Source: https://www.irmi.com, July 2017
By: Jeff Slivka, New Day Underwriting Managers LLC

Over the past year, questions have increasingly emerged about construction specifications and the subsequent professional liability exposures they pose to contractors.

First, it’s important to identify the two basic types of construction specifications: design and performance.

Design Specifications

The most common concerns prescriptive or design specifications, which constitute all the construction methods, procedures, parts, material, or equipment to be used as well as the dimensions, tolerances, and sequencing of events and installations related to the project’s assembly.
This type of specification is like the incredibly detailed and tedious “directions” and materials that come with new do it yourself furniture kits, minus the tools, materials, and fun. OK, there is one other exception. It’s not that big of a deal when a few nuts and bolts are left over when the assembly is complete. Unfortunately, the same cannot be said when “spare” parts or “extra” material exists at the end of the design and build of a heat exchanger for a petrochemical plant.
It’s also important to note that, when design specifications are created by the owner or the owner’s engineer, the owner or that engineer assumes the risk of any errors in the specifications. The contractor must simply construct the component of the structure as specified.
This implied warranty was established by the Spearin doctrine.¹ Generally speaking, this landmark Supreme Court decision states the owner warrants that the design documents are free of defects and in the event the contractor builds according to the design documents, the ultimate responsibility for design errors resides with the owner, provided the contractor does not have any responsibility or participated in the design or engineering. As a result, under these guidelines, the contractor will not be liable to the owner for loss or damages that result solely from insufficiencies or defects in such information, plans, and specifications. So, in this instance, professional risk for the contractor is minimal at best.

Performance Specifications

The other type of specification is referred to as performance specifications, which does not focus on the construction methods, procedures, equipment, parts, or materials but rather the end result. In other words, the contractor is free to select the equipment, materials, and process (let alone the engineering that may accompany those services) to ensure the structure or components of the structure perform as intended.
For example, a performance-based specification was used on air handling units for a commercial structure. The contractor selected the only units that appeared suitable for this condition or structure. Unfortunately, they did not fit into the space provided by the overall design, and, as a result, the contractor was found liable for the costs associated with altering the unit, framing system, and space needed to accommodate all air handling units.
When contractors assess, select, and install the equipment or components based on their own expertise and experience, their exposure to professional liability increases or expands in the event the structure or component of the structure fails or does not perform as intended. With that said, it may not be as simple as “the contractor failed to select the proper equipment, so it’s a professional liability claim.” There could be many contributing factors ranging from product malfunction and improper installation to maintenance errors before one can establish the contractor was negligent in providing a professional service. However, in the end, the “professional risk” will reside with the contractor in these situations. (Keep in mind, the contractor may have recourse against the product manufacturer or an engineering subcontractor, but the contractor retains ultimate liability.)
An example of a performance-based specification would be (in short, as the actual spec can be pages long) when the owner requires a certain internal “climate” (72 degrees Fahrenheit at all times) in a commercial office structure. Under such an agreement, the contractor is thereby obligated to select the equipment and products needed to produce this outcome. This includes taking into consideration the changing external temperatures throughout the various seasons of the year.
So, it’s hopefully obvious that performance specifications can present contractors with an increased exposure to professional liability under certain project scenarios. Where are you most likely to find performance-based specifications? Typically, it’s common to find performance specifications in the more collaborative delivery methods like design/build, public/private partnerships, or integrated project delivery. But, don’t be surprised to see performance-based specifications in traditional design/bid/build.
Also, it’s not uncommon for some projects or contracts to have a combination of both prescriptive and performance-based specifications. For instance, there could be situations where the desired outcome contains both design or engineering aspects, especially when jurisdictional codes or standards are involved.

Conclusion

It’s important to point out that the above has been oversimplified to highlight a potential area of professional risk for contractors. There are many other factors that can influence professional risk one way or the other. Project type, engineering expertise, products, and the materials used are the challenges that could potentially present exposure problems and professional liability risks.

¹ United States v. Spearin, 248 U.S. 132, 39 S. Ct. 59, 63 L. Ed. 166, 1918 U.S. LEXIS 1700, 42 Cont. Cas. Fed. (CCH) P77,225 (U.S. Dec. 9, 1918).