Warranty of Specifications:
No Substitute for Vigilance

There is a well established rule in Government contract law that there is an implied warranty that the specifications in the Request for Proposal are correct and free from error. Thus, a contractor has the right to rely on the accuracy of the specification when preparing its proposal.1 There is, however, an exception to this rule. If a contractor discovers an ambiguity or a defect in the specifications, then the contractor is obligated to submit questions to the procuring contracting officer to obtain a clarification. This is particularly true for detailed design specifications because, if they are followed exactly, the Government impliedly warrants an acceptable product will result from precisely following the design specifications.

This sounds like a fairly simple concept - follow the specifications exactly as written and there will be no problem with performance or, if there is, the Government will compensate the contractor for additional costs incurred. Generally, the Government specifications may describe the work to be performed in extensive detail or merely specify a desired result. The Government is usually liable if the requirements that it specifies result in problems for the contractor that it could not reasonably foresee. Under this implied warranty of specifications, the risk is allocated to the Government when the specifications it furnishes are not suitable for their intended purpose.2

This concept of implied warranty of specification is discussed by the United States Court of Appeals for the Federal Circuit (“CAFC” or the “Court”) in E. L. Hamm & Associates, Inc., v. Gordon R. England, Secretary of the Navy (“Hamm”), Case No. 03-1527, decided August 17, 2004. Although the case involved an appeal of a denial of a request for an equitable adjustment to the contract, it is instructive for actions during the proposal period. Hamm appealed a decision at the Armed Services Board of Contract Appeals (“ASBCA” or the “Board”) that denied Hamm's claim for the equitable adjustment. Hamm had claimed an equitable adjustment for additional work based on an alleged defect in the specifications.3

Hamm filed a claim and appealed a denial to the ASBCA which, in turn, denied the appeal by reason of the failure of Hamm, according to the ASBCA, to be misled by the defect. Hamm appealed to the CAFC who reversed the ASBCA. Interestingly, the ASBCA found that the Government specification was, in fact, erroneous but that Hamm was not misled by the error in the specification.

Nevertheless, the Court affirmed precedent that “when a contractor is faced with an obvious omission, inconsistency, or discrepancy of significance, he is obligated to bring the situation to the Government's attention if he intends subsequently to resolve the issue in his own favor.”4 The Court continued, stating, “when a contractor-claimant seeks to recover an equitable adjustment for additional work performed on account of a defective specification, the contractor-claimant must show that it was misled by the defect…the contractor-claimant must show both that it relied on the defect and that the defect was not an obvious omission, inconsistency, or discrepancy of significance - in other words, a patent defect - that would have made such reliance unreasonable.”5 In other words, contractors have the right to rely on Government furnished estimates…as long as the contractor acted reasonably.

The CAFC launched into a discussion of a defect and an ambiguity. The Court defined an ambiguity as more than one reasonable interpretation of a contract, but failed to provide a definition of a defect.

Nevertheless, the Court did explain that a contractor may not recover from a patent ambiguity or a patent defect, but may recover from a latent ambiguity or a latent defect. “In other words, just as a contractor may recover for a latent ambiguity, a contractor may not recover for a patent ambiguity; just as a contractor may recover for a latent defect, a contractor may not recover for a patent defect.”6 Consequently, under the implied warranty of specifications, the contractor “must show that it was misled by the error in the specifications in order to recover an equitable adjustment.”7 Stated differently, a contractor cannot recover a loss if it was “aware of a defect in the specification at the time of entering into a contract.”8 Thus the CAFC awarded Hamm damages due to the latent defect in the Navy specification.

The CAFC also decided the case of Turner Construction Co., Inc. v. United States, No. 03-5055, on May 22, 2004. The Court cited precedent that “where a contract contains a latent ambiguity, the Court will construe the ambiguous term against the Government as drafter of the contract, provided that the contractor's interpretation was reasonable and the contractor relied on that interpretation when preparing its bid.”9

The CAFC approvingly noted that “a reasonable contractor is expected to recognize patent ambiguities and to inquire about the work to be performed.”10 The Court also stated that “Whenever the Government uses specifications in a contract, there is an accompanying implied warranty that these specifications are free from error. The test for recovery based on inaccurate specifications is whether the contractor was misled by these errors.”11

In the Turner case, the Government claimed some electrical panels must be fire-rated. The contract specifications, however, which take precedence over the drawings, did not require fire-rating. Moreover, the applicable fire codes did not impose this requirement. Hence, Turner did not propose a fire-rated panel, and claimed additional cost when the Government imposed the requirement. The Court concluded that the error in the drawings does not place the burden of that error on the contractor, and it found in favor of Turner.

The moral of the story here is: Ask questions when you recognize a patent ambiguity or defect in a solicitation! When in doubt - ask! Do not assume anything! Don't assume that your questions will give away a competitive strategy. If you remain silent, you may suffer a loss after award for which there is no recovery. A court will not award an equitable adjustment after award of a contract if you fail to challenge a patent ambiguity or defect on or before the award of the contract.

Tom Petruska, Owner
Contracts Unlimited, Incorporated

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NOTE: The above article is not intended to be legal advice or a legal opinion. Readers should contact their attorney for legal counsel.

Footnotes:

1. United States v. Spearin, 248 U.S. 132 (1918)
2. id.
3. E. L. Hamm & Associates, Inc. v. H. T. Johnson, ASBCA No. 51838 (April 2, 2003)
4. CAFC quoting Space Corp. v United States, 470 F. 2d, 536, 538 ( Ct. Cl. 1972)
5. E. L. Hamm & Associates, Inc. v. Gordon R. England, Secretary of the Navy, No. 03-1527
6. id.
7. CAFC quoting Robbins Maint., Inc. v United States, 265, F.3d, 1254, 1257 (Fed. Cir. 2001)
8. See Note 5, supra.
9. CAFC quoting P.R.Burke Corp. v. United States, 277 F.3d, 1346 (Fed. Cir. 2002)
10. CAFC quoting Zinger Const. Co. v. United States, 807 F.2d, 979,981 (Fed. Cir. 1986)
11. See Note 7.

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