In King County v. Walsh Construction Company, No. 83787-7-1 (July 3, 2023), the Washington Court of Appeals' discusses the effect of warranty language in construction contracts when design errors are implicated. Contractors should review the warranty language in their contracts to make sure they are not unknowingly agreeing that the design drawings are sufficient.
Under the Spearin Doctrine a contractor can rely upon the plans and specifications furnished by the owner and build in accordance therewith. Where an owner provides such drawings it impliedly warrants that the design is appropriate and feasible.
As the Court explained, this can change where a contract includes an express warranty that the materials and equipment installed by the contractor will "operate satisfactorily under the plans and specifications of the owner." In that event, the implied warranty under the Spearin Doctrine that the design is adequate is displaced by the express warranty in the contract.
The Walsh contract contained no express warranty but, instead, included a provision stating that the contractor disclaimed any obligation to provide design services or to maintain the pipeline in perfect condition for a specified period of time.
In late 2013, King County solicited bids to construct the South Magnolia Combined Sewer Overflow Control Project. The stated purpose of the project was to "diverge and limit the discharge of overflow wastewater into Elliot Bay during significant storm events." Walsh Construction Company submitted the lowest bid and was awarded the contract. The contract was signed in April of 2014.
The contract contained a clause entitled "Correction of Work or Damaged Property," which stated that if "material, equipment, or work proposed for, or incorporated into the Work" does not satisfy contract requirements or fails to perform according to the contract, the County has the right to reject the work. The County was required to give the contractor written notice of such defective or non-conforming work, and may also require the contractor to repair, replace, or correct the subpar work. The contract also stated that Walsh was not responsible for the design of the pipeline: "Contractor will not be required to provide professional services which constitute the practice of architecture and engineering except to the extent provided for in the technical specifications and drawings."
In January 2016, the County issued a Certificate of Substantial Completion, but by September of that year the pipeline had fractured and was allowing debris into the pipe. In February, 2017, the County informed Walsh that its work was not performing according to the requirements of the contract and demanded that Walsh submit a corrective action plan. Walsh responded by informing the County that the source of the issue was in the design of the pipeline and not caused by their work on the project. It refused to repair the pipeline, unless the County paid for the repair work. In order to fix the problem quickly, the County advanced funds to Walsh subject to a mutual reservation of rights under which the County could seek reimbursement from Walsh. Walsh did submit a corrective action plan and complete the repairs. The repair incurred over $20 million in additional costs to the County.
In September 2020, the County filed a claim for breach of contract and breach of warranty against Walsh claiming that it did not perform in accordance with the contract and seeking reimbursement for the costs of the repair. Walsh denied responsibility and asserted the Spearin Doctrine (among other defenses) as an affirmative defense. The County filed for summary judgment arguing that any implied warranty of design issues were trumped by the Correction of Work or Damaged Property provision in the contract. The trial court granted the County's motion and dismissed with prejudice "any defense based on alleged defective design." Walsh's motion for reconsideration was denied, but his motion for discretionary review by the appeals court was granted.
The Spearin Doctrine & Interpretation of the Contract
The seminal case of United States v. Spearin, 248 U.S. 132, 54 S.Ct.187, 39 S.Ct.59 (1918) provides that "[a] contractor is required to build in accordance with plans and specifications furnished by the owner, the owner impliedly guarantees that the plans are workable and sufficient." The Walsh case addressed whether the Correction of Work or Damaged Property provision in the contract precluded any defense based on design defect.
Washington precedent informed on the issue. In the case of Shopping Center Management Company v. Rupp, 54 Wn.2d 624, 343 P.2d877 (1959), the Supreme Court of Washington found that "in the absence of an express warranty, a contractor is not liable for the loss or damage resulting from the defective plans and specifications prepared by the other party to the to the contract," The court in Rupp also noted that "where the language of an express warranty goes beyond warranting the work and also warrants that the materials and equipment installed by the contractor will operate satisfactorily under the plans and specifications of the owner, the contractor's express warranty of satisfactory operation displaces the owner's implied warranty of design adequacy." Id. at 632-33.
In the case at hand, Walsh did not agree that "the materials and equipment would operate satisfactorily under the plans and specifications of the owner." The General Terms and Conditions stated that the "Contractor will not be required to provide professional services which constitute the practice of architecture and engineering except to the extent provided for in technical specifications and drawings." Walsh also did not agree to maintain the pipeline in perfect condition for a certain amount of time. Further, the contract also contained a Warranty and Guaranty provision, which warranted that all of the work performed conforms to the contract. The warranty period was limited to one year from the date of substantial completion of the project.
The County first gave notice of defective or non-conforming work pursuant to the warranty clause, but if the County's interpretation of Work or Damaged Property provision were accepted, the express warranty and one year limitation period would be meaningless because Walsh would be deemed to have guaranteed that the pipeline would operate satisfactorily and that it will provide any repairs or corrective action plan at no cost to the County regardless of the cause of the pipeline failure.
The Court emphasized this point by providing examples of absurd circumstances under which Walsh would still be held responsible for the pipeline's failure if it followed the County's interpretation of the contract. For example, if the County's construction activities above the pipeline caused an issue, or if the equipment was not maintained properly by the County, Walsh would still be liable under their theory and understanding of the contract. The Court found the County's reading of the contract "absurd."
In sum, the Court determined that a reasonable reading of the contract as well as a proper interpretation of precedent did not support the trial court's ruling. The Court found that Walsh liable under the contract in place if the work did not meet the distinct parameters for the work that were assigned under the contract. Walsh was not liable if the work was completed satisfactorily according to the deign provided and the design subsequently caused an ill-performing pipeline. Therefore, the trial court erred in dismissing Walsh's defense of design defect. The case was reversed and remanded.
Contractor should review the warranty provisions in their contracts and determine whether the language could be interpreted to say that the contractor is warranting that its work will "operate satisfactorily under the plans and specifications of the owner." Where the a designer hired by the owner specifies the materials, the contractor should not warrant the suitability of such materials to guard against liability in the event those materials are not proper or workable.