When disclaimers are inaccurate

It is common for bid documents to give the potential bidder information about the site. Frequently, this is a soils report or soil borings, or information about where spoils can be disposed of or where fill material can be found. This information is given to the bidder to keep the cost down to the owner, either by taking some of the risk out of the job or letting the bidders know that there is a place

It is common for bid documents to give the potential bidder information about the site. Frequently, this is a soils report or soil borings, or information about where spoils can be disposed of or where fill material can be found.

This information is given to the bidder to keep the cost down to the owner, either by taking some of the risk out of the job or letting the bidders know that there is a place to get for free what otherwise they would have to pay for.

In just about every case that I’ve seen, all these bidding documents contain big, fat “DISCLAIMERS” in bold print warning the bidders that they are not to rely on the information.

Typically, they will say something like: “The data contained in this section are for information only. The [city/school board/county] does not guarantee the accuracy or completeness of the data. Bidders are encouraged to perform their own site investigation and expected to make their own assessment of the site.”

Until recently, this kind of language was enough to get the owner off the hook when later it turned out that the site was nothing like what the information indicated. The tide has begun to turn.

It started innocently enough when the Supreme Court issued a decision saying that an owner is liable when it “makes positive statements of material facts concerning the nature of the work in question, when those facts are false.” United States v. Spearin, 248 U.S. 132 (1918).

To avoid being responsible for data given to bidders, the U.S. Government (which has already been at the forefront of construction issues) began the trend of using disclaimers: giving the information to bidders but telling them that they couldn’t blame the government if it turned out to be wrong.

Courts didn’t like the whole idea. They attacked the vagueness of the disclaimers being used. General disclaimers weren’t good enough.

“[A]bsent a disclaim specifically disclaiming responsibility for the contested information, general disclaims will not absolve [the owner] for positive and material representations upon which the contractor had a right to rely.” Western States Mechanical Contractors Inc. v. Sandia Corp., 798 P.2d 1062, 1065 (N.M.App. 1990).

This became the law in state after state. Robert E. McKee Inc. v. City of Atlanta, 414 F. Supp. 957, 959 (N.D.Ga. 1976); Midwest Dredging Co. v. McAninch Corp., 424 N.W.2d 216, 221 (Iowa 1988); Tonkin Construction Co. v. County of Humboldt, 233 Cal. Rptr. 587, 590 (Cal.App. 1987); Jack B. Parson Construction Co. v. State, 727 P.2d 614, 617 (Utah 1986).

What these cases taught owners was not that they had a duty to be accurate, but that they could avoid liability for being inaccurate as long as they were very clear about it.

A recent case out of South Dakota has finally found that even the most specific disclaimer won’t protect an owner when the information it gives a bidder is flat-out wrong, and the owner either knew it or should have known it.

In Morris Inc. v. South Dakota Department of Transportation, 598 N.W.2d 520 (S.D. 1999), the state dot issued a bid package that contained information about the quantity and quality of aggregate which the contractor could expect to find in a nearby borrow pit. The disclaimer in the documents stated: “The information covering the pit for the project is given to you for informational purposes only. The Department of Transportation does not guarantee the quantity or quality of the material listed in the above information.”

Morris, the subcontractor, found that there was almost no aggregate in the pit — other dot contractors had removed it. The information given to the bidders was 10 years old.

The South Dakota Supreme Court found that even this specific disclaimer (which the court seemed to think was “general”) was not enough to shift the risk to the contractor. The court found this because it reasoned that:

“Dot provides this package of information knowing that contractors rely on the information in computing their bids ... dot expects bidders to base their quotes on this information. Through providing a source for aggregates, the State hopes to encourage competition between contractors, which, in turn, results in lower bids.”

Because dot failed to do “even minimal investigation as to the information it was providing to bidders,” the court found that there was reason to question the agency’s good faith and sent the case for a trial.

(Think of it! Punitive damages against a state agency for giving a contractor the wrong information.)

This decision does not totally even the playing field for bidders since it involved some pretty extreme facts. But the noose is tightening around the necks of owners, architects and engineers who throw information at contractors and think that they can avoid responsibility by adding magic words to the bid documents.

Score one for the contractor.