4.01Introduction...... 36
4.02Covenant of Good Faith and Fair Dealing...... 37
4.03Duty to Cooperate and Not to Hinder Construction Work38
4.04Duty to Disclose Important Information Regarding Construction Projects 41
4.05Duty to Provide Accurate Information to Contractor....43
4.06Implied Warranty of Plans and Specifications...... 44
4.07Warranty That Site Condition Are as Represented...... 47
4.08Duty to Provide Necessary Items within Owner’s Control49
4.09Warranty of Commercial Availability of Materials, Products, and Equipment 50
4.10Duty to Provide Access to the Site...... 53
4.11Duty to Provide Adequate Supervision...... 55
4.12Duty to Perform in Contract in Good and Workmanlike Manner56
4.13Industry Standards—Custom and Usage...... 57
4.14Duty to Timely Review Contractor Submittals and Requests 59
4.15Duty to Coordinate Work of Multiple Prime Contractors.60
4.16Duty to Make Timely Inspections...... 61
4.17Duty to Maintain Project Site in a Reasonably Safe Condition62
4.18Warranty That Materials Provided by Owner Are Suitable63
4.19Implied Warranty of Adequacy of Contract Time...... 64
4.20Implied Duty of Contractor to Seek Clarification...... 65
Chapter 4: Implied Duties and Obligations in Construction Contracts
4.01 Introduction
Chapter Four includes instructions related to implied duties and obligations of parties to a typical construction contract. These duties and obligations do not appear in the express terms of the parties’ agreement but are imported into construction contracts by operation of law when required by the substantive law governing the parties’ agreement. Such duties and obligations normally include the obligation of both parties to deal with each other fairly and in good faith, the owner’s duty to disclose information material to the contractor’s performance and not to hinder construction work, and the duty to provide accurate plans and specifications, as well as the owner’s warranty of commercial availability of construction materials. They also include the contractor’s implied obligation to comply with construction industry standards and customs, and duty to complete the project in a good and workmanlike manner.
The breach of these implied duties and obligations can provide the contractor with a remedy in the form of additional compensation and a defense to owner claims for construction delays or deficiencies in the work. Similarly, a breach of the implied duties and obligations of the contractor can provide the owner with a defense or an independent claim for damages.
It is important to note that not all jurisdictions require that every construction contract include the following set of implied duties and obligations. In addition, many jurisdictions differ on how and when they apply these duties. Frequently, apparent differences between jurisdictions on these implied duties are fact driven. Before using one of these instructions, you need to carefully consider the law in your jurisdiction and adapt the instruction accordingly. This chapter provides a number of instructions, but inclusion of an instruction in this chapter is not intended to be a representation that the instruction represents the law in all jurisdictions (or even in a majority of jurisdictions).
Finally, many of these implied terms can be modified or excluded by the express terms of the parties’ agreement or by the facts in a particular case. Consider express terms and actions of the parties in determining whether an implied duty exists and what the appropriate defenses are to a claim of implied duty.
4.02 Covenant of Good Faith and Fair Dealing
In addition to the express terms of the parties’ agreement, there is an implied promise of good faith and fair dealing in every contract. This means that each party agrees it will not unfairly interfere with the right of the other party to receive the benefits of the contract.
The plaintiff claims that the defendant violated its implied promise to act fairly and in good faith. To establish this claim, the plaintiff must prove all of the following:
(1) The plaintiff and the defendant entered into a contract.
(2) The plaintiff did all, or substantially all, of the material things required by the contract (or was excused from having to do those things).
(3) All conditions required for the defendant’s performance had occurred (or were excused).
(4) The defendant unfairly interfered with the plaintiff’s right to receive the benefits of the contract.
(5) The plaintiff was damaged by the defendant’s conduct.
Note that the implied promise of good faith and fair dealing cannot require a party to do something that is inconsistent with the express terms of the contract.
Comment
“Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” Restatement (Second) of Contracts§ 205. The requirement of “good faith and fair dealing” was first introduced by the Uniform Commercial Code (UCC) for contracts relating to the sale of goods and is now recognized by most American jurisdictions. U.C.C. § 2-103(1)(b) (“‘Good faith’ in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade”); Steven J. Burton, Breach of Contract and the Common-law Duty to Perform in Good Faith, 94 Harv. L. Rev. 369 (1980). It is commonly understood that one of the primary functions of this implied duty is to prevent one party from injuring the right of the other to receive the benefits of the agreement between them. New Plumbing Contractors Inc. v. Nationwide Mut. Ins. Co., 9 Cal. Rptr. 2d 469 (Ct. App. 1992); Onderdonk v. Presbyterian Homes of N.J., 85 N.J. 171, 182 (1981).
The express terms of a contract can preempt or define the scope of this duty by explicitly allowing conduct that would otherwise be a violation. See VTR Inc. v. Goodyear Tire & Rubber Co.,303 F. Supp. 773 (S.D.N.Y. 1969). Furthermore, the obligation derived from this rule cannot alter the express terms of the contract or deprive a party of its bargained-for rights. See Nat’l Westminster Bank N.J. v. Lomker,649 A.2d 1328 (N.J. Super. Ct. App. Div. 1994), cert. denied, 663 A.2d 1361 (N.J. 1995).
The law of contracts does not require this principle to be applied to the process of contract negotiations, although remedies for bad-faith negotiations may be found in the law of torts or restitution, or within specific statutory frameworks such as the National Labor Relations Act. See Restatement (Second) of Contracts § 205 cmt. c.
The principle spelled out here is announced in the Restatement (Second) of Contracts§ 205 and augmented by definitions in U.C.C. §§ 1-201(19), 2-103(1)(b).
4.03 Duty to Cooperate and Not to Hinder Construction Work
The law holds that the owner has an implied duty not to obstruct, hinder, or delay the project. An owner breaches a contract when its actions unreasonably obstruct, hinder, or delay the contractor’s work.
The contractor claims that the owner breached the contract because its actions interfered with the contractor’s ability to perform the work. To establish this claim, the contractor must prove all of the following:
(1) The contractor and owner entered into a contract.
(2) The contractor did all, or substantially all, of the material things required by the contract (or was excused from having to do those things).
(3) All conditions required for the owner’s performance had occurred (or were excused).
(4) The owner interfered with the contractor’s work in a way that was unreasonable.
(5) The contractor was damaged by the owner’s conduct.
Comment
Because the spirit of contracting between an owner and a contractor recognizes that a contractor prices and schedules a construction project based on expedient progress of the work, an owner is found responsible for increased costs and time to complete the work if it unreasonably interferes with the contractor’s work. Unless contract language expressly provides that the contractor will be responsible to complete the work on time without regard to costs, delays, or impacts to the work, the contractor may recover additional relief or compensation for any delays or damages caused by any breach of this implied term. See U.S. ex rel. Williams Elec. Co. v. Metric Constructors, 480 S.E.2d 447 (S.C. 1997); Bignold v. King Cnty., 399 P.2d 611 (Wash. 1965).
“The contracting party impliedly obligates himself to cooperate in the performance of his contract and the law will not permit him to take advantage of an obstacle to performance which he has created or which lies within his power to remove.” Gulf M&O Ry. Co. v. Ill. Cent. Ry. Co., 128 F. Supp. 311, 324 (N.D. Ala. 1954), judgment aff’d, 225 F.2d 816 (5th Cir. 1955). “It is sufficiently obvious that a contract for the construction of a building, even in the absence of an express stipulation upon the subject, implies an essential condition that a site shall be furnished upon which the structure may be erected.” See Guerini Stone Co. v. P.J. Carlin Constr. Co., 248 U.S. 334, 340 (1919).
A breach of the implied duty not to hinder or obstruct a subcontractor’s performance also occurred in Quaker Empire Construction Co. v. D.A. Collins Construction Co., 542 N.Y.S.2d 692 (1982), when the general contractor provided erroneous field measurements to a subcontractor and failed to perform timely preparation work necessary before the subcontractor could start its work. Due to these delays, the subcontractor recovered the extra expenses incurred for working in winter weather. These expenses would not have been incurred absent the contractor’s delays and the contractor’s insistence to work during winter (to avoid owner-assessed liquidated damages). Additional cases in which the implied duty was breached include the following: Paliotta v. Dep’t of Transp., 750 A.2d 388 (Pa. Commw. Ct. 1999) (owner interfered with contractor’s planned method of construction when it represented that utility poles would be removed to facilitate curb and gutter work—but this proved incorrect, prompting contractor to request pouring the curb gutters behind the utility poles, which was denied by the state, requiring the contractor to switch to more costly method of construction); Volentine & Littleton v. United States, 169 F. Supp. 263 (Ct. Cl. 1959) (interference caused when owner raised water level at jobsite by closing upstream dam); Lester N. Johnson Co. v. City of Spokane, 588 P.2d 1214 (Wash. Ct. App. 3d Div. 1978) (after heavy rains, owner’s pumping raw sewage into field uphill from jobsite was interference when sewage ran downhill into construction zone, causing delays); City of Seattle v. Dyad Constr. Inc., 565 P.2d 423, 434 (Wash. Ct. App. 1st Div. 1977) (“City arbitrarily and without justification directed the manner and method of the contractor’s performance insofar as the installation of the sheet piling was concerned, and that the effect of this improper interference of the City was to materially increase the scope of the work required of the contractor and delay his operations in that regard.”).
4.04 Duty to Disclose Important Information Regarding Construction Projects
The law holds that the owner has a duty to furnish the contractor with all important information needed to prepare a bid or price for the work. The contractor claims it was harmed because the owner failed to disclose [or concealed] material information regarding [specify information]. To establish this claim, the contractor must prove all of the following:
(1) The contractor submitted its bid or agreed to a price and schedule to perform the work without information regarding [specify missing information].
(2) The information would have materially affected the contractor’s cost or time to complete the work.
(3) The owner had the missing information.
(4) The owner was aware that the contractor did not have it.
(5) The missing information was not generally available to the contractor nor discoverable upon reasonable inquiry by the contractor.
(6) The owner failed to provide the missing information to the contractor.
(7) The contract documents or other information furnished by the owner did not put the contractor on notice to investigate further regarding the missing information.
(8) The contractor was damaged by the o wner’s failure to disclose the missing information.
Comment
With regard to undisclosed information, there is liability only if the failure to disclose materially affected the cost of performance and actually and justifiably misled the contractor in bidding on the contract. Contractor does not have to prove the owner intentionally concealed the information. See L.A. Unified Sch. Dist. v. Great Am. Ins. Co., 234 P.3d 490 (Cal. 2010) (It is not necessary to show fraudulent intent to conceal). This instruction most frequently applies principally to public owners awarding fixed-price construction contracts to contractors required to submit bids based on design specifications and information provided by the public owner.
An excellent discussion of this implied duty and corresponding cases is available at The Twelve Deadly Sins: An Owner’s Guide to Avoiding Liability for Implied Obligations during the Construction of a Project, Steven B. Lesser & Daniel L. Wallach, 28 Constr. Law. 15 (Winter 2008). “In addition to disclosing all pertinent information to the contractor during the prebidding process, the owner has an implied duty during the actual performance of the project to furnish the contractor with material information that may have a bearing on the contractor’s work. . . . Id. (citing S. Cal. Edison v. United States, 58 Fed. Cl. 313 (2003); Manuel Bros. v. United States, 55 Fed. Cl. 8, 34 (2002); see generally 3 Philip L. Bruner & Patrick J. O’Connor Jr., Bruner & O’Connor on Construction Law§ 9:92 (2006)). This implied obligation typically arises when the owner has superior knowledge not available to a contractor from other sources.” Id. (citing Sergent Mech. Sys. Inc. v. United States, 34 Fed. Cl. 505, 519 (1995); Am. Ship Bldg. Co. v. United States, 654 F.2d 75, 79 (Ct. Cl. 1981); Hardeman-Monier-Hutcherson v. United States, 198 Ct. Cl. 472, <tps_comment index="10"487 /tps_comment index="10">(1972); Helene Curtis Indus. Inc. v. United States, 160 Ct. Cl. 437, 444 (1963)).
An owner’s failure to make appropriate disclosure may entitle the contractor to damages or an equitable adjustment. For example, in Helene Curtis Industries Inc. v. United States, 312 F.2d 774 (Ct. Cl. 1963), the owner was aware that the contractor assumed it could perform the contract without utilizing a grinding process. The owner was liable when it failed so to inform the contractor. Similarly, in City of Indianapolis v. Twin Lakes Enterprises Inc., 568 N.E.2d 1073, 1080 (Ind. Ct. App. 1991), the owner breached its implied duty of disclosure when it insisted that a contractor continue to dredge a reservoir that the owner knew contained large obstructions previously dumped in that area by the owner; See also S. Stein, Construction L. (MB) ¶ 18.02 (1994); 3 Bruner & O’Connor on Construction Law§ 9:92.
4.05 Duty to Provide Accurate Information to Contractor
The law holds that when an owner provides a contractor with information to prepare a bid or perform a construction contract, the owner is responsible if the information is not accurate.
The contractor claims the owner provided [specify inaccurate information] regarding [specify type of inaccurate information provided]. The contractor now seeks damages because it claims that information was not accurate. To establish this claim, the contractor must prove all of the following:
(1) The owner provided [specify inaccurate information] to the contractor.
(2) The contractor relied on this information.
(3) The information was not accurate.
(4) The contractor’s reliance on that information had a material affect on the contractor’s work.
Comment
This duty extends to information related to site conditions. See Wendward Corp. v. Group Design Inc., 428 A.2d 57, 59 (Me. 1981) (owner’s agent took soil samples at wrong location; as a result, the true subsurface conditions of the actual site were not revealed until construction of the foundation was already in progress).
In one noteworthy case, the City of Los Angeles provided bidders on a retaining wall construction project with the logs of two test borings it had conducted at the jobsite; the logs erroneously reported the soil composition obtained from the borings. Warner Constr. Corp. v. City of L.A., 2 Cal. 3d 285, 293–94 (1970). Attached to the logs was a caveat disclaiming any warranty that the test hole information was indicative of conditions elsewhere at the site. The City, however, knew, but did not disclose, that cave-ins had occurred in both test holes, forcing it “to change its drilling methods and to abandon the holes before reaching the planned depth of 50 feet.” Id. When caving occurred in holes that were drilled during construction, and the contractor was forced to change to a more expensive drilling technique with rotary mud, the City was liable for its nondisclosure of the earlier cave-ins and use of special drilling techniques. The nondisclosure “transformed the logs into misleading half-truths.” Id.
This duty can be modified by express contract terms or direction from the owner that information provided is not to be relied upon but is provided solely for information and reference.
4.06 Implied Warranty of Plans and Specifications
<tps_comment index="11"The law holds that a contractor is entitled to rely on the plans and specifications provided by the owner./tps_comment index="11">
The owner’s responsibility to provide accurate plans and specifications is not overcome by general clauses in the contract requiring the contractor to visit the site, check the plans, and/or inform himself of the requirements of the work. If the specifications are faulty and unreasonably delay completion, a breach of contract results entitling the contractor to additional compensation.
If you find that the contractor followed the plans and specifications prepared by the owner and was not negligent in doing so, you should not find the contractor liable for any resulting deficiencies caused by the defective plans and specifications.
This rule, however, does not apply when the contractor does not follow the plans and specifications.
Comment
This rule was recognized as “well settled” in the landmark case of United States v. Spearin, 248 U.S. 132 (1918), and the language of the instruction generally mirrors the discussion found therein. If a contractor is misled by incorrect statements, plans, or specifications issued by the owner, the contractor may hold the owner liable for the additional amount of expense required to complete the project resulting from the inaccuracy within the contract documents. The idea is that “when an owner provides the contractor with plans and specifications, the owner is deemed to impliedly warrant that the contractor will be able to satisfactorily complete his contractual obligations by following the plans and specifications.” S. Stein, Construction L. (MB) ¶ 18.02 (1994); see also Dundt Corp. v. Dep’t of Transp., 566 N.W.2d 476 (S.D. 1997); Neal & Co. v. United States, 19 Cl. Ct. 463 (1990), aff’d, 945 F.2d 385 (Fed. Cir. 1991) (where a flaw in the government’s design specification caused bowing of concrete and steel wall panels, court held that contractor was entitled to equitable adjustment of contract price); Fairbanks N. Star Borough v. Kandik Constr. Inc., 795 P.2d 793 (Alaska 1990), vacated in part on other grounds and remanded, 823 P.2d 632 (Alaska 1991); S&T Constr. Co. v. Harris, 789 P.2d 640 (Okla. Ct. App. 1990) (contractor was not liable for damages resulting from any defect, since construction was undertaken according to owner’s plans and specifications); Ne. Plate Glass Corp. v. Murray Walter Inc., 537 N.Y.S.2d 657 (App. Div. 3d Dep’t 1989) (where owner issued faulty plans and specifications, court held that subcontractor who installed window wall panels was not liable to owner for cost of replacement).