If you’re a firm owner or design professional, don’t leave contractors guessing. Using plain language, make your intent clear to avoid disputes, change orders, and claims.
There have been some funny T-shirts that say, “Let’s eat, Grandma!” and “Let’s eat Grandma!” with the caption: “Punctuation Saves Lives!” This shows that the same words can have two meanings, known in legal circles as an ambiguity. When an ambiguity appears in a contract or a set of specifications, courts apply a rule that says the document is “construed against the drafter.” This means that the person who drafts a document (contract or drawing) has to make his or her intent clear, and not leave the reader guessing at the intent. The legal name for this rule is “contra proferentem,” Latin for “against the offeror.”
When to apply the rule? Under this rule, ambiguities in a contract, a set of specifications, or a drawing can be interpreted against the author (the “drafter”) and in favor of the other party’s reasonable interpretation. The concept is that the person or entity drafting the document should not require the other party to speculate as to its meaning. Construction contracts between the government and private contractors are subject to this legal rule to resolve ambiguities. A court’s task in such contract cases is to construe a contract “to effect the parties’ intent” at the time they executed the contract. If, however, the court is unable to interpret a contract based on its express terms, an ambiguity may be resolved by looking to – in order of preference – course of performance, course of dealing, and common trade practices. If all of these approaches fail, the rule of contra proferentem is applied as a “rule of last resort” to construe the ambiguity against the drafter.
When is a contract ambiguous? When one party argues that the contract is ambiguous, courts apply three primary rules of contract interpretation. First, the court begins with the actual language of the written agreement. In this step, words are given “that meaning that would be derived from the contract by a reasonably intelligent person acquainted with the contemporaneous circumstances.” This means considering the context and intentions of the parties rather than just a dictionary definition. Second, the court applies the principle that a contract should “be considered as a whole and interpreted so as to harmonize and give reasonable meaning to all of its parts.” Third, the mere fact that the parties disagree with regard to the interpretation of a specific provision, does not, standing alone, render that provision ambiguous. A contract provision is ambiguous only if it is susceptible to more than one “reasonable meaning.” In other words, differing interpretations must fall within a “zone of reasonableness.”
Contractor’s duty to inquire. Like every legal rule, there are exceptions. The exception to this rule of contra proferentem applies when an ambiguity is obvious on the face of the document, known as a patent ambiguity. This exception applies when the ambiguity is so glaring that it is unreasonable for a contractor not to discover and inquire about it. A patent ambiguity triggers a duty on behalf of a contractor on public projects to ask about the meaning of the ambiguity before it bids on a contract. Absent such an inquiry, a patent ambiguity in the contract will be resolved against the contractor – and not the drafter – for failure to inquire as to the contract’s meaning. Government cases have held that the owner’s so-called 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.” Therefore, contractors are given fair warning that, when faced with an obvious ambiguity in the contract, plans, or specifications, they should err on the side of seeking clarification prior to bidding rather than hoping to pursue a change order later. This is tough law, but it makes sense that a contractor should not be able to “sand-bag” on claims, but should come forward at the earliest stage and seek a clarification. This rule has essentially been written into industry contracts.
AIA contract clauses. In the private sector, this concept is found in the standard AIA A201 General Conditions (2017 edition). Failure to promptly report an ambiguity will result in the contractor bearing the financial risk. Section 3.2, Review of Contract Documents and Field Conditions by Contractor, states that:
“Because the Contract Documents are complementary, the Contractor shall, before starting each portion of the Work, carefully study and compare the various Contract Documents relative to that portion of the Work… “These obligations are for the purpose of facilitating coordination and construction by the Contractor and are not for the purpose of discovering errors, omissions, or inconsistencies in the Contract Documents; however, the Contractor shall promptly report to the Architect any errors, inconsistencies or omissions discovered by or made known to the Contractor as a request for information in such form as the Architect may require…
“If the Contractor fails to perform the obligations of Sections 3.2.2… the Contractor shall pay such costs and damages to the Owner, subject to Section 15.1.7, as would have been avoided if the Contractor had performed such obligations. If the Contractor performs those obligations, the Contractor shall not be liable to the Owner or Architect for damages resulting from errors, inconsistencies or omissions in the Contract Documents, for differences between field measurements or conditions and the Contract Documents, or for nonconformities of the Contract Documents to applicable laws, statutes, ordinances, codes, rules and regulations, and lawful orders of public authorities.”
The rule of reasonableness. Even if an ambiguity is found to be hidden and not obvious, i.e. latent, the contractor is not automatically entitled to an extra or a change order from the owner. Courts hold that a contractor’s interpretation of a latent ambiguity will only be adopted if it is found to be reasonable. As one court held, “If the court finds that a patent ambiguity did not exist, then the reasonableness of the contractor’s interpretation becomes crucial in deciding whether the normal contra proferentem rule applies.” Interpretation of the contract requires the court to place itself into the shoes of a reasonable and prudent contractor. The contractor does not have to prove that its interpretation of the contract is the only reasonable one, but it does bear the burden of showing: a) that its conclusion is at least a reasonable reading; and, b) that it relied on its interpretation of that provision when preparing its bid.
What to do? If you are an owner or design professional, the takeaway here is to not leave contractors guessing at your intent. Using plain language, make your intent clear to avoid disputes, change orders and claims. If you are a contractor or a subcontractor bidding a job, read the documents carefully and ask for clarification if something is unclear at the earliest discovery of an ambiguity. Failure to do so may result in the financial risk shifting from the drafter to the reader!
William Quatman, FAIA, Esq., is general counsel and senior vice president at Burns & McDonnell Engineering Co. He can be reached at bquatman@burnsmcd.com.