Construction Projects Gone Wild: Evaluate Potential for Misrepresentation Claims in Advance
September 15, 2014

By Elizabeth K. Miles

When making a pitch to perform work on a construction project, architects, engineers, and contractors often tout their experience and their ability to bring a project within budget. When a project goes bad, it may be tempting for an owner to characterize the contractor’s, architect’s, or engineer’s statements about experience, capabilities, or projected cost of the project as misrepresentations. However, an owner claiming misrepresentation – and the party against whom the claim is made – should carefully consider whether the contract will allow such a claim.

The first inquiry to consider is whether there has been a representation at all. To be actionable as a misrepresentation, a statement – whether verbal or written – must be one of existing fact, not an opinion or a projection about a future event. For example, a cost estimate that proves too low likely will not support a misrepresentation claim because estimates, by their nature, are simply a prediction of what costs might be after bidding and construction, not a representation about what costs are now or a guarantee of what they will be. (An exception may exist if the estimator knows something at the time that is contrary to the estimate.) Representations about a party’s capability to perform the project also likely will not support a misrepresentation claim because statements about quality generally are not actionable.

The next inquiry to consider is whether the contract contains a provision that bars the owner’s claim. Many construction contracts include a merger clause, stating that the contract represents the parties’ entire agreement and supersedes all prior written or verbal representations. A clearly worded merger clause bars any misrepresentation claim based on statements made before the parties entered into the contract. The contract also may state that the architect, engineer, or contractor does not guarantee the accuracy of certain projections, like cost estimates. This may also bar a misrepresentation claim if the projections turn out to be incorrect.

Given the difficulty that can exist succeeding on a misrepresentation claim, an owner that wants to ensure it has a claim if its architect, engineer, or contractor does not meet expectations should make all such representations explicit in the contract as warranties. Due diligence regarding the experience and expertise of contracting partners should also be conducted. In contrast, an architect, engineer, or contractor that wants to ensure its sales talk and projections are not later characterized as misrepresentations should include limiting provisions like a merger clause and clearly state in the contract that opinions and projections are not guarantees.

If you have any questions regarding this article, please contact your Davis & Kuelthau, s.c. attorney or the author, Elizabeth K. Miles, at 414.225.1491 / emiles@dkattorneys.com.

 

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