By Michael C. Loulakis and Lauren P. McLaughlin
The old adage “with control comes responsibility” is one of the important tenets of construction law. As the words suggest, those who exercise control over some element of the design or construction process are typically found responsible when things go awry with that element, even if there is language to the contrary in the contract.
The reason is twofold: Courts are loath to find fault with a party that had no control over a required material specification, and it would be unfair to let a party that dictated the outcome absolve itself from liability.
A prime example of this theory is found in the Spearin doctrine, a subject discussed in many past columns. Under this doctrine, an owner impliedly warrants to the construction contractor that the design documents it furnishes are accurate and fit for purpose. Try as they might, owners are often unsuccessful in using contract language to get out of this warranty.
This month’s column discusses Tanger Grand Rapids LLC v. Rockford Construction Co., a case that focuses on what happens when an owner takes control over a contractor’s materials. Predictably, the owner lost, despite trying to use contract provisions to shift risks to the contractor.
The case
Tanger was a mall developer and entered into a contract with Rockford for the construction of a parking lot for a new mall Tanger was building in Michigan. The site was previously home to a recreational facility that was fully demolished, leaving behind a stockpile of material. Tanger wanted to use that stockpile on its project to save money.
Tanger hired a civil engineer to design the project and a geotechnical and materials testing consultant to recommend what materials should be used for the base and subbase levels (i.e., the levels below the asphalt surface). The geotechnical consultant’s report recommended either MDOT 22A or MDOT 21AA soil for the base level, and MDOT Class II soil or an “approved equivalent” for the subbase, per the decision. The report clarified that the subbase soil could be “poorly graded sand” with or without silt. Based on this, Tanger, in consultation with its civil engineer, specified MDOT 21AA for the base layer and MDOT Class II for the subbase in Rockford’s construction contract.
The construction contract also contained a “clarifications” exhibit stating that the project site was based on using all on-site materials for subbase materials. The geotechnical consultant had visually inspected the on-site base material and concluded that it met the MDOT 22A standard but not the MDOT 21AA standard. Rockford brought this to the attention of Tanger’s civil engineer and asked if it was acceptable to use the on-site materials for the base. Tanger’s engineer concluded that this was acceptable, as the geotechnical report had found MDOT 22A to be acceptable. As a result, Rockford used the on-site material to build the parking lot.
Four months after Rockford completed the parking lot, the pavement experienced deformities. Rockford performed some repairs, but the deformities only worsened over time. Tanger hired several engineering firms to ascertain why the cracking happened, and it was determined that the on-site materials were not fit to be used as the base or subbase. In short, the materials had an excessive amount of fine particles that trapped water and led to problems when that water froze.
Tanger spent $3 million to repair the lot and sued everyone (Rockford, the civil engineer, and the geotechnical consultant) in federal district court. Rockford successively moved for summary judgment, and Tanger appealed to the 6th U.S. Circuit Court of Appeals.
The ruling
Tanger’s arguments on appeal all focused on its view that Rockford breached specific provisions of the construction contract. The appeals court rejected each argument, and in doing so was heavily influenced by Tanger’s concession during the trial that it had required Rockford to use on-site materials. As noted at the end of the decision, “Several mistakes were made on Tanger’s parking lot project. But under the terms of the contract, Rockford didn’t make them.”
Tanger’s first argument was that Rockford breached the contract by providing improper materials. However, the appeals court concluded that there was nothing in the contract that required Rockford to provide the project’s materials, as the materials were already on-site and it was expected that Rockford would use them. The contract required only that Rockford perform the project in accordance with the contract documents, which specified that the on-site materials would be used.
Tanger next argued that the contract specifications required Rockford to hire an independent material testing firm and that had it done so, that firm would have identified the on-site material’s inadequacy. However, Tanger based this argument on a specification developed by its civil engineer that was never included in the contract documents listed in the construction contract. In rejecting this argument, the court specifically highlighted the “integration” clause in the construction contract that stated that the contract documents contained the entire agreement between the parties and superseded any prior negotiations or agreements between the parties.
Tanger’s next argument was that Rockford warranted that the work would be “free from defects, except for those inherent in the quality of the Work the Contract Documents require or permit.” In assessing this argument, the court considered whether the on-site material’s excessive fines content was an “inherent” defect. The court determined that it was an inherent defect, stating: “Rockford, after all, didn’t do anything to increase the fines content. It simply used the soil (the geotechnical consultant) said satisfied the specifications.”
Tanger tried to argue that Rockford’s ability to use on-site materials was “conditioned upon such materials being suitable,” per the decision. However, the court found no contractual provision imposing such a condition, nor did it find anything that obligated Rockford to make the suitability determination. Tanger’s assertion was contrary to the evidence, as representatives from both Tanger and its civil engineering firm explained that responsibility for adequate material testing resided with the geotechnical consultant and that the project team could rely upon the consultant’s determination that the materials were suitable.
The analysis
While this case seems fairly straightforward, it raises a major question: Why did Tanger’s geotechnical consultant agree that the on-site materials were suitable base and subbase material? Consequently, although Rockford is dismissed from the case, the civil engineer and geotechnical consultant will have to justify their conduct. The 6th Circuit Court’s opinion made it clear that Tanger as the owner was driving the decision-making process, looking to take economic advantage of the spoils from the demolition that were stockpiled on the site. However, there must be more to the story, as it is hard to believe that both professionals would simply agree with the owner without having considered whether those materials would suffice.
In this regard, the decision stated that there was no evidence suggesting Rockford could have identified the fines in the stockpile systems without more testing. Testimony from the geotechnical consultant stated that the only way to classify the on-site materials was to conduct a sieve analysis and that the geotechnical consultant had sole responsibility for testing.
We often write about the importance of limitation of liability clauses in design professional contracts. This case involved $3 million in corrective work and expensive appellate litigation. If there is a limitation of liability clause in either the civil or geotechnical engineering firms’ contracts, which would not be unusual, these clauses would certainly impact what Tanger can recover from them.
Michael C. Loulakis ([email protected]) is the president and CEO of Capital Project Strategies LLC in Reston, Virginia. Lauren P. McLaughlin ([email protected]) is a partner of Smith, Currie & Hancock LLP in Tysons, Virginia.
This article first appeared in the July/August 2024 issue of Civil Engineering.
