July 2004

The Design and Construction Management Professional Reporter

Inside this issue:

Court Refuses to Grant Construction Manager Sovereign Immunity from False Claims Act Exposure
By David J. Hatem, PC

Increasingly, design and construction professionals are being retained by public owners to furnish a broad range of program management services which typically had been provided internally by the public owner. In some instances, the professional provides these services under a more conventional Owner-Consultant agreement pursuant to which the professional consultant serves as an independent contractor of the project owner. In other instances, such services are provided by the consultant as part of an integrated project organization with the public owner. In either case, the professional consultant providing such services – especially those relating to cost estimating, project funding, review and certification regarding payments to construction contractors – will have increased exposure under state and federal false claims act statutes, even if the public owner itself were not subject to such liability. See, Hatem, David J., “Federal and Massachusetts False Claims Act Exposure for Design and Construction Management Professionals”, The CAT Professional Liability Reporter, Vol. 5-No. 3, (Donovan Hatem LLP, July 2001). Under these circumstances, it is questionable whether the professional consultant will be able to obtain legally enforceable indemnification or limitation of liability protection from the public owner with respect to such false claims act liability exposure. See, e.g., Long Island Lighting Co. v. Imo Delavel, 668 F. Supp. 237 (S.D.N.Y. 1987) (Court refused to modify limitation of liability by language elsewhere in contract).

Federal Court in Texas Rules that the Spearin Doctrine Does Not Bar Sovereign Immunity Defense by Government Entity’s Designer in a Design-Bid Build Contract

In GLF Construc. Corp. v. “Designer,” No. 3:03-CV-0324-P, (N. D. Tex., Mar. 8, 2004) (Solis, J.), a federal district court sitting in Texas issued summary judgment on behalf of a Texas transit authority’s rail Designer, on grounds that the Designer was cloaked by the same sovereign immunity that the transit authority itself possessed. In making its ruling, the court rejected the plaintiff’s arguments that drew upon a line of cases holding that government entities warrant that drawings and specifications they provide to bidders are accurate and suitable for the purposes intended.

Department of Veterans Affairs- Board of Contract Appeals Imposes Duty on Design-Builder to Inquire Regarding Contract Ambiguities Where Design-Builder has Knowledge of Ambiguity

A recent decision from the Department of Veterans Affairs Board of Contract Appeals (the “Board”) held that a contractor/ bidder has a duty to inquire about an ambiguity in a designbuild contract where the contractor/ bidder has actual knowledge of the ambiguity. See Appeal of United Excel Corporation, VABCA No. 6937, Contract No. V101DC0138 (decided December 11, 2003). In United Excel, the Board granted the Department of Veterans’ Affairs’ (the “VA”) motion for summary judgment dismissing an appeal by United Excel Corporation (“UEC”) from the Contracting Officer’s (“CO”) denial of UEC’s claim for an equitable adjustment. The claim sought $112,818 for providing stainless steel diffusers in a surgical suite and post anesthesia care unit constructed at the Department of Veterans Affairs Medical Center in Kansas City, Missouri (the “suite”). UEC initiated the appeal on behalf of Stadium Sheet Metal (“Stadium”) and Stadium’s supplier, Triangle Sales, Inc. (“Triangle”), who were both lower tier-subcontractors to UEC’s mechanical subcontractor, Kansas City Mechanical, Inc. (“KCM”).

Court Finds Contract Unambiguous and Denies Differing Site Conditions Claim

In October 2003, the Supreme Court of Hawaii affirmed summary judgment in favor of a project owner, its engineer, and the general contractor in connection with a subcontractor claim, finding that a subcontract was unambiguous as a matter of law and that the subcontractor did not encounter materially different site conditions. Foundation International, Inc. v. E.T. Ige Construction, Inc., 102 Haw. 487 (2003).

Department of Veterans Affairs Board of Contract Appeals Concludes that the Inclusion of Specifications in a Design-Build Contract May Shift the Risk of Design Deficiencies to the Owner

In a decision of interest, Appeal of Donahue Electric, Inc., VABCA-6618, 2002 VA BCA Lexis 13, (December 27, 2002), the Department of Veterans Affairs Board of Contract Appeals (the “Board”) found that the inclusion of specifications in a design-build contract may return the risk of design deficiency to the owner to the extent specific requirements are set forth in those specifications.

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