Construction contract documents, which include specifications, drawings with notes, general and supplementary conditions, as well as the contract itself, sometimes contain conflicting terms. A conflict may be between plans and specifications, within the specifications or elsewhere. Such discrepancies may be identified when preparing a bid or not discovered until construction is under way and you learn the building owner or architect had a different view of what was required according to the contract.
Ambiguities discovered when preparing a bid can pose a dilemma. If you bid a job assuming the most stringent and demanding requirement, you most likely will not be the low bidder. If you base a bid on the less onerous requirement, you may face a costly problem during the job if the owner or designer had intended a more demanding provision to apply.
If you recognize the discrepancy before submitting a bid, the course of action is clear: make a prebid inquiry to ascertain exactly what is required. If the inquiry is made at a prebid meeting, the response should be recorded in the minutes distributed to all bidders. If the inquiry is not made at a prebid meeting, the inquiry should be made in writing within the time period set forth in the instructions to bidders or as soon as you notice the discrepancy. The clarification should be issued as an addendum to the contract documents.
If an ambiguity does not become apparent until during the course of construction, you will need to tell the general contractor, architect and/or building owner about your interpretation of the contract requirements. If the owner has a different view of what is required, abide by the owner's or architect's instructions so as to not delay completion of the job and follow the change order and claim procedures set forth in the contract documents. But will you be able to recover the extra expenses incurred if there was an ambiguity in the plans and specifications and you interpreted the contract requirements in a different, less costly manner than the owner?
Defining ambiguity
When there is a disagreement regarding a contract's meaning, the dispute is considered a "question of law" as opposed to a dispute that involves opposing factual views (for example, what caused a roof to leak or who was responsible for a delay are "questions of fact"). Judges decide questions of law; juries determine questions of fact. In arbitration proceedings, an arbitrator decides questions of law and questions of fact.
Courts generally follow a two-step process to determine the proper interpretation of contract requirements when there is a dispute concerning contract meaning or language. First, a court determines whether an ambiguity exists. An ambiguity exists when a contract is susceptible to two interpretations, each of which is found to be consistent with the contract language. Whenever possible, courts look to a "plain language" or "plain meaning" interpretation of contract documents. Typically, the plain meaning governs, not a party's subjective but unexpressed intent. A judge will determine whether the plain meaning of the contract terms gives rise to differing interpretations and the discrepancy would be apparent to a reasonably prudent contractor.
For legal purposes, ambiguities are divided into two categories: patent and latent. If an ambiguity is "immediately apparent," it is considered a patent ambiguity—one that is "so glaring as to raise a duty to inquire." A patent ambiguity is an inconsistency that a contractor should have recognized at once and its existence would be readily apparent to a reasonable person reviewing contract documents.
A patent ambiguity on the face of contract documents places you under an affirmative obligation to seek clarification before submitting a bid. If contract documents contain a patent ambiguity, you have a precontract duty to inquire and seek clarification. Although you are not typically required to seek clarification of any and all ambiguities, doubts or possible differences in interpretation, you must inquire when there are major discrepancies, obvious omissions or drastic conflicts in contract provisions. It is the obviousness of a discrepancy that imposes the duty, not actual knowledge. Failure to recognize an obvious ambiguity does not excuse you from your affirmative duty to inquire and could be financially devastating. The ambiguity will be construed against you, and you will be obligated to follow the owner's interpretation.
On the other hand, if an ambiguity is classified as latent, you do not have a duty to inquire. If your interpretation of a latent ambiguity is reasonable, you are entitled to follow your interpretation. A latent ambiguity will be interpreted against the drafter of contract documents as long as the other party's interpretation is reasonable. Your interpretation must be within the "zone of reasonableness."
Some cases
The distinction between patent and latent ambiguities is most firmly established in federal government contract law. The classification of ambiguity as patent or latent is critical to determining whether a contractor or the government prevails.
The 1990 case Carl Garris and Son Inc. v. United States concerned the extent of reroofing that was required at a naval weapons station. The contractor and government disputed the extent of reroofing required under the contract for the renovation of two buildings. The government contended total reroofing was required. The contractor said reroofing was required only where the existing roof was affected by new work.
After being ordered to perform complete reroofing, the contractor filed a $225,434.20 claim and a 102-day time extension for alleged extra roofing work. The contracting officer denied the claim, and the contractor filed a claim with the Armed Services Board of Contract Appeals. The board ruled in favor of the government on the grounds the contract was patently ambiguous and, therefore, the contractor was not entitled to recover additional compensation for the alleged extra work.
The Armed Services Board of Contract Appeals found the contract was patently ambiguous because neither party's interpretation gave meaning to every provision in the contract documents. The contract drawings included indications by arrows that new roofing was required for all buildings and a keynote required the removal of all existing shingles and felt underlayments. However, a provision in the specifications and two other keynotes appeared to require new felt and shingles only on eave extensions and in those parts of the existing roof systems where plywood sheathing was damaged or rotted.
Faced with these conflicting provisions, the Armed Services Board of Contract Appeals said the contractor should have recognized a patent ambiguity on the face of the contract documents, which placed him under an affirmative obligation to seek clarification before submitting a bid. Because the contractor had failed to seek clarification of what the board considered a patent ambiguity, the board denied his claim.
The contractor appealed to the U.S. Court of Appeals for the Federal Circuit, which reversed the decision, concluding the board erred in classifying the ambiguity as patent. The Court of Appeals said that to rise to the level of a patent ambiguity, an internal inconsistency must be blatant and significant, "not subtle, hidden or minor." The court did not consider the ambiguity here to be properly classified as patent because the facts showed even qualified and experienced government employees had not appreciated the ambiguity.
The evidence in the case was that a prebid inquiry had been made by another contractor who had asked whether total reroofing of the two buildings in question was required. The prebid inquiry was referred to the government engineer in charge of the project. The engineer's response was "read subsystem keynotes for units 74/751." Given that the ambiguity was included within the keynotes,the government's response to the prebid inquiry indicated the government failed to recognize the ambiguity.
The architect in charge of the project testified he would have responded to the prebid inquiry in the same manner. He said a contractor could justifiably rely on the specifications without seeking clarification. Another government witness testified there was no ambiguity.
Given the testimonies of the government's witnesses, the court concluded "the ambiguity in this contract is hardly a matter of black and white, as one expects in the case of patent ambiguity but is rather in the shades of gray associated with latent ambiguity."
A finding that an inconsistency in contract documents does not rise to the level of a patent ambiguity does not mean a contractor is entitled to additional compensation. A contractor still must show his interpretation of a contract was reasonable.
In this case, the contractor's interpretation was supported by several keynotes on the roofing drawings. One keynote read: "Replace damaged and/or rotten plywood underlayment ... Reroof with #15 felt and shingles." The contractor interpreted this provision as requiring reroofing only in damaged or rotted areas.
The next keynote stated: "Match existing roofing with new 1/2" plywood roof sheathing and #15 felt underlayment." If the contract required total reroofing, there would have been no need to match the new roof sheathing to the existing roofing.
Another keynote stated: "Roofing: Remove roofing to affect the connections with new flashing or roofing," which the contractor said indicated partial removal of existing roofing. The contractor also pointed out total reroofing was not required in the demolition and removal section of the specifications. Based on these provisions, the contractor's bid contemplated only partial reroofing.
In reversing the decisions of the contracting officer and Armed Services Board of Contract Appeals, the court concluded the contractor's interpretation was reasonable. The court said the contractor's reasonable interpretation of a government-drawn agreement will be adopted if the contractor actually and reasonably relied on the interpretation when he entered into the contract. The court found the interpretation fell within the zone of reasonableness and need not be preferable to the government's interpretation. When ambiguity is latent, the nondrafter's reasonable interpretation prevails though the drafter's interpretation might be the better interpretation.
In another government contract case, Beta Construction Co. Inc. v. United States, the Court of Appeals for the Federal Circuit ruled in 1999 that a roofing contractor was entitled to additional compensation because the contract requirements were not patently ambiguous and the contractor's interpretation was reasonable. The case involved reroofing the headquarters of the U.S. Department of Housing and Urban Development in Washington, D.C. The issue was whether the contract required the contracting company to use asbestos-abatement procedures when removing roof insulation along the building's perimeter that might have become contaminated with asbestos as a result of the contractor's use of saws and axes to remove adjacent asbestos-containing flashings.
The specifications called for removal of all asbestos-containing materials using asbestos-abatement techniques so no asbestos would enter the building or be released into the ambient environment. More than 10,000 square feet (929 m²) of asbestos-containing roofing materials and flashing materials were removed around the building's perimeter. Although the roof insulation was not asbestos-containing, the government required asbestos-abatement procedures be used for the adjacent roof insulation because the contractor and subcontractor had contaminated or created the threat of contamination to the insulation by cutting the roof system into pieces for removal and disposal. This technique, according to the General Services Administration, caused the layers that previously had not been contaminated with asbestos to become contaminated.
The government said the threat of contamination necessitated the directive that all roofing materials in the area designed in the drawings as including asbestos-containing material be removed using asbestos-abatement procedures. Because of concern that dust from asbestos-containing roofing materials could get on the nonasbestos rigid roof insulation, the government directed the contractor to remove all the roofing material, including the rigid insulation, to the concrete deck using asbestos-abatement procedures.
The contractor and subcontractor submitted a $101,211 claim for the costs of removing and disposing of the insulation layer. The contracting officer and U.S. Court of Federal Claims denied the claim. The contractor argued the contract reasonably could be interpreted as not requiring the company to remove the insulation using asbestos-abatement procedures. According to the trial court, because the threat or risk of contamination was paramount, the contractor's interpretation was outside the zone of reasonableness.
In reaching its decision, the trial court ruled: "There is no doubt that under the terms and specifications of the contract all materials which were contaminated by asbestos, or those which were significantly threatened to be contaminated by asbestos, were to be removed using the abatement procedures, regardless of the time when these materials became contaminated with any asbestos. Cutting through the layers of built-up roofing and attached flashing, which contained asbestos, obviously created dust which could fall onto and intermingle with the insulation below. This dust, according to the contract specifications, was to be removed using asbestos-abatement procedures. Thus, it was reasonable for the government to require, in accordance with the contract, that insulation which became tainted with asbestos-contaminated dust also had to be removed using asbestos-abatement procedures."
The contractor appealed the decision to the U.S. Court of Federal Appeals, which concluded the company's reading of the contract obligations was reasonable, the contract contained no patent ambiguity and the contractor was entitled to an appropriate recovery.
The contractor pointed out there was a separate contract provision governing cleanup of asbestos dust and argued this provision would be meaningless if mere contact with dust or waste required full abatement procedures for every item touched by dust. The court agreed and concluded if there was an ambiguity, it was latent and the contractor reasonably interpreted the contract. Therefore, the company was entitled to additional compensation.
Some advice
You should review all contract documents carefully before submitting a bid or proposal and bring to the attention of the bidding authority discrepancies and omissions you discover. If you fail to do so and a discrepancy subsequently is considered to be a patent ambiguity, you will be liable for costs you did not expect to incur. If contract documents do not contain a blatant discrepancy, you will be entitled to rely on your interpretation of the contract requirements as long as the interpretation is reasonable. The distinction between a patent ambiguity and latent ambiguity is critical to contractor liability.
Stephen M. Phillips is a partner with the law firm Hendrick, Phillips, Salzman & Flatt, Atlanta.
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