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ConstructionPro Week, Volume: 3 - Issue: 44 - 10/31/2014

Contract Interpretation: The Role of Inspection on Construction Projects*

What happens when you have conflicting details on two different contract drawings? Which one is the contractor entitled to rely upon? When does “or equal” actually let you substitute a product that you consider equal? What exactly is the role of inspection on a construction project? These questions and more are covered in a chapter on contract interpretation by attorneys Brian Bennett and Jonathan Blocker in an upcoming book on construction claims. In this article, the authors discuss the role of inspection on construction project, which is sometimes misunderstood or misused. 

 

Over-inspection and untimely inspection can cause changed conditions or delays. If the engineer or government, as project owner, imposes a higher level of performance than required by the specifications, the contractor is entitled to an equitable adjustment. Recognize, though, that a contractual right to inspect work for the government does not give rise to a duty to inspect a contractor’s work.i Furthermore, any right to inspect does not impose upon the government responsibility for deficiencies discovered in the contractor’s work.ii

 

Sometimes, overzealous inspectors require installation and placement tolerances of materials and equipment much tighter than is customarily followed by the crafts. The different material institutes (e.g., American Concrete Institute, American Reinforcing Steel Institute) set tolerances for manufacturing and installation of their products. The crafts usually try to adhere to these tolerances, but some variances are expected that are beyond the worker’s control and are not harmful. Unless an installation is structurally unsound or the appearance is clearly beyond the reasonable intent of the specifications, additional costs to maintain tighter control or make corrections may be cause for an equitable adjustment.

 

Unlike the government or engineer, a contractor has a duty to inspect the construction work.iii

 

4-7a. Improper Rejection

 

The owner has a right to set tight specifications so long as they are clear and not impossible. However, where costs are incurred due to rejection of the work for improper interpretation of the specifications by the inspector, an equitable adjustment may be due. In the case of Granite Construction Company, the owner rejected concrete on the assertion that it did not meet porosity and durability criteria not mentioned in the specification. The board found “that the concrete in question was improperly rejected on a basis not specified in the contract.”iv In another case, the court found that unreasonable over-inspection, ambiguities in specifications, and alterations in an inspection system by the government without consideration of past practices could lead to unreasonable rejections of work.v The contractors, therefore, were entitled to equitable adjustments for the improper rejections in both cases.

 

4-7b. Improper Acceptance

 

If the government is aware that the contractor is deviating from the specifications in an unacceptable manner, it has a duty to so inform the contractor. In Hydrospace Electronics & Instrument Corp. (ASBCA 17922, 74-2 BCA ¶10682), “the government was aware that (the contractor) was deviating from the contract requirement for stainless steel in a manner that was determined to be patently unacceptable. In our opinion, the government, under these circumstances, had a duty to inform (the contractor) of its erroneous course of action in a timely manner and the (contractor) is entitled to recover for the consequences of the government’s failure to do so.”vi However, this case is an exception, and the wise contractor will not rely on the owner’s inspection program.

 

In the above example, the government was initially quiet about the improper work. In another case, the engineer specifically authorized improperly changed material and subsequently approved improper application of the materials, relieving the contractor of a suit for unworkman-like installation.vii

 

Untimely inspection, inconsistent inspection, changed inspection systems, and increased paperwork requirements have all been held as constructive changes causing unnecessary interference with the contractor’s work. Test requirements in excess of that required by the specifications, (e.g., increased frequency, different types of tests) are constructive changes, even if such tests show the work to be defective. Untimely inspection that delays the contractor may be considered a delay under the Suspension of Work clause (if the contract has such a clause).

 

However, the contractor cannot rely on inspection by the owner to absolve himself of any responsibility for defects that might have been observed by better inspection methods. In a case in which a derrick collapsed because the contractor used undersized bolts, the court rejected the contractor’s contention that the bolts were a patent defect that should have been discovered by the government under its right to inspect: “Just because the material was subject to inspection and test did not impose upon the government the duty to conduct all-inclusive tests. The right to inspect does not imply a duty to inspect.... It did not place any duty on the government to conduct such tests at the risk of assuming responsibility for the deficiencies which it might have discovered.”viii

 

The role of inspection is just one aspect of assembling and interpreting contracts. Putting together a complete set of contract drawings and specifications is not an easy task, requiring not only design skills, but keeping up with technology and building codes, understanding the owner’s needs, and familiarity with construction methods, all while maintaining an established budget. Estimators working for contractors and design/builders will make dozens -- if not hundreds -- of pricing decisions based on their understanding of what the documents are requiring. Experienced contractors must make decisions on what they know they can rely upon, but they are also responsible to seek clarification on patent ambiguities. Failure to do so can be costly. Learn more about the fascinating topic of contract interpretation by joining Brian and Jonathan in their upcoming webinar on Nov. 4. Don’t wait for the book -- click here for more information or to sign up your team now.

 

* The article is taken from the chapter on Interpretation and Requirements of Contract Specifications by Brian W. Bennett and Jonathan M. Blocker of Page, Eichenblatt & Bennett, P.A.

 

 


 

i Kaminer Constr. Corp. v. U.S., 484 F. 2d 980, 203 Ct. Cl. 182, 193-94 (Ct. Cl. 1973).

ii Id. at 194.

iii Talley v. Shelly Oil Co., 199 Kan. 767 (Kan. 1967).

iv Granite Construction Co. (ENGBCA No. 3561, 76-1 ¶11,748).

v Amertex Enters. v. U.S., 1995 U.S. Claims 259, at *203-04 (Fed. Cl. 1995).

vi Hydrospace Electronics & Instrument Corp., ASBCA 17922, 74-2 BCA ¶10682.

vii Bechtold Paving, Inc. v. City of Kenmore, 446 N.W.2d 19 (N.D. 1989).

viii Kammer Construction Co. v. U.S., 203 Ct. Cl. 182 (1973); also see Appeal of Kelley Control Systems, Inc., VABCA No. 2,337 (July 24, 1987). (An interim inspection and approval did not relieve the contractor of the duty to conform to the specifications.)

 

COMMENTS

It depends,

Contract Interpretation: The Role of Inspection on Construction Projects*

What happens when you have conflicting details on two different contract drawings? Which one is the contractor entitled to rely upon? When does “or equal” actually let you substitute a product that you consider equal? What exactly is the role of inspection on a construction project? These questions and more are covered in a chapter on contract interpretation by attorneys Brian Bennett and Jonathan Blocker in an upcoming book on construction claims. In this article, the authors discuss the role of inspection on construction project, which is sometimes misunderstood or misused.

• Inspection by who and for what purpose? Is not the role of inspection to insure code compliance by a third party (AHJ)?

Over-inspection and untimely inspection can cause changed conditions or delays. If the engineer or government, as project owner, imposes a higher level of performance than required by the specifications, the contractor is entitled to an equitable adjustment. Recognize, though, that a contractual right to inspect work for the government does not give rise to a duty to inspect a contractor’s work.i Furthermore, any right to inspect does not impose upon the government responsibility for deficiencies discovered in the contractor’s work.ii

Sometimes, overzealous inspectors require installation and placement tolerances of materials and equipment much tighter than is customarily followed by the crafts. The different material institutes (e.g., American Concrete Institute, American Reinforcing Steel Institute) set tolerances for manufacturing and installation of their products. The crafts usually try to adhere to these tolerances, but some variances are expected that are beyond the worker’s control and are not harmful. Unless an installation is structurally unsound or the appearance is clearly beyond the reasonable intent of the specifications, additional costs to maintain tighter control or make corrections

(? It depends on what necessitated the correction; workmanship, code compliance, etc. ) may be cause for an equitable adjustment.

Unlike the government or engineer, a contractor has a duty to inspect the construction work. (as in inspect workmanship, or in inspect for code conformance (this being the responsibility of the local AHJ) ?

4-7a. Improper Rejection

The owner has a right to set tight specifications so long as they are clear and not impossible. However, where costs are incurred due to rejection of the work for improper interpretation of the specifications by the inspector, an equitable adjustment may be due.

In the case of Granite Construction Company, the owner rejected concrete on the assertion that it did not meet porosity and durability criteria not mentioned in the specification. The board found “that the concrete in question was improperly rejected on a basis not specified in the contract.”iv

In another case, the court found that unreasonable over-inspection, ambiguities in specifications, and alterations in an inspection system by the government without consideration of past practices could lead to unreasonable rejections of work.v The contractors, therefore, were entitled to equitable adjustments for the improper rejections in both cases.

4-7b. Improper Acceptance

If the government is aware that the contractor is deviating from the specifications in an unacceptable manner, it has a duty to so inform the contractor.

In Hydrospace Electronics & Instrument Corp. (ASBCA 17922, 74-2 BCA ¶10682), “the government was aware that (the contractor) was deviating from the contract requirement for stainless steel in a manner that was determined to be patently unacceptable. In our opinion, the government, under these circumstances, had a duty to inform (the contractor) of its erroneous course of action in a timely manner and the (contractor) is entitled to recover for the consequences of the government’s failure to do so.”vi However, this case is an exception, and the wise contractor will not rely on the owner’s inspection program. (?!)

In the above example, the government was initially quiet about the improper work. In another case, the engineer specifically authorized improperly changed material and subsequently approved improper application of the materials, relieving the contractor of a suit for unworkman-like installation.vii

Untimely inspection, inconsistent inspection, changed inspection systems, and increased paperwork requirements have all been held as constructive changes causing unnecessary interference with the contractor’s work.

Test requirements in excess of that required by the specifications, (e.g., increased frequency, different types of tests) are constructive changes, even if such tests show the work to be defective. Untimely inspection that delays the contractor may be considered a delay under the Suspension of Work clause (if the contract has such a clause).

However, the contractor cannot rely on inspection by the owner to absolve himself of any responsibility for defects that might have been observed by better inspection methods.

In a case in which a derrick collapsed because the contractor used undersized bolts, the court rejected the contractor’s contention that the bolts were a patent defect that should have been discovered by the government under its right to inspect:

“Just because the material was subject to inspection and test did not impose upon the government the duty to conduct all-inclusive tests. The right to inspect does not imply a duty to inspect.... It did not place any duty on the government to conduct such tests at the risk of assuming responsibility for the deficiencies which it might have discovered.”viii

The role of inspection is just one aspect of assembling and interpreting contracts.

Putting together a complete set of contract drawings and specifications is not an easy task, requiring not only design skills, but keeping up with technology and building codes, understanding the owner’s needs, and familiarity with construction methods, all while maintaining an established budget.

Estimators working for contractors and design/builders will make dozens -- if not hundreds -- of pricing decisions based on their understanding of what the documents are requiring. Experienced contractors must make decisions on what they know they can rely upon, but they are also responsible to seek clarification on patent ambiguities and to comply with codes and regulations. Failure to do so can be costly..


Posted by: ADAguy - Wednesday, November 05, 2014 4:22 PM






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