Design v. Performance Specification: Why Does it Matter?

If you’ve never heard of the terms “Design Specification” or “Performance Specification” or you’ve heard of them but don’t know what they mean or why they matter, then you have probably never been involved in a dispute or litigation relating to defective specifications or inadequate designs.

A “Design Specification” sets forth in detail the materials to be employed and the manner in which the work is to be performed. The contractor is required to follow them as one would a road map and without deviation.  A “Performance Specification” describes an end result, an objective or standard to be achieved and leaves the determination of how to reach the result to the contractor

These terms are legal terms that are derived from a long-standing legal concept known as the implied warranty of specifications.  It’s also referred to as the “Spearin Doctrine,” because of a landmark ruling of the U.S. Supreme Court that set out the rule relating to the implied warranty in the context of a government construction contract.  Since that ruling, this doctrine has been adopted by virtually every state and is applied to both public and private construction projects.

Here’s what it says:

“Where one agrees to do for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to additional compensation because unforeseen difficulties are encountered…But if the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications.”

United States v. Spearin, 248 U.S. 132 (1918)

In other words, the owner impliedly warrants that if the contractor completes the work in accordance with the owner’s plans and specifications but there is a deficiency or failure, the owner, not the contractor, is responsible.

This is why it matters whether a particular component of the design at issue is determined to be a “design specification” or a “performance specification:”

• In general, the implied warranty of specifications applies only to design specifications, and not performance specifications
• There can be exceptions to this general rule where the contractor has some participation in the design or control over the means and methods
• The determination of whether a particular work item is a design or performance specification is a factually-intensive one and made on a case-by-case basis

Many claims relating to defective specifications or design hinge upon whether the specification at issue was a design or performance specification.

I’ll be discussing the legal significance of design v. performance specifications and factors affecting the allocation of risk of defective specifications in a webinar sponsored by The Construction Specifications Institute.  The webinar is Tuesday, April 3^rd at 2:00pm Eastern time and registration is open to anyone.  Click here for more information or to register.

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Real Estate and Construction are Never Going Back to Brown

Last night I attended the annual fundraising event for Southern Polytechnic State University’s Construction Management Program.  This event was full of construction industry leaders, academics, and construction management students and alums.  The keynote speaker was Jim Jacoby of Jacoby Development.

I was happy to see that overall the mood in the room was upbeat and positive about the future of private development and construction in Georgia (and across the country).  Even though many construction companies are relying solely on public projects to keep them going right now, they are planning for the future and making sure that they are ready to be competitive when the rebound starts.

The other big “take away” message I had from speaking to individuals and from Jacoby’s presentation is that the next wave of private development of any kind is going to be green—in virtually all respects.

Jacoby is definitely known for his visionary thinking.  His company is famous for developing Atlantic Station in midtown Atlanta—which involved turning the site of an old steel mill with significant environmental issues into one of the largest mixed-use communities with residential, office, retail, and entertainment all within a few blocks.  But it’s clear from his presentation that the next wave of development we will see from in this country from the private sector is going to be “green” in virtually every capacity.

For example, one of the big projects Jacoby is working on right now involves the gasification of solid waste (garbage that would otherwise go to a landfill) into gas that creates enough electricity to power over 25,000 homes from one plant.  He also talked about re-developing former auto manufacturing plant sites into alternative energy production centers or more “smart growth” developments like Atlantic Station.  In fact, just about every prospective project that Jacoby discussed served the dual purposes of being good for the community and the environment.

It’s refreshing to see that future private projects will not only use green initiatives, but that alternative energy, reduced carbon footprints, and sustainability will be the key features of these developments.  This suggests to me that green projects and developments are now profitable and desirable.  There’s no looking back now.