Government impliedly warrants that its detailed plans and specifications are free from defects; contractor may use modified total cost method to determine damages in breach of contract claim

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In a recent case decided by the Missouri Court of Appeals, Penzel Construction Company, Inc. v. Jackson R-2 School District, etal (Penzel) ED103878. mo, the Court applied the Spearin Doctrine (US v. Spearin) where the US Supreme Court held that the government offered an implied warranty to the contractor that its plans would be adequate for the bargained-for work. In Penzel, the contractor argued that defective plans and specifications resulted in a 16 month delay for work by its electrical subcontractor.  The court, applying Spearin to Missouri law, remanded the case to the trial court holding that Penzel presented sufficient evidence that a genuine dispute of material fact exists as to whether the school district breached its contract by providing contractor with defective plans and specs.law_money_10

Furthermore, while the contractor argued for, and the court rejected the “total cost” method in determining its damages (the total cost to fulfill the contract less the bid amount), the court did agree that the “modified method” which deducts from the total cost any amounts due to plaintiff/contractor errors. So if the contractor can prove the damages with reasonable certainty, the following four factors are applied in determining damages:  1) the nature of the losses makes it impractical to prove actual losses directly, 2) the plaintiff’s bid was realistic, 3) the plaintiff’s actual cost was reasonable, and 4) the plaintiff was not responsible for the added expenses.

For more information, please contact Dawn Humphreys at dhumphreys@sandbergphoenix.com, (314)-425-416 or another member of Sandberg Phoenix & von Gontard, P.C.’s Construction Industry Team.

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