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Employer's Guide To Avoiding Liability For Implied Obligations Towards The Contractor
Employer's Guide To Avoiding Liability For Implied Obligations Towards The Contractor
Employer's Guide To Avoiding Liability For Implied Obligations Towards The Contractor
Steven B. Lesser
Daniel L. Wallach
Owners of construction projects often incur liability because they fail to recognize and comply with certain implied obligations that arise during the design and
construction process. In many instances, the owner is
unaware that these implied obligations even exist until
project participants file damage claims. Then, it is simply
too late to avoid liability.1 Thus, prior to commencement
of a construction project, the owner needs to be aware of
implied obligations. This article discusses the twelve most
common implied contractual obligations, or deadly
sins, breached by owners both before and during construction and gives practical tips to avoid liability.
As courts have established lines of demarcation
between permissible owner actions and those that constitute a breach of implied obligations, the savvy owner
must know where liability begins and ends. Owners must
understand conduct that falls into this danger zone
and then stay out of it. These implied obligations, as discussed below, include:
1. The duty to disclose material information to prospective bidders;
2. The duty to provide accurate plans and specifications;
3. T
he duty to provide accurate site information;
4. The duty to obtain necessary regulatory approvals,
permits, and easements;
5. T
he duty to provide access to the work site;
6. Duties relating to owner-furnished products, materials, or equipment;
7. The duty to timely review contractor submittals
and requests;
8. The duty not to deny valid requests for time extensions;
9. The duty to make timely inspections;
10. The duty to maintain the project site in a reasonably safe condition;
11. The duty not to hinder, delay, or interfere with the
timely completion of work; and
12. T he duty to coordinate the work of multiple
prime contractors.
Published in The Construction Lawyer, Volume 28, Number 1, Winter 2008 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 1
Published in The Construction Lawyer, Volume 28, Number 1, Winter 2008 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 2
Published in The Construction Lawyer, Volume 28, Number 1, Winter 2008 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 3
with rotary mud, the City was liable for its nondisclosure
of the earlier cave-ins and use of special drilling techniques. The nondisclosure transformed the logs into
misleading half-truths.62
Most sophisticated construction contracts contain
a changed conditions or differing site conditions
clause, under which the owner expressly assumes the risk
of unanticipated changes in site conditions. These clauses
make it unnecessary for contractors to include large contingencies in their bids to cover the risk of encountering
unanticipated adverse subsurface conditions or concealed
conditions in existing structures.63 The relief generally
available under such a clause includes a time extension
and compensation to a contractor for any delay caused by
the changed site condition.
An owner can take steps to limit its liability for differing or changed site conditions by including an inspection/investigation disclaimer clause in the contract.64 Site
investigation disclaimers are designed to shift the burden
of risk by requiring the contractor to investigate the site
prior to submitting a bid.65 Failure of the contractor to
properly inspect a site may preclude it from recovering
damages. If the differing site conditions are of a type that
should reasonably be discovered by a prudent contractor, the use of a site investigation clause could provide a
valid defense to an owner. Such a clause does not protect
against known site conditions that are not disclosed.66
Duty to Obtain Necessary Regulatory Approvals, Permits,
and Easements
Generally, the owner has an implied obligation to furnish whatever easements, permits, or other government
approvals are reasonably required to enable construction
to proceed.67 Such terms are necessarily implied from the
very nature of the contract and the failure to comply with
them constitutes a breach of contract by the owner.68
Similarly, if the owner is delayed in securing appropriate access for performance of the work, the date for completion is to be extended accordingly.69 For example, in
Lapp-Gifford Co. v. Muscoy Water Co.,70 where the contractor completed a job late because it could not obtain
an easement over a railroad right-of-way, the law implied
a covenant on the part of the owner that it either possessed or would procure the right-of-way. As a result, the
owner was precluded from recovering any delay damages
against the contractor.
Duty to Provide Access to the Work Site
At the outset of construction, the owner has an implied
obligation to provide adequate and timely access to the
construction site.71 It is well settled that [a] contractor
shall be permitted to proceed with his construction in
accordance with the contract and that he shall be given
possession of the premises to enable him to do so.72 This
implied obligation requires both acquiring the property
whether by purchase or leaseand providing access to
the property for the contractors equipment and materi-
Published in The Construction Lawyer, Volume 28, Number 1, Winter 2008 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 4
Published in The Construction Lawyer, Volume 28, Number 1, Winter 2008 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 5
under a theory of constructive acceleration. Constructive acceleration occurs when a contractor has a justified claim for an extension of time and incurs additional
expenses because the owner refuses to grant an extension
and requires the contractor to complete the project by the
original completion date.115 In order to prevail on a claim
for constructive acceleration, the contractor must prove
that (1)an excusable delay entitled it to a time extension,
(2)it properly requested a time extension, (3)the project
owner failed or refused to grant the requested extension,
(4)the project owner demanded that the project be completed by the original completion date despite the excusable delay, and (5)the contractor actually accelerated
the work in order to complete the project by the original
completion date and incurred added costs as a result.116
A contractor that accelerates its work as the result of the
denial of a justified time extension is entitled to recover
its increased costs for labor, equipment, overhead, and
efficiency, as well as any lost profits.117 In other words, if
the owner forces a contractor to continue working in the
face of an excusable delay, then the owner will be liable
for damages incurred by the contractor. To avoid a finding of constructive acceleration, the owner should always
promptly respond to requests for an extension of time.118
In addition, when discussing the matter with the contractor, the owner should avoid using threatening language
and should act in a conciliatory manner aimed at ensuring prompt resolution.119 Moreover, the owner should be
reasonable when considering requests for extensions of
time in the face of excusable and unavoidable delays.120
A contractor does not have a claim for constructive acceleration if the owner simply pressures the contractor for
rapid completion of the work.121 Similarly, a letter stating
that the owner has an urgent need for the facility and it
is therefore imperative that you take every possible action
toward expediting its completion does not constitute
constructive acceleration.122
Duty to Make Timely Inspections
Where the owner performs inspections of the contractors work, the owner is under an implied obligation to
perform such inspections in a timely and reasonable manner.123 For example, in Russell R. Gannon Co. v. United
States,124 although the contract required that certain test
procedures on a contract for construction of over 200
dehumidifiers be witnessed by a government inspector,
the government did not believe that the work required
a full-time government inspector. When the government
later required the contractor to provide it with 72 hours
advance notice when inspection services were needed, the
court concluded that the governments notice requirement was inconsistent with its implicit obligation to conduct reasonable inspections.125
It is often beneficial for owners to retain independent
inspectors to inspect construction for quality control
purposes, such as building code and contract document
compliance. During construction, heightened inspections
Published in The Construction Lawyer, Volume 28, Number 1, Winter 2008 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 6
Published in The Construction Lawyer, Volume 28, Number 1, Winter 2008 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 7
also Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo. 1995) (Colorado, like the majority of jurisdictions, recognizes that every
contract contains an implied duty of good faith and fair dealing.
. . . [emphasis added]).
3. Guin v. Ha, 591 P.2d 1281, 1291 (Alaska 1979).
4. Howard P. Foley Co. v. J.L. Williams & Co., 622 So. 2d
402, 407 (8th Cir. 1980). For example, in Story v. City of Bozeman, 791 P.2d 767 (Mont. 1990), a municipality entered into
a contract for the construction of two water mains. Two bid
schedules were issued by the city. One of the schedules contained a typographical error listing the unit measure of pipe
bedding materials as cubic feet rather than the customary
unit measure of cubic yards. Although the error was not discovered until after the contract had been awarded, the owner
refused to make any upward adjustment on the contract price,
maintaining that the contractor knew or should have known
about the typographical error. At trial, the jury concluded that
the owner breached the implied covenant of good faith and fair
dealing and awarded the contractor $360,000 in damages.
5. Ajax Paving Indus., Inc. v. Charlotte County, 752 So. 2d
143, 14445 (Fla. Dist. Ct. App. 2000); Champagne-Webber,
Inc. v. City of Fort Lauderdale, 519 So. 2d 696, 69798 (Fla.
Dist. Ct. App. 1988); Jacksonville Port Auth. v. Parkhill-Goodloe Co., 362 So. 2d 1009 (Fla. Dist. Ct. App. 1978).
6. 362 So. 2d 1009 (Fla. Dist. Ct. App. 1978).
7. Id. at 1012.
8. 85 A. 384 (Me. 1912).
9. But this works both ways. If the contractor discovers any
conflicts or discrepancies in the bidding documents and fails to
notify the owner about them (particularly if the contract contains a disclosure provision), the contractor may forfeit the
right to make a claim for extra work. See Construction Company Strategist, at 7 (Oct. 1997).
10. S. Cal. Edison v. United States, 58 Fed. Cl. 313 (2003);
Manuel Bros. v. United States, 55 Fed. Cl. 8, 34 (2002); see generally 3 Philip L. Bruner and Patrick J. OConnor Jr., Bruner & OConnor on Construction Law, 9:92 (2006).
11. Sergent Mech. Sys., Inc. v. United States, 34 Fed. Cl.
505, 519 (1995); Am. Ship Bldg. Co. v. United States, 228 Ct.
Cl. 220, 225, 654 F.2d 75, 79 (1981); Hardeman-Monier-Hutcherson v. United States, 198 Ct. Cl. 472, 48787 (1972); Helene
Curtis Indus., Inc. v. United States, 160 Ct. Cl. 437, 444 (1963).
12. Constantine G. Antipas, Contract Clauses, National
Business Institute, 10030 NBI-CLE 21, 25 (2004).
13. 160 Ct. Cl. 437, 312 F.2d 774 (1963).
14. 568 N.E.2d 1073, 1080 (Ind. Ct. App. 1991).
15. See United States v. Spearin, 248 U.S. 132, 39 S. Ct. 59
(1918). See generally Annot., 6 A.L.R.3d 1394.
16. Spearin, 248 U.S. at 136, 39 S. Ct. at 61; Martin K. Eby
Constr. Co., Inc. v. Jacksonville Transp. Auth., 436 F. Supp.
2d 1276, 1308 (M.D. Fla. 2005). See also David D. Gillis &
Christopher J. Heffernan, What Do You Do When the Plans and
Specifications Are Deficient? National Business Institute, Maryland Construction Law, 24363 NBI-CLE 9, 17 (2005).
17. County Mut. Ins. v. Gyllenberg Constr., Inc., 2004 WL
1490326, at *9 (D. Or. 2004) (The Spearin doctrine provides
certain protection from liability to contractors who build a
structure in accordance with the owners plans.).
18. See Luria Bros. & Co. v. United States, 369 F.2d 701, 708
(Ct. Cl. 1966) ([w]hen, as here, defective specifications delay
completion of the project, the contractor is entitled to recover
damages for defendants breach of this implied warranty);
James L. Csontos & Claudio E. Iannitelli, What Do You Do
When the Plans and Specifications Are Deficient? National Business Institute, 25159 NBI-CLE 24, 27 (2005) (As a corollary
to the Spearin doctrine, should the plans and specifications be
found to be defective, inaccurate or unsuitable, the contractor
is entitled to recover the extra costs incurred by reason of these
Published in The Construction Lawyer, Volume 28, Number 1, Winter 2008 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 8
Published in The Construction Lawyer, Volume 28, Number 1, Winter 2008 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 9
of Los Angeles, 157 Cal. App. 2d 670, 679, 321 P.2d 753 (Dist.
Ct. App. 1958); D.A. Parrish & Sons v. County Sanitation Dist.
No. 4 of Santa Clara County, 174 Cal. App. 2d 406, 410, 344
P.2d 883 (Dist. Ct. App. 1959); McGuire & Hester v. City and
County of San Francisco, 113 Cal. App. 2d 186, 187, 188, 247
P.2d 934 (Dist. Ct. App. 1952). See also 10 Cal. Real Est.
27:36 (3d ed.) (citing cases).
70. 166 Cal. 25, 134 P. 989 (Cal. 1913).
71. See Howard Contracting, 71 Cal. App. 4th at 50, 83 Cal.
Rptr. at 596 (The rule is well settled that in every construction contract the law implies a covenant that the owner will
provide the contractor timely access to the project site to facilitate performance of work.); Blinderman Constr. Co., Inc. v.
United States, 695 F.2d 552, 556 (Fed. Cir. 1982) ([t]he Navy
was under an implied obligation to provide such access [to the
worksites] so that the contractor could complete the contract
within the time required by its terms.). See also John E. Bulman & John W. DiNicola, The Owners Implied Obligations as
They Apply to Scheduling, 21 Constr. Law. 5 (Summer 2001)
(An owners first implied duty is the obligation to provide site
access.).
72. Hartford Elec. Applicators of Thermalux, Inc. v. Alden,
169 Conn. 177, 182, 363 A.2d 135 (Conn. 1975).
73. Thomas M. Brownell, What Do You Do When Contract
Performance Is Delayed? National Business Institute, Virginia
Construction Law, 24367 NBI-CLE 148, 154 (2005).
74. Howard Contracting, Inc. v. G.A. MacDonald Constr.
Co., Inc., 71 Cal. App. 4th 38, 50, 83 Cal. Rptr. 590, 596 (Ct.
App. 1998) (When . . . access to the site is limited by the owner,
the implied covenant is breached.); Harry Pepper & Assocs.,
Inc. v. Hardrives, Co., 528 So. 2d 72 (Fla. Dist. Ct. App. 1988)
(failure to make construction site available to commence work
by an agreed date); Blinderman Constr. Co., 695 F.2d 552 (government owner breached its implied duty of cooperation by
failing to assist the contractor in gaining access to family housing units owned by government); Walter Kidde Constructors,
Inc. v. State, 37 Conn. Supp. 50, 434 A. 2d 962 (Super. Ct. 1981)
(holding that owner breached contract by failing to provide
timely site access due to occupation of site by another contractor under the owners control).
75. See, e.g.. In re Appeal of Roberts Constr. Co., 111
N.W.2d 767 (Neb. 1961).
76. Hartford Elec. Applicators, 169 Conn. at 183, 363 A.
2d at 13940 (A delay caused by an owner may constitute a
breach excusing performance as required by the contract.).
77. Bulman & DiNicola, supra note 71, at 5.
78. 37 Conn. Supp. 50, 434 A. 2d 962 (Super. Ct. 1981).
79. Bulman & DiNicola, supra note 71, at 5.
80. See, e.g., Horton Indus., Inc. v. Village of Mowequa, 142
Ill. App. 3d 730, 740 (App. Ct. 1986) (defendant municipality
failed to disclose a very large percentage of underground utility lines and conduits in its plans and specifications); E. Steel
Constructors, Inc. v. City of Salem, 209 W. Va. 392, 549 S.E.2d
266 (W. Va. 2001) (failure to disclose hidden utility lines); Dept
of Transp. v. Herbert R. Imbt, Inc., 157 Pa. Commw. 573, 630
A.2d 550 (Pa. Commw. 1993) (agency liable for damages based
upon failure to obtain proper right-of-way prior to issuance of
notice to proceed); B.E. Reichenbach, Inc. v. Clearfield County
Indus. Dev., 18 Pa. D. & C.3d 790 (Pa. Commw. 1981) (defendant industrial development authority that issued a notice to
proceed to plaintiff construction contractor before defendant
had obtained all necessary rights-of-way held liable to plaintiff
contractor for its resulting damages caused by delays in construction). See also Brian W. Erikson, What Do You Do When
Contract Performance Is Delayed? Part II, National Business
Institute, Texas Construction Law, 14051 NBI-CLE 117 (2004)
(Courts hold that the specification of a starting date or the
issuance of a notice to proceed constitutes an implied warranty
Published in The Construction Lawyer, Volume 28, Number 1, Winter 2008 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 10
Published in The Construction Lawyer, Volume 28, Number 1, Winter 2008 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 11