By: Cordell Parvin
Can a contractor recover economic losses incurred as a result of
design defects directly from the design engineer? The answer to
that question depends on the law in the state where the cause of
action arises. In some states a contractor has no right to
recover an economic loss from a design engineer because of a
"lack of privity" of contract. In other words, because there is
no contractual relationship between the designer and the
contractor, the courts of those states do not permit recovery.
In other states "lack of privity" is no bar to recovery.
In
states where a contractor may recover damages caused by design
defects directly from the design engineer, the second question
to be decided is when the statute of limitations begins to run
for a design defect. In Hardaway Co. v. Parsons, Brinckerhoff,
Quade & Douglas Inc. 479 S.E. 2d 727 (Ga. 1997), the Georgia
Supreme Court was faced with that question.
Parsons
Brinckerhoff contracted with the Georgia Department of
Transportation to design the reconstruction of State Highway 19
in Savannah, including construction of 10 approach bridges for
the Talmadge Memorial Bridge over the Savannah River. As part of
its design package, Parsons Brinckerhoff planned a detailed
erector system for use in erecting a number of 50-ton bridge
girders.
Hardaway Co. was the successful bidder for the
construction contract and in May of 1988 signed the contract
with the DOT. In October of 1988, Hardaway asked the DOT to
verify the workability of the erector system designed by Parsons
Brinckerhoff. One month later, after consulting with Parsons
Brinckerhoff, the Georgia DOT affirmed the integrity of the
designed erector system.
Revision of Erector System
In
March of 1989, Parsons Brinckerhoff began to revise its computer
analysis of the erector system. By May of 1989, Parsons
Brinckerhoff allegedly concluded that its designs for the
erector system were flawed. On June 15, 1989, Hardaway was
informed that the erector system would not operate properly as
designed. In the litigation Hardaway claimed that the defective
design delayed the fabrication of the bridge girders for
approximately two months and delayed the installation of the
girders roughly six months.
On April 8, 1993, Hardaway filed
suit against Parsons Brinckerhoff claiming negligent design of
the erector system and negligent misrepresentation of the
system's integrity. In the trial court, Parsons Brinckerhoff
filed a motion for summary judgment claiming that Hardaway's
cause of action was barred by the four-year statute of
limitations, which Parsons Brinckerhoff argued began to run when
Hardaway contracted with the DOT in May of 1988. In opposition,
Hardaway argued that the statute of limitations did not commence
until June of 1989, when it began to incur losses.
The trial
court denied Parsons Brinckerhoff's motion for summary judgment.
The court of appeals reversed, ruling that Hardaway's cause of
action began when it contracted with the DOT in May of 1988.
Hardaway then appealed the adverse court of appeals decision to
the Georgia Supreme Court.
In the supreme court, Parsons
Brinckerhoff argued that Hardaway's cause of action accrued in
May of 1988, because it could have successfully filed a lawsuit
at that time. The Georgia Supreme Court disagreed. It noted that
the essential elements underlying Hardaway's cause of action
required that it show an actual economic loss proximately
resulting from Parsons Brinckerhoff's negligent
misrepresentation. At the time it signed the contract, Hardaway
did not even know it had a problem, much less that it would
suffer a loss. Until Hardaway suffered that economic loss it did
not have a claim for negligent misrepresentation against Parsons
Brinckerhoff. As a result, the statute of limitations did not
begin to run.
In concluding its decision, the court stated
its belief that public policy considerations also required this
result. It noted that implicitly in Parsons Brinckerhoff's
argument that the statute of limitation period commenced upon
signing of the contract is the assumption that Hardaway was
somehow obligated to make its own evaluation of Parsons
Brinckerhoff's design specifications to determine whether they
were in fact reliable and would work as planned. In order to
accomplish this, Hardaway would have had to employ an
independent engineering and design firm at a substantial
additional cost, which would have had to be included in its bid
price which would have eventually been paid by the taxpayers of
Georgia. The court declined to endorse, even by implication,
such a wasteful approach to public spending.
Comment
It
is refreshing that the Supreme Court of Georgia looked to the
practicalities of life as a highway contractor rather than legal
technicalities. There is no way a highway contractor can
determine that a complex design is defective at the time it
signs the contract. If contractors were actually forced to
verify designs in the pre-bid phase, the cost of constructing
highways and bridges would be astronomical. This case would have
been even more interesting had it arisen in a design-build
context because the contractor and the designer would have been
part of the same design-build team.
