When a contractor submits a sample item for inspection and approval, one would think this leads to a definitive determination regarding contract compliance. If the sample is disapproved, the contractor makes modifications and resubmits. If the sample is approved, the contractor proceeds with production or fabrication, confident that the item meets the specifications. We all know the dictionary meaning of “approved.”
Unfortunately for contractors, project owners frequently try to have it both ways. Contract language may state that inspection is for the sole benefit and protection of the owner. Approval cannot waive or alter the specifications. In other words, approval of a sample item offers no assurance to the contractor. What kind of “approval” is that?
In a recent case, a federal agency approved a sample item and a subcontractor proceeded with production fabrication in reliance on that approval. A flaw was found in the production items, however. Re-inspection of the sample revealed the same problem there. The prior approval had been meaningless because it could not waive or alter the specifications. The contractor was still required to achieve strict compliance.
The case in question turned on a contract clause promulgated under the Federal Acquisition Regulation. But many construction contracts, both public and private, contain similar terms.
I welcome your comments below, on the equities of this situation and best practices in addressing it.
In next Monday's issue of Construction Claims Advisor
- Subcontract “Flow-Down” Clause Did Not Incorporate Claim Limitation Period
- Unit Price in Bid Properly Corrected to Reflect Intended Amount
- Performance Bond Covered Post-Completion Warranty