Not all important terms are written in the contract

With construction cranes growing like tall weeds across the country as we bask in the glow of an economic boom, it is important for project owners to be aware of certain duties and warranties implied upon them under the law. While the written contract with the general contractor will be the touchstone guiding the relationship, there are substantial and important duties imposed upon owners as a matter of law. Even though these duties are not in the contract, these are real and important obligations for the owner to follow. Failure to comply can result in significant liability or a loss of one’s rights.

While a complete discussion of all of the implied duties is beyond the scope of this article, some of the most commonly asserted implied obligations are addressed below.

Implied duty of good faith and fair dealing

Implied in every contract, even construction contracts, is the implied duty of good faith and fair dealing. This means that neither party shall do anything that will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. It is a promise not to interfere with the other party receiving the benefit of the contract they negotiated. While it cannot be used to change the written terms of the contract, it is a powerful tool when the contractor feels that the owner is not playing fair in granting what has been promised under the contract.

Implied warranty of plans and specifications

In the traditional model, the owner supplies plans and specifications to the contractor. When this occurs, the owner warrants that the plans and specifications are adequate, accurate and complete, and if followed, an acceptable result will occur. This is often referred to as the Spearin doctrine. If any of this turns out to be untrue, the contractor is entitled to additional compensation and time. This implied warranty will not protect a contractor if the error was patently obvious.

Implied duty to cooperate and not hinder

There is an implied duty upon the owner to cooperate with the contractor and not hinder performance. This prevents the owner from interfering with the contractor’s means and methods or with its subcontractors. It requires the owner not to create obstacles to performance and to remove such obstacles if it is within their power. In general, owners should avoid interfering in the contractor’s planned progression of the work.

Implied duty to disclose important information

An owner cannot withhold important information from the contractor. There is an implied duty to disclose to the contractor anything that the owner knows that directly or indirectly could materially affect the costs or time required for the project. A breach of this duty is commonly known as a superior knowledge claim. It applies during bidding and during performance.

Implied duty to timely review contractor submittals and requests

Contracts often require a contractor to tender submittals or get a written change order before changing work. Even if the contract is silent, there is implied obligation on the owner to act reasonably promptly in reviewing and approving such requests. Failure of the owner to timely act amounts to owner-caused delay for which the contractor is not liable and may be the basis for additional compensation.

Implied warranty of adequate time

The owner often includes in a contract a date certain for completion or a specified number of days to complete the work. There is an implied warranty that the contractor can actually complete the work in the given time as it is required to be reasonably possible. This issue often arises when the project is late and is used as a defense against liquidated damages or actual damages for delay.

Other well-known implied duties and warranties address owner supplying access, owner supplied materials being adequate, owner providing necessary items within their control, owner duty to timely inspect, and owner duty to coordinate multiple contractors.

While the contract will always be the central document covering the relationship between an owner and general contractor, it is not a complete recitation of all duties placed on the owner or warranties made by the owner. Implied duties and warranties are created by law and, by their very nature, arise from heavily litigated issues where ideas of fundamental fairness and reasonableness have caused courts to create and impose protections in favor of the contractor against the owner.

They are reasonable protections for the contractor. A wise owner will be aware of and act in conformance with these implied obligations. An owner who acts fairly and reasonably with its contractor will most likely never run afoul of such implied obligations. As always, this is a general summary of the law, and owners should work with a trusted construction lawyer when issues arise that cause the contractor to seek additional funds or time. Failure to do so could result in one being accused of violating a duty or a warranty without prior knowledge of them.

David Bowser is a construction law attorney and shareholder at Jordan Ramis PC. Contact him at 503-598-5581 or [email protected]. This article is intended to inform readers of general legal principles. For help addressing specific situations, consult with competent counsel.