Moving from Mastec to Metcalf - Publication Version

Official Publication of the Construction Law Section of the State Bar of Texas • www.constructionlawsection.org
Volume 13, Number 1
IN THIS ISSUE:
MOVING FROM MASTEC TO METCALF
TO COMPEL OR NOT TO COMPEL:
NON-SIGNATORIES TO ARBITRATION AGREEMENTS
LIEN RIGHTS OF QUANTUM MERUIT CLAIMANTS
HOA REFORMS: TEXAS AND BEYOND
REMOVEABLE IMPROVEMENTS 101
Construction
Law Journal

7
C o n s t r u c t i o n L a w J o u r n a l
BY: SEAN M. McCHRISTIAN1
contract to determine who bore the risk of obstacles in
the pipeline’s path.3
Specifically, the MasTec court had
to examine the effect of the contract’s risk-allocation
provisions in light of due-diligence specifications under
which the pipeline owner was required, but failed,
to provide accurate and complete information to the
contractor regarding the location of foreign crossings that
impacted the costs of construction.4
The Texas Supreme
Court recognized the tension between the owner’s due-
diligence requirements and the contractual risk-allocation
provisions, but ultimately held the contract placed the
risk of undiscovered foreign crossings on the contractor.5
In reaching this decision, the Texas Supreme Court relied
on Lonergan v. San Antonio Loan & Trust Co., a case from
1907 in which the court held an owner does not impliedly
warrant the sufficiency of its plans and specifications.6
In Metcalf Construction Co. v. United States, the United
States Court of Appeals for the Federal Circuit was faced
with a similar question, but reached a decidedly different
conclusion.7
In Metcalf, the government provided the
contractor with a government-commissioned report
“for preliminary information only” that indicated the
soil at the site had a slight expansion potential, but the
contract also required the contractor to conduct its own
independent soil investigation once work commenced.8
After work began, the contractor’s study determined that
the soil’s swelling potential was “moderate to high,” not
“slight” as the pre-bid government study had said, and the
contractor sought an increase in the contract price due to
the additional costs it would have to incur in light of the
conditions at the site.9
The government largely rejected
the request, claiming the contractor was not entitled to
rely on the pre-bid information and was obligated to
bear the risk and costs of dealing with newly discovered
conditions.10
The Federal Circuit, however, disagreed and
held that nothing in the contract’s general requirements to
check the site expressly or implicitly warned the contractor
that it could not rely on, and instead bore the risk of error
in, the government’s affirmative representations about
MOVING FROM MASTEC
TO METCALF
In El Paso Field Services, L.P. v. MasTec North America,
Inc., the Texas Supreme Court observed that in every
construction project, someone has to bear the risk of loss
of additional costs arising from defects or deficiencies
in the plans or specifications provided by the owner.2
In certain cases, the risk of loss is clearly allocated to
one party in the contract documents, but in others, the
allocation of risk is much less clear. The owner may provide
the contractor with a survey or a geotechnical report
which was used during the design or engineering phase
with the understanding that the contractor will use the
information to develop its bid and construct the project,
but at the same time, the owner may disclaim all liability
arising from the contractor’s reliance on the information.
In other cases, general clauses are inserted into a contract
that require the contractor to examine the site, to check
the plans, and to assume all responsibility for the work,
but these contractual requirements may exist alongside
other provisions that expressly authorize a contractor to
seek an extension of time or an increase in the contract
amount in the event it encounters changed conditions or
its work is otherwise impacted by defects or deficiencies
in the plans or specifications. The question thus becomes
how to resolve the tension inherent in a construction
contract that includes disclaimers of liability arising from
reliance on information provided by the owner, requires
the contractor to examine the site, to check the plans, and
to assume all responsibility, but authorizes the contractor
to seek an extension of time or an increase in the contract
amount if it encounters changed conditions or is otherwise
impacted by the owner’s plans or specifications.
In MasTec, the Texas Supreme Court was asked
to harmonize provisions in a pipeline construction
1
Sean McChristian is an Associate at Porter Hedges LLP and is a member of the firm’s Construction Law Group. His practice is focused on representing contractors, subcontrac-
tors, suppliers, sureties, design professionals, construction managers, lenders and owners in construction disputes. Sean would like to thank Allison Snyder and Fred Wilshusen
for their invaluable assistance with this paper.
2
389 S.W.3d 802, 811–12 (Tex. 2012).
3
Id. at 803.
4
Id.
5
Id. at 807.
6
Id. at 811 (citing Lonergan v. San Antonio Loan & Trust Co., 104 S.W. 1061 (Tex. 1907)).
7
742 F.3d 984 (Fed. Cir. 2014).
8
Id. at 988.
9
Id.
10
Id. at 995.

8
the soil conditions.11
In arriving at this conclusion, the
Federal Circuit relied on a federal body of case law that
finds its underpinnings in United States v. Spearin, a
decision issued by the United States Supreme Court in
1918 in which the Court reached the opposite conclusion
of the Lonergan court, holding that an owner does in
fact impliedly warrant the sufficiency of its plans and
specifications.12
The differing conclusions in MasTec and Metcalf
make sense in the context of the historical differences
between Texas and federal case law in this area, but that
does not mean the MasTec court got it right from a policy
perspective. This article discusses the development of the
different approaches to risk allocation, discusses MasTec
and Metcalf, and concludes with the policy reasons why
Texas should move away from MasTec and Lonergan and
towards Metcalf and Spearin.
LONERGAN
The current Texas approach to risk allocation finds its
genesis in a decision issued by the Texas Supreme Court
in 1907. In Lonergan v. San Antonio Loan & Trust Co.,
the contractor agreed to construct a building pursuant
to plans and specifications furnished by the owner and
prepared by the owner’s architect.13
The contractor
moved forward with construction of the building, but as
construction neared completion, the building collapsed.14
The contractor refused to rebuild the building and
abandoned the project.15
The owner sued the contractor for failing to replace
and rebuild the structure, claiming it was damaged in
the amount of the funds paid for the work and material
furnished to the project up to the time of the collapse.16
In
response, the contractor argued it was excused from further
performance under the contract because the building
collapse was caused solely by defects in the plans and
specifications furnished by the owner and by other errors
and omissions of the owner’s architect.17
The contractor
also counterclaimed for the outstanding amounts owed
for work and material furnished to the project prior to
the collapse.18
The trial court and intermediate appellate
court rejected the contractor’s claims and the case was
submitted to the Texas Supreme Court.
The Texas Supreme Court identified the key issue on
appeal as whether the contractor was obligated to rebuild
the structure, or repay all funds received from the owner,
if the building collapsed due to fatal defects inherent in
the plans and specifications and not because of any error
or omission by the contractor.19
Thus, the Texas Supreme
Court had to determine whether the owner guaranteed
the sufficiency of the plans and specifications such that
the owner’s breach of the implied guarantee excused the
contractor from further performance.
The Texas Supreme Court ultimately rejected
the contractor’s contention that the owner impliedly
guaranteed the sufficiency of the plans and specifications.20
According to the court, the owner merely submitted the
specifications to bidders for inspection and for their own
determination as to whether or not they were willing to
bind themselves to construct the building in accordance
with the specifications as prepared.21
The bidding
contractors were required to exercise their own judgment,
and if they were not competent to judge for themselves,
the bidding contractor had the duty to protect its interest
by procuring such aid as was necessary to evaluate the plans
and specifications.22
In the court’s view, there was no more
reason to hold the owner responsible for alleged defects
in the specifications that it did not discover than there
was to hold the contractor bound by its acceptance of the
defective plans.23
The court concluded that by contracting
to construct the building according to the furnished
specifications, the contractor implied that it understood
the plans.24
Thus, the court held that the owner was not a
guarantor of the sufficiency of the specifications as a legal
11
Id. at 995–96.
12
248 U.S. 132, 137 (1918).
13
104 S.W. 1061, 1061–62 (Tex. 1907).
14
Id.
15
Id. at 1062.
16
Id. at 1064.
17
Id. at 1062.
18
Id.
19
Id. at 1064.
20
Id. at 1066.
21
Id. at 1065.
22
Id.
23
Id.
24
Id.
M OVING FROM MASTEC TO METCALF

9
consequence of submitting them for bids on the work and
entering into the contract.25
After finding the owner did not impliedly guarantee
the sufficiency of the plans, the court examined whether
there was an express guarantee of the plans in the governing
contract, but was unable to find such a provision.26
Therefore, the court concluded:
We are of [the] opinion that [the contractor],
having failed to comply with [its] agreement to
constructandcompletethebuildinginaccordance
with the contract and the specifications, must be
held responsible for the loss, notwithstanding
the fact that the [building] fell by reason of
its weakness arising out of [the] defects in the
specifications and without any fault on the part
of the builder.27
Consequently, according to the Lonergan court, in the
absence of an express contractual warranty running from
the owner to the contractor that the plans were sufficient to
construct the building, the contractor bears the risk of all
losses arising from defects in the plans and specifications.
SPEARIN
Eleven years after Lonergan, the U.S. Supreme
Court was faced with a similar question in United
States v. Spearin,28
but came to an entirely different
conclusion. In Spearin, a contractor agreed to build a
dry dock at the Brooklyn Navy Yard in accordance with
plans and specifications prepared and furnished by the
government.29
The site selected by the government was
intersected by a six-foot brick sewer and it was necessary
to divert and relocate a section of the sewer before the
work could begin.30
The plans and specifications provided
that the contractor should do the work and prescribed
the dimensions, material, and location of the section to
be substituted.31
The contractor performed the work in
accordance with the government’s plans and specifications,
and the government accepted the work.32
Approximately a year after the contractor completed
the sewer relocation, the relocated sewer section broke
during a heavy rain event that coincided with high
tide, flooding the excavation of the dry dock.33
During
the subsequent investigation, it was discovered that
a previously unknown dam in an adjacent sewer had
diverted large amounts of water into the relocated sewer,
increasing the internal pressure in the sewer and causing
the break.34
Promptly after the flood and the discovery of the dam,
the contractor notified the government that it considered
theexistingsewers“amenacetothework”andthatitwould
not resume operations unless the government assumed
responsibility for the damage and either made changes in
the sewer system or assumed responsibility for any future
damage caused by the insufficient capacity and the location
and design of the existing sewers.35
The government,
however, took the position that the contractor was
responsible for remedying existing conditions at the site.36
After fifteen months of investigation and correspondence
on this issue, the government annulled the contract and
took possession of the plant and materials on the site.37
Thereafter, the government repaired and rebuilt the sewer,
modifying the size, shape and material so as to prevent
further breaks from internal pressure.38
The dry dock
was then completed by other contractors under radically
changed and enlarged plans.39
At the time the contract was annulled, the contractor
had expended roughly $210,000.00 completing the work,
but the government had paid the contractor less than
$130,000.00 and refused to make any further payments.40
The contractor filed suit and was awarded damages, and
25
Id.
26
Id. at 1066.
27
Id.
28
248 U.S. 132 (1918).
29
Id. at 133.
30
Id.
31
Id. at 133–34.
32
Id. at 134.
33
Id.
34
Id.
35
Id. at 135.
36
Id.
37
Id.
38
Id.
39
Id.
40
Id.

10
the government appealed.41
On appeal, the government argued, in a Lonergan-
esque fashion, that the contractor was barred from
recovery because the contractor bore the risk of loss during
construction.42
The U.S. Supreme Court disagreed,
stating:
Where one agrees to do, for a fixed sum, a
thing possible to be performed, he will not
be excused or become entitled to additional
compensation, because unforeseen difficulties
are encountered. Thus one who undertakes to
erect a structure upon a particular site, assumes
ordinarily the risk of subsidence of the soil. But
if the contractor is bound to build according
to plans and specifications prepared by the
owner, the contractor will not be responsible
for the consequences of defects in the plans and
specifications. This responsibility of the owner
is not overcome by the usual clauses requiring
builders to visit the site, to check the plans, and
to inform themselves of the requirements of the
work[.]43
The Spearin court then explained that the risk of the
existing system proving adequate might have rested upon
the contractor if the contract for the dry dock had not
containedplansforrelocationofthesewer,buttheinsertion
of the articles prescribing the character, dimensions,
and location of the sewer into the contract gave rise to
an implied warranty that the sewer would be adequate
if the contractor complied with the specifications.44
The
Court then reiterated that this implied warranty is not
overcome by general clauses in a contract requiring the
contractor to examine the site, to check the plans, and to
assume responsibility for the work until completion and
acceptance.45
Consequently, the Spearin court held the
contractor was under no obligation to repair the sewer
and proceed with the work while the government denied
responsibility for providing sewer conditions safe for the
work, and the contractor was entitled to compensation for
the government’s wrongful termination of the contract.
REFINEMENT OF SPEARIN
Since the issuance of Spearin, courts at the federal and
state levels have further refined the doctrine announced
in Spearin to encompass two specific implied warranties:
(1) the implied warranty of accuracy and (2) the implied
warranty of suitability. The implied warranty of accuracy
means that the owner warrants the accuracy of the matters
set forth in the contract documents.46
For example, the
owner may warrant the subsurface conditions at the
project, or that the contractor will be provided access to
the project site by a specific date, or that water or electrical
power are available. Thus, no matter whether the owner
made the statements and representations regarding the
conditions at the job site in good faith, if they turn out
to be untrue, the contractor may recover any extra costs
incurred as a result of the error. The implied warranty of
suitability means that the owner guarantees that if the
contractor adheres to the plans and specifications, the
contractor will produce a structure that is satisfactory
and suitable for its intended use.47
An owner breaches the
impliedwarrantyofsuitabilitywhenacontractoraccurately
follows the plans and specifications to completion, yet
the construction either cannot be completed as directed
or results in deficiencies.48
For example, the plans and
specifications may require the installation of a certain type
of foundation, which the parties later discover causes the
structure to settle excessively or unevenly, compromising
the structural integrity of the building. If this occurs, the
contractor will be excused from liability due to the owner’s
breach of the implied warranty of suitability.
TEXAS AFTER SPEARIN
The conflicting holdings in Lonergan and Spearin set
the stage for a split in authority by Texas courts related to
the liability of an owner versus a contractor for defective
plans and specifications, with some courts following
Lonergan while others adopted a Spearin-type approach.
LONERGAN PROGENY IN TEXAS
The Lonergan decision was followed by several
courts over the years. For example, in McDaniel v. City
of Beaumont,49
the contractor sued for additional costs
41
Id.
42
See id. at 136–37.
43
Id. at 136 (citations omitted).
44
Id. at 137.
45
Id.
46
D.F.K. Enterprises, Inc. v. United States, 45 Fed. Cl. 280, 285 (Fed. Cl. 1999).
47
See AAB Joint Venture v. United States, 75 Fed. Cl. 414, 428–29 (Fed. Cl. 2007); Franklin Pavkov Constr. Co. v. Roche, 279 F.3d 989, 994–95 (Fed. Cir. 2002); Essex Electro
Eng’rs, Inc. v. Danzig, 224 F.3d 1283, 1289 (Fed. Cir. 2000); Stuyvesant Dredging Co. v. United States, 834 F.2d 1576, 1582 (Fed. Cir. 1987).
48
See AAB Joint Venture, 75 Fed. Cl. at 428 (citing Spearin, 248 U.S. at 136; Franklin Pavkov Constr. Co., 279 F.3d at 994–95; Essex Electro Eng’rs, Inc., 224 F.3d at 1289.
49
92 S.W.2d 552 (Tex. Civ. App.—Beaumont 1936, writ ref’d n.r.e.).

11
arising out of redoing defective work because of inaccurate
plaster specifications. In addressing the issue of whether
the owner of a construction project has any responsibility
for defective plans and specifications, the McDaniel court
stated:
On the facts alleged appellants contend that
appellee “warranted” the sufficiency of the
plaster specifications, and that, if executed in
the manner explained by the superintendent of
construction and the architects, and under their
instructions, the specifications would produce an
“Acme finish troweled to a hard surface and free
from all defects.” This proposition is not the law
of Texas. The owner has the right to submit to
prospective bidders any character of plans and
specifications for the erection of his building. The
bidder himself must know the nature of the plans
and specifications, and must decide for himself
whether or not, by the due execution of the plans
and specifications, he can erect and deliver to the
owner the character of building called for by the
contract. It is a simple matter of contract; the
bidder has agreed to erect the building--the very
building--upon which he submitted his bid, by
the use of certain specific materials and according
to specific plans and specifications. The owner
does not warrant that the materials and plans
and specifications will produce the building;
that fact the bidder must decide for himself and
at his peril. There is no law compelling him to
submit his bid but, if he bids, he must execute his
contract or respond in damages. The law of this
proposition was so clearly stated by our Supreme
Court [in Lonergan] that no useful purpose could
be served by quoting therefrom.50
Similarly, the Fourteenth Court of Appeals
followed Lonergan in Emerald Forest Utility District v.
Simonsen Construction Company, Inc.51
In that case, the
contractor agreed to construct an underground sewer
system according to plans furnished by the owner.52
The
instructions to bidders stated in part:
Bidders should carefully examine the Plans,
Specifications and other documents, visit the
site of the work, and fully inform themselves as
to all conditions and matters which can in any
way affect the work or costs thereof. Should a
bidder find discrepancies in, or omissions from
the drawings, specifications or other documents,
or should he be in doubt as to their meaning and
intent, he should notify the Engineer at once and
obtain clarification prior to submitting a bid. The
submission of a bid by bidder shall be conclusive
evidence that the bidder is fully acquainted and
satisfied as to the character, quality and quantity
of work to be performed and materials to be
furnished.53
During construction, the contractor encountered very
wet sand conditions, and after the contractor completed
the work, the sewer lines failed.54
The owner sued the
contractor, but the trial court found that the owner
warranted that the plans and specifications would be
sufficient for the construction of the sewer line, and the
jury concluded that the lines failed because the design
provided by the owner was insufficient.55
The Fourteenth
Court of Appeals, though, reversed the trial court, applied
Lonergan, and found that:
[The contractor] agreed to investigate and
exercise its independent judgment concerning the
conditions of the work site and the potential effect
of the conditions on the quality and quantity of
work to be performed and the materials to be
furnished. [The contractor] had opportunity
prior to the submission of its bid to discover that
the design of the sewer system was insufficient.
In these circumstances, [the contractor] assumed
the risk that the design was insufficient. The
fact that the engineer misjudged the conditions
of the work site causing the specifications to be
insufficient does not relieve [the contractor] of its
obligation to deliver a working sewer system free
from defects.56
Similar analysis appears in multiple cases decided over the
years, with some cases citing directly to Lonergan while
others repeat the principles of Lonergan as set forth in later
50
Id. at 561.
51
679 S.W.2d 51 (Tex. App.—Houston [14th Dist.] 1984, writ ref'd n.r.e.).
52
Id. at 52.
53
Id. at 53.
54
Id. at 52.
55
Id.
56
Id.

12
cases.57
TEXAS CASES THAT MIRROR THE SPEARIN
DOCTRINE
Notwithstanding the Lonergan progeny, a parallel line
of cases developed over the years that aligned with Spearin.
This line of cases can be traced to Newell v. Mosley.58
In that
case, the owner sued the contractor for failing to construct
his house.59
The contractor defended on the basis that the
plans and specifications given to him by the owner and
drawn by an independent architect were deficient.60
The
contractor brought the problem to the owner’s attention;
however, the owner refused to approve an alteration to
the house plan, which would have added $1,500 to the
cost of construction.61
Upon the refusal of the contractor
to proceed further, the owner sued the architect and the
contractor.62
In affirming an instructed verdict in favor
of the contractor, the court addressed the issue of who
bore the risk for defective plans and specifications.63
In articulating its judgment, the Newell court ignored
Lonergan and cited to the Corpus Juris Secundum for the
proposition that:
Subject to some exceptions, if a party furnishes
specifications and plans for a contractor to follow
in a construction job, he thereby impliedly
warrants their sufficiency for the purpose in view,
particularly, if the party furnishing the plans is
the owner. . . .64
Thus, the Newell court rejected the owner’s contention
that the contractor acted negligently by not determining
whether the house could be built according to the plans
and specifications prior to entering into the contract to
build the house.65
The Newell analysis was echoed in City of Baytown v.
Bayshore Constructors, Inc., when the court held that the
“failure of an owner to provide correct or adequate plans
and specifications as are necessary to carry out the work
required by a contract constitutes a breach of the contract
and the contractor is entitled to recover its damages
resulting from the breach.”66
Further, at virtually the same
time it was deciding Emerald Forest, the Fourteenth Court
of Civil Appeals in Houston issued its opinion in Shintech
Inc. v. Group Constructors, Inc.67
Shintech reaffirmed
the holding in Newell that the owner bears the risk of
defective plans and specifications:
More specifically, we reject appellant’s contention
that appellee assumed the risk of defective
specifications. We find no evidence that appellee
had knowledge of defective specifications prior to
beginning its work. Where the contract is silent on
the subject, there is an implied warranty that the
plans and specifications for a construction job are
accurate and sufficient for the purpose in view.68
Similarly, in Beard Family Partnership v. Commercial
Indemnity Insurance Co., the Third Court of Appeals
stated:
Delay caused by an owner on a construction
project is a breach of contract. An owner impliedly
warrants the adequacy of the plans it supplies
and which it requires its contractor to follow. An
owner breaches its construction contract with its
contractor when the inadequacies of the owner's
plans, obtained through the owner's retained
engineer, cause delay in the completion of the
work.69
Thus, the stage was set for the Texas Supreme Court to
step in and resolve the divergence of the case law in this
area.
MASTEC
In 2012, theTexas Supreme Court was presented with
the opportunity to resolve the Lonergan vs. Spearin issue.
57
See, e.g., City of Houston v. L.J. Fuller, Inc., 311 S.W.2d 285, 290 (Tex. Civ. App. —Houston 1958, no writ); N. Harris Cty. Junior Coll. Dist. v. Fleetwood Constr. Co.,
604 S.W.2d 247 (Tex.Civ.App.—Houston [14th Dist.] 1980, writ ref'd n.r.e.); Granite Constr. Co. v. Tex. Dept. of Transp., No. 03-11-00436-CV, 2012 WL 5974085, at *9
(Tex. App.—Austin Nov. 20, 2012, no pet.) (mem.op.).
58
469 S.W.2d 481 (Tex. Civ. App.—Tyler 1971, writ ref’d n.r.e.).
59
Id.
60
Id. at 482.
61
Id.
62
Id.
63
Id. at 483.
64
Id.
65
Id.
66
615 S.W.2d 792, 793 (Tex. Civ. App.—Houston [1st Dist.] 1980, writ ref’d n.r.e.).
67
688 S.W.2d 144 (Tex. App.—Houston [14th Dist.] 1985, no writ).
68
Id. at 151 (emphasis added) (citing Newell, 469 S.W.2d at 483).
69
116 S.W.3d 839, 847 (Tex. App.—Austin 2003, no pet.) (citations omitted).

13
In El Paso Field Services, L.P. v. MasTec North America,
Inc., the Texas Supreme Court was asked to harmonize
provisions in a pipeline construction contract to determine
who bore the risk of obstacles in the pipeline’s path.70
Specifically, the MasTec court had to examine the effect
of the contract’s risk-allocation provisions in light of due-
diligence specifications under which the pipeline owner
was purportedly required, but failed, to provide accurate
and complete information to the contractor regarding the
location of foreign crossings.71
In MasTec, the owner purchased an eight-inch propane
pipeline that was approximately sixty-eight miles long and
had been constructed in the 1940’s.72
After determining
that the pipeline was too shallow to be safe, the owner
made plans to remove the old pipeline and construct a
new one.73
Before soliciting bids for the project, the
owner hired a survey mapping company to survey the
pipeline route.74
This survey was compiled in the form
of alignment sheets, which showed the locations of 280
foreign crossings along the pipeline’s right-of-way.75
The
alignment sheets were included in a bid package, which
was distributed at a pre-bid meeting to help estimate the
cost of constructing the pipeline.76
Although the alignment sheets showed 280 foreign
crossings, the contractor discovered far more foreign
crossings by the end of the project.77
Many of the
undiscovered foreign crossings required a special weld,
called a tie-in weld, and about ten hours of labor, which
substantially increased the cost of the work.78
The owner,
however, refused to increase the contract price, asserting
that the undiscovered foreign crossings were within the
contractor’s scope of work.79
The contractor filed suit against the owner for breach
of contract and fraud, based on the owner’s failure to
locate 794 unknown foreign crossings and its subsequent
refusal to compensate the contractor for its additional
expenses resulting from the crossings.80
At trial, the jury
was asked whether the owner failed to comply with
the contract.81
To answer that question, the jury was
instructed to consider “whether [the owner] exercised
due diligence in locating foreign pipelines and/or utility
line crossings.”82
The jury answered that the owner failed
to comply with the contract and awarded the contractor
$4,763,890 in damages.83
Additionally, the jury found
that the contractor failed to comply with the contract
by not completing the work required in the contract and
awarded the owner $104,687.09 in damages.84
The owner
moved to disregard the jury’s findings and for judgment
notwithstanding the verdict.85
The owner urged that the
“due[-]diligence” provisions in the contract “did not
involve any future performance but at best constituted
a warranty.”86
The owner further asserted that, regardless
of the due-diligence provisions in the contract, the
contractor disclaimed reliance on any warranty by the
owner regarding foreign pipeline and utility crossings due
to the following language in the contract:
7.1 REPRESENTATIONS AND WARRANTIES
[Contractor] represents and warrants to [Owner]:
…
(e) That its duly authorized representative has
visited the site of the Work, is familiar with
the local and special conditions under which
the Work is to be performed and has correlated
the on site observations with the requirements
of the Contract and has fully acquainted itself
with the site, including without limitation, the
70
389 S.W.3d 802, 803 (Tex. 2012).
71
Id.
72
Id.
73
Id.
74
Id.
75
Id. at 803–04.
76
Id. at 804.
77
Id.
78
Id.
79
Id. at 805.
80
Id.
81
Id.
82
Id.
83
Id.
84
Id.
85
Id.
86
Id.

14
general topography, accessibility, soil structure,
subsurface conditions, obstructions and all other
conditions pertaining to the Work and has made
all investigations essential to a full understanding
of the difficulties which may be encountered in
performing the Work, and that anything in this
Contract or in any representations, statements
or information made or furnished by [Owner]
or any of its representatives notwithstanding,
[Contractor] assumes full and complete
responsibilityforanysuchconditionspertainingto
the Work, the site of the Work or its surroundings
and all risks in connection therewith;
. . . .
(g) That the Contract is sufficiently complete and
detailed for [Contractor] to perform the Work
required to produce the results intended by the
Contract and comply with all the requirements of
the Contract; . . .
. . . .
8.1 CONTRACTOR’S CONTROL OF THE WORK
(a)(7) [Contractor] represents that it has had
an opportunity to examine, and has carefully
examined, all of the Contract documents and has
fully acquainted itself with the Scope of Work,
design, availability of materials, existing facilities,
the general topography, soil structure, substructure
conditions, obstructions, and all other conditions
pertaining to the Work, the site of the Work and
its surrounding; that it has made all investigations
essential to a full understanding of the difficulties
which may be encountered in performing the
Work; and that anything in any of the Contract
documents or in any representations, statements
or information made or furnished by [Owner] or
its representatives notwithstanding, [Contractor]
will regardless of any such conditions pertaining to
the Work, the site of the Work or its surrounding,
complete the Work for the compensation stated
in this Contract, and pursuant to the extent of
[Contractor's] liability under this Contract,
assume full and complete responsibility for any
such conditions pertaining to the Work, the site
of the Work or its surroundings, and all risks
in connection therewith. In addition thereto,
[Contractor] represents that it is fully qualified to
do the Work in accordance with the terms of this
Contract within the time specified.87
The trial court granted the motion and entered a take-
nothing judgment in favor of the owner, finding that the
contract was clear and unambiguous and “allocate[d] the
risk of any additional cost incurred because of foreign
pipeline crossings to [the contractor].”88
In response, the
contractor filed a motion to vacate the judgment, which
the trial court denied.89
The contractor appealed, and the
court of appeals reversed the trial court’s judgment, holding
that the contractor’s commitments and representations
under the contract did not preclude its recovery based
on the jury’s finding that the owner failed to exercise due
diligence in locating the foreign crossings.90
The Texas Supreme Court reviewed the governing
contract and found that it contemplated a joint effort by
the parties.91
The due-diligence specifications, which were
contained in guidelines for the performance of ditching
and horizontal directional drilling, stated:
[The owner] will have exercised due diligence
in locating foreign pipelines and/or utility line
crossings. However, [the contractor] shall confirm
the location of all such crossings and notify
the owner prior to any [ditching or horizontal
directional drilling] activity in the vicinity of the
crossings.92
On the other hand, the contractor agreed that it had
“fully acquainted itself with the site, including without
limitation . . . subsurface conditions, obstructions and all
other conditions pertaining to the Work.”93
It also agreed
that it had “made all investigations essential to a full
understanding of the difficulties which may be encountered
in performing the Work.”94
“In regard to potential work
site conditions, [the contractor] ‘assume[d] full and
complete responsibility for any such conditions pertaining
to the Work, the site of the Work or its surroundings and
all risks in connection therewith.’”95
“All of this was agreed
87
Id. at 806–07.
88
Id. at 805.
89
Id.
90
Id.
91
Id. at 809.
92
Id.
93
Id. at 807.
94
Id.
95
Id.

15
to ‘notwithstanding’ ‘anything in any of the Contract
documents or in any representations, statements or
information made or furnished by [the owner] or [any of]
its representatives.’”96
The Texas Supreme Court recognized the tension
between the due-diligence specifications and the risk-
allocation provisions, but ultimately held that the contract
placed the risk of undiscovered foreign crossings on the
contractor.97
The owner’s initial obligation to exercise due
diligence did not limit the risk allocated to the contractor
for omissions and inaccuracies in the owner’s foreign
crossings information.98
The MasTec court then noted
that Lonergan supports this construction of the contract
because the Lonergan court held that for an owner to
be liable to a contractor for a breach of contract based
on faulty construction specifications, the contract must
contain terms that could fairly imply the owner’s guaranty
of the sufficiency of the specifications.99
The MasTec court
observed that here, as in Lonergan, the owner did not
guarantee the accuracy of the alignment sheets.100
The
owner and the contractor both relied on what the surveyors
were able to locate, with the negotiated provision that
the contractor would confirm the surveyor’s work and
assume the risks of “subsurface conditions, obstructions,
and other conditions pertaining to the Work.”101
The
MasTec court concluded by stating that were it to hold
in the contractor’s favor, and conclude that the owner
must bear the risk of unknown underground obstacles
under the contract, the parties’ risk-allocation agreement
(described above) would be rendered meaningless, a result
which would undermine the longstanding policy of this
state.102
Thus, when presented with the opportunity to
bring Texas law in line with the majority Spearin rule,
the Texas Supreme Court declined and reaffirmed that in
Texas, an owner does not impliedly warrant the accuracy
or the suitability of plans and specifications provided to a
contractor.
METCALF
In Metcalf Construction Co. v. United States, the
United States Court of Appeals for the Federal Circuit
was faced with a similar question, but reached a different,
yet predictable conclusion in light of the Spearin doctrine.
In Metcalf, the government awarded the contractor a
contract to design and build approximately 200 housing
units at Marine Corps Base Hawaii.103
Before the
government issued its initial request for proposals—the
request to which the contractor responded, leading to the
contract—a government-commissioned report found that
the soil at the site had a “slight expansion potential.”104
In outlining construction requirements, the request for
proposals cited that report as relevant to certain features
of the project, such as concrete foundations.105
The
government made clear that its pre-request soil report was
not to be the last word on soil conditions for purposes
of the project.106
A revised request for proposals stated
that the requirements in the “soil reconnaissance report”
were “for preliminary information only.”107
The resulting
contract required that the contractor conduct its own
independent soil investigation, and it incorporated Federal
Acquisition Regulation (FAR) 52.236–2, 48 C.F.R. §
52.236–2, which concerns site conditions that differ
materially from those disclosed in the contract.108
Further,
in a publication written in question-and-answer form, the
government affirmed that the contract would be amended
if the contractor’s post-award independent investigation
turned up soil conditions significantly different from
those described in the government’s report.109
After the contract took effect, the contractor hired
a consultant to investigate the soil, and the consultant
reported that the soil’s swelling potential was “moderate
to high,” not “slight” (as the pre-bid government study
had said), and recommended a course of action to account
for the newly uncovered condition.110
Within days, the
96
Id.
97
Id. at 807.
98
Id. at 810.
99
Id. at 811.
100
Id.
101
Id.
102
Id. at 811–12.
103
Metcalf Constr. Co. v. United States, 742 F.3d 984, 987 (Fed. Cir. 2014).
104
Id.
105
Id.
106
Id. at 988.
107
Id.
108
Id.
109
Id.
110
Id.

16
contractor notified the government.111
Discussions
ensued, delaying construction for roughly a year.112
In
those discussions, the contractor insisted on following
its consultant’s recommendations, while the government
generally insisted on following construction requirements
set out in the original contract.113
Eventually, the contractor decided that the cost of
waiting for the government to approve the recommended
design changes had become too high, and it began to
implement its suggested changes by over-excavating
the soil and replacing it with non-expansive fill, despite
awareness of the risk of proceeding without a contract
modification.114
Ultimately, the government denied that
there was any material difference between the pre-bid
and post-award soil assessments and concluded that no
additional compensation was warranted.115
By that time,
the contractor was about 200 days behind schedule.116
In an effort to get back on track, and in light of the
government’s decision, the contractor decided to start
addressing the expansive-soil issue through the use of
post-tension concrete, which was more expensive than
ordinary concrete but would avoid the additional time
and cost of continuing to over-excavate the soil and
import non-expansive fill.117
The contractor filed a claim with the government’s
contracting officer, which was denied.118
The contractor
then brought suit in the Court of Federal Claims, and the
government counterclaimed for liquidated damages.119
The court rejected many of the contractor’s arguments,
including that the government breached the contract by
not granting a change order for the expansive soil issue,
which would have nullified, in part, the government’s
liquidated damages claim.120
Ultimately, the court entered
final judgment for the government in the amount of
$2,401,315.41.121
On appeal, the contractor argued that that the trial
court misinterpreted several contract provisions related
to its claim and the Federal Circuit agreed.122
The
court observed that the request for proposals and pre-
bid documents set out an understanding of how FAR
52.236–2, 48 C.F.R. § 52.236–2, which concerns site
conditions that differ materially from those disclosed in
the contract, would be applied to soil conditions.123
For
swelling potential, the request for proposals incorporated
representations about the site and anticipated that the
contractor would test and investigate the soil in the
process of performance.124
But the court also noted that
a pre-bid question-and-answer stated in plain terms that
material deviations from the government’s report on
swelling potential would be dealt with by change order.125
The Metcalf court then stated that the trial court
interpreted the pre-bid site representations and related
request for proposals provisions to be nullified by
the contractor’s investigative responsibilities during
performance.126
With respect to expansive soils, the
trial court held that a reasonable contractor reading
the contract documents as a whole would not interpret
them as making a representation as to the site conditions
because the contract required the contractor to conduct
an independent soil analysis and so the contractor was on
111
Id.
112
Id.
113
Id.
114
Id.
115
Id.
116
Id.
117
Id.
118
Id. at 989.
119
Id.
120
Id. at 990.
121
Id.
122
The contractor also argued that the government breached the implied duty of good faith and fair dealing. Id. at 992–94. The Federal Circuit found that the trial court’s
decision rested on an unduly narrow view of the duty of good faith and fair dealing. Id. at 992. The Federal Circuit clarified that a breach of the implied duty of good faith and
fair dealing does not require a violation of an express provision in the contract, and remanded the question of whether the government breached the duty of good faith and fair
dealing for reconsideration under the broader standard reflected in the decision. Id. at 993–94. This section of the opinion is not discussed here because the Texas Supreme Court
has declined to impose an implied duty of good faith and fair dealing in every contract, though it has recognized that such a duty may arise as a result of “a special relationship
between the parties governed or created by a contract.” Arnold v. Nat’l Cty. Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987); English v. Fischer, 660 S.W.2d 521, 522
(Tex. 1983). Such “special relationships” have been found to arise where contractual relationships are marked by shared trust or an imbalance of bargaining power. See FDIC v.
Coleman, 795 S.W.2d 706, 709–10 (Tex. 1990); Arnold, 725 S.W.2d at 167. Absent a “special relationship,” any duty to act in good faith must be specifically included in the
terms of the contract.
123
Metcalf, 742 F.3d at 995.
124
Id.
125
Id.
126
Id.

17
notice that it could not rely on the “information only”
report.127
The trial court thus treated the contract as
placing on the contractor the risk and costs of dealing with
newly discovered conditions different from those stated
by the government before the contract became binding.128
The Metcalf court rejected the trial court’s
interpretation of the contract, holding that nothing in
the contract’s general requirements—that the contractor
check the site after the contract was entered into—
expressly or implicitly warned Metcalf that it could not
rely on, and that it instead bore the risk of error in, the
government’s affirmative representations about the soil
conditions.129
To the contrary, according to the Metcalf
court, the government made representations in the request
for proposals and in pre-bid questions-and-answers for
bidders’ use in estimating costs and therefore in submitting
bids that, if accepted, would create a binding contract.130
The natural meaning of the representations was that,
while the contractor would investigate conditions once
the work began, it did not bear the risk of significant
errors in the pre-contract assertions by the government
about the subsurface site conditions.131
The Metcalf court then turned to the policy reasons
behind the FAR’s differing site conditions clause,
observing that it:
exists precisely in order to “take at least some
of the gamble on subsurface conditions out
of bidding”: instead of requiring high prices
that must insure against the risks inherent in
unavoidably limited pre-bid knowledge, the
provision allows the parties to deal with actual
subsurface conditions once, when work begins,
“more accurate” information about them can
reasonably be uncovered.132
The court followed this analysis by noting that, even
requirements for pre-bid inspection by the contractor have
been interpreted cautiously regarding conditions that are
hard to identify accurately before work begins, so that the
duty to make an inspection of the site does not negate
the changed conditions clause by putting the contractor
at peril to discover hidden subsurface conditions or those
beyond the limits of an inspection appropriate to the time
available.133
Given these conclusions, the Federal Circuit
vacated the trial court’s judgment and remanded for
further proceedings.
MOVING FROM MASTEC TO METCALF
The differing conclusions in MasTec and Metcalf only
make sense when viewed through the differing lenses
of Lonergan and Spearin. Texas courts approach risk-
allocation questions from the baseline view that the owner
does not impliedly warrant the accuracy or suitability of
the plans and specifications, while federal courts do the
opposite. But the question remains: Which is the better
approach?
Construction projects have become substantially
more complex undertakings since Lonergan was decided
in 1907. At that time, the tallest building in the world was
the newly completed forty-seven-story Singer Building
in New York City, and the first skyscraper in Texas, the
fifteen-story Praetorian Building, was a year away from
completion. While it may have been reasonable to expect
a contractor in 1907 to be able to review a set of blueprints
and be on essentially the same footing as the owner with
regard to discovering defects and deficiencies, the same
cannot be said today.
On modern construction projects, there will likely
have been two to three years of complex engineering and
site analysis that culminated in the issuance of the bid
documents.Theplansmaybemanyhundredsofpageslong,
while the specifications can stretch into the thousands. It
is no longer reasonable to expect a bidder to review and
check all of the plans and specifications for accuracy and
conflicts, or to expect a bidder to conduct a detailed site
analysis and subsurface condition investigation to confirm
the conclusions in the project geotechnical report during
the short and sometimes frantic bid period. Aside from the
expense associated with such a requirement, it is virtually
impossible to complete such an endeavor in the limited
time between the issuance of the bid documents and bid
day, especially when the bidder is focusing its resources
on completing its cost estimate and material take-offs.
It is simply unreasonable to expect a bidder to replicate
and check all of the pre-bid engineering and architectural
work prior to submitting its bid, and this is especially true
when the owner is in a better position to ensure this work
has been performed correctly.
127
Id.
128
Id.
129
Id. at 995–96.
130
Id. at 996.
131
Id.
132
Id. (quoting Foster Constr. C.A. & Williams Bros. Co. v. United States, 435 F.2d 873, 887 (Ct. Cl. 1970)).
133
Id.

18
Rather than relying on outdated case law, the principle
that should guide Texas courts going forward is a simple
one: in the absence of clear and direct contractual risk
allocation provisions, risk should be allocated to the party
best able to control that risk. This is the fundamental
public policy that underlies Spearin and was carried
through to Metcalf. Courts must recognize that the
owner of a parcel of land is in a much better position to
retain geotechnical engineers to investigate subsurface
conditions than contractors competitively bidding to
build the owner’s structure. Similarly, courts should
acknowledge that an owner is in a better position to ensure
that an extensive constructability review is performed
during the pre-construction phase to make certain that
the work requirements in the construction documents
are clear, the documents are coordinated, and that they
assist the contractor in bidding, construction, and project
administration to result in reduced impacts to the project.
Courts should also acknowledge that owners contract
with engineers and architects months, if not years, ahead
of bid time and complex and technical work is performed
during this period that cannot be quickly replicated by
a contractor. Finally, courts should acknowledge that a
contractor is typically contractually obligated to strictly
adhere to the owner’s plans and specifications, and cannot
deviate from them without exposing itself to liability.
While it may seem this is a contractor-friendly
approach, a philosophy of risk allocation grounded in
control of the risk benefits all parties to a construction
project, including owners. When contractors are faced
with accepting the risk of unknown conditions, defects, or
deficiencies, they are unable to properly estimate the cost
of a project, leaving them with only two possible choices
during the bid period. First, if the risk is too high, they
may walk away from the project. While this protects the
contractor, the owner may find itself in a position where
the most qualified contractors decide not to bid, leaving
the project to less experienced contractors. Second, if the
contractor decides to accept the risk, the contractor must
add a contingency (sometimes a substantial contingency)
to its bid. Again, while this may protect the contractor in
the event it encounters unknown conditions, defects, or
deficiencies, the owner is impacted by initial bid prices
that are higher than they would have been absent the
contingency. While Texas owners may balk at the idea
that they impliedly warrant the accuracy and suitability
of their plans and specifications, accepting this implied
guarantee will allow them to benefit from more accurate
bidding. In short, the owner would only have to pay the
actual, documented costs of unknown conditions, defects,
or deficiencies via change order or contract modification
instead of paying an upfront premium for risks that may
never occur.
It should also be noted that moving to a Spearin and
Metcalf approach would not fully relieve a contractor
of the duty to investigate or inquire if Texas courts also
adopted the federal patent ambiguity doctrine. As the
Federal Circuit Court of Appeals has noted, the Spearin
implied warranty “does not eliminate the contractor’s
duty to investigate or inquire about a patent ambiguity,
inconsistency, or mistake when the contractor recognized
or should have recognized an error in the specifications or
drawings.”134
Thus, a contractor would still be required
to clarify patent ambiguities, but would not be required
“to ferret out hidden or subtle errors in the specifications”
or engage in a professional review of the architect’s or
engineer’s design.135
This requirement is an appropriate
limit on the duty to investigate or inquire.
Finally, moving from the MasTec approach to more
of a Metcalf approach is warranted in light of the Texas
Supreme Court’s holding in LAN/STV v. Martin K.
Eby Construction Co., that the economic loss rule bars a
general contractor from recovering the increased costs
of performing its construction contract with the owner
in a tort action against the project architect for errors in
the plans and specifications.136
In analyzing whether it
was necessary to allow a tort cause of action against an
architect, the court agreed that “[t]he plans drawn by
the architect are intended to serve as a basis for reliance
by the contractor who forms a bid on the basis of them
and is then hired to carry them out[,]” but stated “the
contractor’s principal reliance must be on the presentation
of the plans by the owner, with whom the contractor is
to reach an agreement, not the architect, a contractual
stranger.”137
The court then concluded “that if the
architect is contractually liable to the owner for defects
in the plans, and the owner in turn has the same liability
to the contractor, the contractor is protected.”138
But this
protection is less likely to exist under MasTec because the
MasTec approach tips the scales against the contractor
134
White v. Edsall Constr. Co., 296 F.3d 1081, 1085 (Fed. Cir. 2002).
135
Id.
136
435 S.W.3d 234, 236 (Tex. 2014).
137
Id. at 246–47.
138
Id. at 247.

19
and makes it more likely that a Texas court will find the
owner does not have the same liability to the contractor
for defects in the plans that the architect has to the owner.
This is neither fair nor just, but it is the result of MasTec
and LAN/STV.
CONCLUSION
As one commentator observed, “the ideal contract—
the one that will be most cost effective—is one that
assigns each risk to the party that is best equipped to
manage and minimize that risk, recognizing the unique
circumstances of the project.”139
Unfortunately, however,
many construction contracts do not live up to this ideal
and Texas courts are often called upon to resolve and
harmonize inconsistencies in contractual terms. In the
past, Texas courts have approached this task from the
outdated perspective of Lonergan, giving preclusive effect
to disclaimers and general requirements to examine the
site, to check the plans, and to assume responsibility for the
work until completion and acceptance. This has resulted
in a flawed system where an owner may give with one
hand by including a changed conditions clause, reaping
the benefit of lower bids, while taking away with the
other by trying to disclaim responsibility for information
provided and undercutting the contractor’s right of
reliance. This flawed system only serves to drive-up the
costs of construction and set the stage for future disputes.
The better approach would be to adopt the fundamental
risk allocation that underlies Spearin and was echoed in
Metcalf. Action by the Texas Legislature may be necessary
to accomplish this change.
139
Robert J. Smith, Risk Identification and Allocation: Saving Money by Improving Contracts and Contracting Practices, 12 INT’L CONSTR. L. REV. 40 (1995).

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