Damages recovered due to defective spec

By: Cordell Parvin

In Dewey Jordan, Inc. v. Maryland Nat. Capitol Park and Planning Comm'n, 265 A.2d 892 (Md. App. 1970), the contractor, Dewey Jordan, was engaged by the commission to construct an earthen dam according to plans and specifications furnished by the U.S. Soil Conservation Service (SCS). Those plans and specifications specifically indicated that rock meeting specifications for the down-stream fill could be obtained from designated borrow pits near the job on land owned by the commission.

After approximately one year's performance, the commission discovered that the designated fill material was too fine. It thereafter suspended all work pending an investigation regarding the quality of the designated material and the effectiveness of the drainage system created by its use. Following a one-month delay, the commission ordered Dewey Jordan to resume work and added a toe drain to the dam structure to improve drainage. Subsequently, Dewey Jordan was forced to recover delay costs it incurred during the one-month suspension of work by order of the commission.

Not only did SCS design the project, it also provided some 94.6% of the funds required for construction. As a result, a federal "changes" clause was included in the contract. As most readers know, the changes clause entitles the government to make changes within the general scope of the contract. It also requires the government make an "equitable adjustment" if the changes cause an increase or decrease in the contractor's cost of performance.

The current version of the changes clause specifically addresses the fact that all costs incurred in attempting to comply with or remedying a defective specification are compensable. However, the changes clause reviewed in Dewey Jordan did not contain express language addressing defective specifications. As a result, the court was required to compare what had become known as the Rice and Spearin Doctrines.

Comparing doctrines

The frequently criticized Rice Doctrine comes from the U.S. Supreme Court case of United States v. Rice, 317 U.S. 61 (1941). Under it, the government is given a "reasonable time" to make changes within its power under the changes clause. As such, it is not liable for delaying the work a reasonable time in exercising its right to make a change. Based on the Rice Doctrine, the commission in Dewey Jordan argued that it had not breached its contract by suspending the work to investigate the quality of the designated borrow and deciding to add the toe ditch. The trial court found the argument persuasive and ruled in favor of the commission. The appellate court, however, correctly distinguished Rice on the basis of defective plans and specifications and applied the better known Spearin Doctrine.

The Spearin Doctrine is taken from the line of cases, which follow United States v. Spearin, 248 U.S. 132 (1918). That doctrine provides that a government owner impliedly warrants the accuracy and adequacy of the plans and specifications it furnishes and that a contractor is entitled to be reimbursed for any costs, including delay costs, associated with defects in the plans and specifications.

Because the plans and specifications at issue in Dewey Jordan clearly indicated suitable borrow material could be obtained for the down-stream fill from designated sources, the court determined that the delay to later investigate the actual suitability of the material was the result of defective plans and specifications. Thus, the court distinguished Rice and applied Spearin.

Rice not without merit

As a final matter, the court noted that absent a defective specification, the commission would have had a legitimate defense under Rice to the claim of delay. Particularly, it stated, "Were [the specifications not defective, the commission's] contention would be correct: [Dewey Jordan] would have no right to complain of the [commission's] exercise of its reserved right to make changes and set its work schedule awry."

While today, there is no doubt a continued right of the government to make changes, it is doubtful an owner can still get away with making changes, which "set a schedule awry" without paying additional costs. First, even under Rice, changes must be made within reasonable time. I submit that on a tightly scheduled project, any change, regardless of the underlying reason therefore, which disrupts operations or delays progress can not be made in a "reasonable time." Further, the modern changes clause affords greater protection than that afforded by the one considered in Dewey Jordan, as would the current version of the federal Suspensions of the Work clause.

Parvin is a shareholder in the law firm of Jenkens & Gilchrist, which has offices in Austin, Dallas, Houston, and San Antonio, Texas, and Washington, D.C. The firm's web site is www.jenkens.com.