Sole-source specs: risky for designers, owners

I AM SURE that every contractor and vendor has encountered the frustration of finding a specification that limits acceptable products too much. If your firm makes or sells excluded products, you have lost out on potential sales. If you are a mechanical contractor, you could be forced to do business with a vendor who won't agree to your payment, warranty, insurance, delivery or other terms, because

I AM SURE that every contractor and vendor has encountered the frustration of finding a specification that limits acceptable products too much. If your firm makes or sells excluded products, you have lost out on potential sales. If you are a mechanical contractor, you could be forced to do business with a vendor who won't agree to your payment, warranty, insurance, delivery or other terms, because it doesn't have to. Sometimes there is enough at stake to make it worthwhile to go to court to try to do something about the practice.

I came across two different court decisions in the last month in which the excluded manufacturer or vendor filed suit against people — the project owner, the designer, the competitor — claiming that a specification restricted the contractor to providing what was, in essence, only one product. Although in each case, the manufacturers raised lots of claims that were not successful, they also raised some that kept their foot in the courthouse's door.

In Major Industries Inc. v. Krech, Ojard & Associates Inc., 2004 WL 2940912 (Minn. App. 12/21/04), a Minnesota court decided that the supplier could not sue the architect under a state competitive bidding statute (since that statute was for the benefit of the public, not private parties) or for negligence (since the architect didn't owe the supplier any duty). It could, however, sue for "tortious interference with a prospective business relationship." The court said the manufacturer would have to prove that the product did, in fact, meet the objective criteria of the specs but was nevertheless rejected for no good reason.

In Brownsburg Community School Corp. v. Natare Corp. 824 N.E. 2d 336 (Ind. 2005), the Supreme Court of Indiana held that the school district could not be sued for antitrust violations for issuing a proprietary specification (because a public entity can't be liable for antitrust violations). The excluded supplier, however, could sue the architect and the other manufacturer for antitrust conspiracy, where the architect allowed the other manufacturer to actually draft the specification requirements.

Protests are hard to win against public agencies.

I have seen many instances like the one in the Brownsburg case where the designer basically allowed a sales engineer for a manufacturer to write a specification, often because the product in question was a special, technical one with which that designer wasn't all that familiar. Where this happens, however, the designer has an obligation to make sure that the final specification section ends up being written around the salesman's particular product — or at least to be able to clearly justify why this is necessary.

The designers are often in a tough spot: They want to see to it that their clients get top quality and not just the cheapest price. Being very specific in specifying products is one way to achieve this. Going too far, however, brings as many problems. It could be that in both of the court cases mentioned above, the designer will be able to show legitimate reasons for its decision, but having to do this in court is never a preferred way to go. And now the designer is the one being sued.

Historically, most attacks on proprietary or exclusionary specifications were made through bid protests against the owner. These protests are very technical in nature. The people or firms making the protest may have to show "standing" as a taxpayer in the jurisdiction. Protests are hard to win against public agencies, which get the benefit of the doubt in almost all cases. Protests generally have to be brought before the award is made, and often the excluded vendor doesn't even know about the problem in time to do this.

For all these reasons (not to mention that it avoids having to sue the owner, whom a contractor or vendor hopes to do business with in the future), suing the designers may be an easier way of getting the point across:

  • It focuses on an entity or person who is paying his own legal fees (or his insurer is), rather than on a government that is being represented by the city/county/school district attorney.
  • The suit doesn't have to be brought as quickly as a bid protest action.
  • There are a lot more "creative" claims that can be made, like those allowed in the two cases mentioned above.

Such a suit can certainly intimidate a designer, who is not (usually) profiting from the restrictive specification. If going to the effort to try to protect its client by setting high standards for products is just going to result in a lawsuit, why bother? If the owner insists on certain products, it would seem that the designer might want to document this insistence so that he can keep the bull's-eye painted on the owner's back, and not his own.

Susan McGreevy is a partner at Husch & Eppenberger, Kansas City, Mo., tel. 816/ 421- 4800, e-mail to susan. [email protected].

TAGS: Law