Question

Scenario

Mega Manufacture, Inc. (MMI) decided to build a new factory. It hired AAI, an architectural firm, to create the design. AAI retained a geotechnical firm, Geo-R-Us, Inc., to perform a soil report. AAI used that soil report to design the excavation and foundation specifications.

MMI used the completed design to solicit fixed-price bids from a variety of prime contractors. The design included the excavation requirements and foundation specifications. The advertisement advised that the geotechnical report was available for review at the office of Geo-R-Us and was provided “for information only.”

Prime Builder, Inc. decided to bid on the job. Its president, Mr. Prime, visited the site, which was an empty lot. Mr. Prime was mostly concerned with the logistics of working in the remote location. He examined the foundation design and saw no obvious conflict with the subsurface indications (he saw no boulders or swampy areas), but he did not go to the office of Geo-R-Us to examine the original geotechnical report.

MMI entered into a fixed-price contract with Prime Builder, using American Institute of Architect (AIA) General Conditions of the Contract for Construction, A201-2007. Prime Builder began the excavation work and discovered far more boulders than anticipated. MMI refused to grant Prime Builder additional compensation or time, stating that the construction was Prime Builder’s responsibility.

Within a couple of years, the completed factory developed cracks and sticking doors. When contractor refused to make repairs, MMI sued it for breach of contract and negligence. Prime Builder then brought a third -party complaint against Geo-R-Us. Prime Builder introduced expert testimony as to the causes of the failures.

A geotechnical expert testified that the Geo-R-Us report was defective because too few boring logs were drilled. Specifically, Geo-R-Us failed to take borings from one corner of the lot which contained expansive soil. The foundation designed by AIA was inadequate to deal with this type of soil.

(Chapter 19)

Provide your legal analysis of the following questions.

1) (25%) MMI (owner) used a disclaimer system by an approach that gives the information but states that it is “for information only.” Answer the following two questions.

a) Which party does the disclaimer system put the risk on? owners or the contractors?

b) What are the three drawbacks of the disclaimer system?

2) (25%) The Geo-R-Us report was defective. Can Prime Builder (the contractor) bring a misrepresentation claim?

First, answer Yes or No. Then, briefly explain why.

3) (25%) MMI and Prime Builder used AIA A201-2007, which contains a differing site condition (DSC) clause. Here, Prime builder encountered an unusual number of boulders when it began excavation. Assuming the contractor provided prompt notice, may it bring a Type I DSC claim against MMI? Suppose the geotechnical report warned of boulders in the area.

First, answer Yes or No. Then, briefly explain why.

4) (25%) MMI and Prime Builder used AIA A201-2007, which contains a differing site condition (DSC) clause. Here, Prime builder encountered an unusual number of boulders when it began excavation. Assuming the contractor provided prompt notice, may it bring a Type II DSC claim against MMI? Suppose the geotechnical report warned of boulders in the area.

First, answer Yes or No. Then, briefly explain why.

Answer 1

Answer 1:

a) The risk is on the contractor because through the disclaimer system the owner (MMI) has restricted any claims or any responsibility for any future legal actions or of any other kind of actions against themself or the construction.

b) The three drawbacks of the disclaimer system are as follows:

1. Restricting the risk of the disclaiming party.

2. The information disclaimed must be true, else it will be treated as a misrepresentation.

3. Strong legal consequences will be over the other parties involved in the construction, in case of any default.

Answer 2: Yes, the Prime Builder the contractor can claim misrepresentation against MMI because a disclaimer is the source of information and is treated as a validation from the side of the disclaiming party.

Answer 3: Yes. Supposing if the geotechnical report warned of boulders in the area and still Prime Builder encounters an unusual number of boulders when it began excavation. He can claim against MMI under a Type I DSC. Because according to the Type I DSC claim the aggrieved party can raise the claim in case if the site surface condition deviates substantially from the condition which was represented at the time of bidding.

Answer 4: Yes, because under Type I DSC claim if the contractor encounters any condition which materially differs from the condition mentioned at the time of contract. The contractor has the right to claim damages or any other applicable relief.

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