the equipment schedule and drawings, to determine what must be furnished and by whom.
Centex Constr. Co. v. United States, 49 Fed. Cl. 790 (2001): The contract stated that anything shown on either the drawings or the specifications was to be treated as if shown on both. The contract drawings required the contractor to install metal doors as well as wall bracing. However, the Door Schedule made no mention of the installation of the wall bracing. The court held that the contract required the wall bracing to be installed, even though the wall bracing was not shown on the Door Schedule.
2) Specific Controls General: Courts often interpret contracts so that the specific provisions in a document take priority over those which speak only in general terms. A corollary of this principle is that explicitly mentioning certain things in a contract document implies that those things not mentioned were expressly intended to be excluded. Some examples of this rule follow:
Nat’l Fire Ins. Co. v. Roofmaster Constr., Inc., 2005 U.S. Dist Lexis 35033 (E.D. Mich. 2005): A contract for the repair of a leaky roof contained typing on both sides of the document. One side of the document contained language limiting the contractor’s liability for any potential damage to the owner’s property and the other side contained a statement that the contractor provided a 10-year warranty and would exercise reasonable care when performing its work. The owner sued the contractor after water damaged the warehouse’s contents. The court found the limitation of the contractor’s liability controlling as it was the more specific language in the contract.
Mississippi Transportation Comm’n v. Ronald Adams Contractor, Inc., 753 So. 2d 1077 (Miss. 2000): When the contractor brought suit for delay damages caused by a state agency’s failure to issue Notice to Proceed by the deadline in the bid proposal, the agency argued that the state’s standard construction specifications, incorporated by reference into the bid documents, stated that Notice deadlines were merely anticipated dates that could be changed. The court, applying the rule that specific language controls over inconsistent general language in a contract, held that the terms of the bid proposal, being specific to this project, trumped the standard specifications.
McNally Tunneling Corp. v. City of Evanston, 2001 U.S. Dist. Lexis 725 (N.D. Ill. 2001): The contractor sought to compel the city to arbitrate a dispute arising out of a contract to perform sewer-related excavation. The contract incorporated statutory General Conditions, as well as Supplemental Conditions drafted by the parties. The General Conditions required the parties to arbitrate all disputes, while the Supplemental Conditions only provided for arbitration by mutual agreement. Because they were specifically prepared by the parties, the Supplemental Conditions controlled and the City could not be compelled to arbitrate.
3) Trade Custom, Practice and Usage: If courts choose to allow external (i.e., “outside” the contract) information and data – “parol evidence” – to be introduced in a matter, courts may refer to the customs, practices and usages of a particular trade in attempting to resolve conflicts or ambiguities in a construction contract. However, evidence of trade practice and custom may not be used “to create an ambiguity where a contract was not reasonably susceptible of differing interpretations at the time of contracting.” Metric Constructors, Inc. v. NASA, 169 F.3d 747, 752 (Fed. Cir. 1999).
Providing definitions within the contract documents for questionable terms can be useful for the elimination of potential misunderstandings. Some examples of the application of this rule:
TEG-Paradigm Environmental, Inc. v. United States, 465 F.3d 1329 (Fed. Cir. 2006): The general contractor performed asbestos abatement, and sought an equitable adjustment to the contract based on trade usage and custom evidence that the work actually performed was greater than the customary expectation for such work. The court stated that evidence of trade practice and custom cannot be used to impart an ambiguity into an otherwise unambiguous contract. Without an ambiguity, the court applied the ordinary meaning of the contract terms.
Davis v. Key Gas Corp., 34 Kan.App.2d 728 (2005): Owners granted an oil and gas lease to an energy company, with a one-eighth royalty to the owners. The company began deducting transportation costs from the proceeds prior to determining the royalty amount. The owners filed suit. The company’s defense based on trade custom was rejected because the court held that both parties must understand the trade custom, practice or usage prior to their application to contract interpretation. In this case, the inexperienced owners were unfamiliar with trade custom when the contract was signed.
Metric Constructors, Inc. v. NASA, 169 F.3d 747 (Fed. Cir. 1999): When the contractor asserted that “relamping” was not necessary, the agency deleted the specification that purportedly required that task and sought a credit. However, the contractor claimed that the deleted specification only required replacing defective bulbs, which was not “relamping” as that term is understood in the trade practice and usage of the electrical industry. The court allowed the contractor’s evidence of trade practice and usage because the contractor had relied on that interpretation of the specification when it entered into the contract.
Jowett, Inc. v. United States, 234 F.3d 1365 (Fed. Cir. 2000): A contract required the contractor to insulate all supply and return ducts. Based upon trade practice and custom in the surrounding area, the contractor filed suit demanding more money for the insulation of air conditioning supply ducts in ceiling spaces. However, because the contract was clear that supply ducts were to be insulated, trade practice and custom, even if materially different than the contract, were inadmissible to vary the terms of the contract.
4) Practical Interpretation: Where a contractual provision is ambiguous, courts often conclude that the practical construction placed upon it by the parties during performance is entitled to great consideration in construing the contract.
Sys. Fuels, Inc. v. United States, 79 Fed. Cl. 37 (Fed. Cl. 2007): To resolve the government’s contractual duties to remove and store nuclear waste, the court looked to a controlling statute and the actions of the parties following execution of the contract. Addressing the actions taken by the contracting parties, the court stated, “[t]he actions of parties to a contract following their execution thereof can be useful in guiding the contract’s interpretation . . . There is no surer way to find out what parties meant than to see what they have done.”
Centre Mfg. Co., Inc. v. United States, 183 Ct. Cl. 115 (1968): A contractor filed a claim for an equitable adjustment based on the difficulties encountered in producing watertight materials pursuant to the government’s specifications. The contract lacked an express limit on the number of coats of sealant to be applied to the materials. However, based on the parties’ understanding of an industry standard of four coats of sealant, and evidence of their attempts to resolve the contractor’s difficulties by means other than the application of sealant, the court concluded that the practical interpretation of the contract documents included a belief that the specifications limited the required use of sealant.
5) Construction Against the Drafter: Frequently, courts hold that ambiguities in a contract are to be interpreted against the party who prepared the agreement, on the theory that the drafter should have been more precise in phrasing the contract in order to clearly inform the other party of his intent. The following cases illustrate this rule:
Indus. Window Corp. v. Fed. Ins. Co., 2008 U.S. Dist. LEXIS 54046 (S.D.N.Y. 2008): Where the general contractor’s contract with the owner contained a mandatory arbitration provision, but the subcontractor’s contract was ambiguous as to whether arbitration was required, the ambiguity was resolved against the general contractor as drafter of the subcontract.
Walnut Creek Elec. v. Reynolds Constr. Co., Inc., 263 Cal. App. 2d 511 (1968): The owner denied the electrical subcontractor’s claim for the extra cost of “wrapping,” or applying corrosion-protective coating to conduits laid in gravel under the building’s slab, because the specifications prepared by the owner’s architect called for wrapping all “underground” conduits. While the owner claimed that “underground” referred only to conduits in direct contact with the soil, the court found the specifications to be ambiguous and, construing the ambiguity against the owner, accepted the subcontractor’s interpretation and upheld its claim.
United Tunneling Enterprises, Inc. v. Havens Constr. Co., Inc., 35 F. Supp. 2d 789 (D. Kan. 1998): The contractor and owner entered into an agreement that included a liquidated damages clause requiring the contractor to pay $1,500 for each day of delay caused by the contractor. The contractor entered into a subcontract that provided that “Liquidated damages to be assessed at the same rate as the contractor.” When the project was delayed, in lieu of liquidated damages, the contractor paid the owner an agreed sum. The contractor then withheld a portion of the payment due the subcontractor as liquidated damages for delays caused by the subcontractor. The court held that the contractor could not assess liquated damages against the subcontractor because ambiguity as to whether the contractor could assess liquidated damages against the subcontractor when the owner did not assess liquidated damages against the contractor should be construed against the contractor.
6) The Written Portion of the Contract Controls Over the Printed Portion: Finally, some courts hold that, in the event of conflicts between hand-written or typed insertions on a contract form and the form’s pre-printed terms, the hand-written or typed provisions govern over the pre-printed clauses. As examples:
McKinney Drilling Co. v. The Collins Co., Inc., 517 F. Supp. 320 (N.D. Ala. 1981): The subcontract consisted of the general contractor’s standard pre-printed form, as well as form specifications and the subcontractor’s typewritten proposal. When the subcontractor sought payment for additional drilling and excavation pursuant to the unit prices on its typewritten proposal, the contractor denied the claim on the grounds that the form subcontract and specifications did not allow such a price adjustment. The court, however, held that the subcontractor’s type-written proposal controlled.
Mitsubishi Corp. v. Guinomar Conakry, 1993 U.S. Dist. LEXIS 8853 (S.D.N.Y. 1993): The contract for the shipment of goods provided in a pre-printed form that any dispute arising between the parties would be subject to arbitration in New York. However, a type-written clause inserted into the contract stated that any arbitration would take place in London. After the goods were damaged in transit, the parties were unable to agree whether the arbitration should occur in New York or London. Applying the rule that type-written clauses take precedence over standardized pre-printed form clauses, the court held that London was the appropriate venue for the arbitration.