David A. Palmer and Timothy D. Howell, Attorneys at Law
By any other name would smell as sweet.”
— William Shakespeare, Romeo and Juliet, Act II, Scene II
Despite what Juliet told Romeo, a rose by another name may not always smell as sweet. We’ve all been there – faced with deciding whether to agree to a substitution that may be inferior. In the world of construction contracts, the decision can have significant implications because substituting less expensive materials or products without approval for those specified may prove to be penny wise but pound foolish.
First some basics. While laws vary by jurisdiction, construction law is essentially contract law by another name because construction disputes so often turn on what is written in the governing contract documents. Generally, a construction contract is comprised of the contract itself plus any items incorporated into it. For example, a subcontract may incorporate the terms of the prime contract. Construction contracts also frequently refer to and incorporate project plans and specifications. When such a reference is made, the plans and specifications become part of the contract. The general rule is that contractors are deemed to have reviewed and understood the plans and specifications and to warrant that they will comply with them. The same may be true of suppliers and vendors who submit bids or supply products for construction projects. Thus, understanding what documents constitute the contract, and what they require, is crucial.
With those basics in mind, we turn to what can sometimes be a thorny issue in construction contracting. It is not unusual for construction contracts (or the plans and specifications incorporated into them) to specify the manufacturer, brand, make, or model of the materials or products to be used. On a public project, these specifications may appear in a bid request issued by the government agency handling the project. Such “proprietary” or “restrictive” specifications may be used for any number of reasons, including the safety or integrity of the finished project or the preferences of the owner or architect. In general, there is no prohibition on including them in a contract or bid request. According to one tribunal, “If a contractor can bind himself to build a snowman in August, it can also bind itself to supply a brand name.”¹ A contractor, supplier, or vendor should heed whatever the contract or project specifications require and make certain it is willing and able to meet the specifications for the contract or bid price before agreeing to do so.
A potential wrinkle arises if the contract contains what is commonly known as an “or equal” clause. Such a clause may allow a contractor, supplier, or vendor to substitute materials or products that are equivalent to those specified in the contract. Such clauses are widely used. They may even be required in some government contracts or bid specifications for public projects. The policy behind requiring “or equal” clauses is, at least in part, to ensure a competitive marketplace when bidding on public projects rather than allowing the government to eliminate or curtail competition by specifying that only particular brand names be used. Therefore, specifications requiring the use of certain products are sometimes said merely to establish a standard of quality rather than to limit competition.
Even when an “or equal” clause exists, a close reading of its terms is important. For example, an “or equal” clause may provide that, before a substitute is used, a change order or other written approval of the owner, design professional, or (in the case of government procurements) the awarding authority or its designee is required. It may set a deadline for seeking a product substitution or delineate other steps a contractor, supplier, or vendor must take to obtain approval of a substitute, such as providing satisfactory samples at its own expense. While it is impossible for us to address every conceivable type of “or equal” clause, the takeaway is that such clauses can differ significantly from contract to contract. This means a contractor, supplier, or vendor should understand and strictly comply with any “or equal” clause it intends to rely on before it substitutes products.
Another concern is what happens if a dispute arises as to whether a substitute product really is equal to the one specified. Sometimes there is no equivalent because only one manufacturer’s product satisfies the needs of the project, whether those needs relate to performance requirements, safety, aesthetics, warranty, or other considerations. A dispute may also arise if a feature of the project in which a substitute product was used fails and causes death, injury, or other damage. Whatever the dispute, questions will almost certainly arise as to whether the substitute was functionally equivalent to or of the same quality as what was specified, and if not, whether use of the substitute was a material breach of the bid or contract specifications and whether it caused or contributed to damages.
If a dispute results in litigation, then the questions mentioned above can be expensive and time consuming to answer because they tend to be fact intensive and may require testimony of expert witnesses. A contractor, supplier, or vendor faces potential legal exposure depending on how the questions are answered by an arbitrator, court, or jury. Plenty of cases exist in which courts have required contractors or suppliers to pay the additional costs of using the specified products rather than the substitute products they contended were equivalent. It is generally no excuse in such a scenario that the additional costs caused the project to be less profitable than expected. As one federal court put it, “If the Government contracts for a Cadillac, the Government is entitled to a Cadillac or another car that is equal to a Cadillac” because even though “any vehicle that runs may be ‘acceptable,’ that does not make every operating vehicle equal in performance or quality to a Cadillac.”² Worse yet, if a substitute product causes a failure or other injury or loss, then the party who substituted the product could be liable for those damages as well. Such damages could be substantial. The bottom line is that contractors, suppliers, and vendors should avoid these types of disputes if at all possible. The surest way to do so is to provide the precise product identified in the contract or bid specifications.
We offer this article not as a comprehensive survey of the law but only as an overview. Still, the perils of using inadequate substitutes are readily apparent. With them in mind, we close with several tips for the cautious contractor, supplier, or vendor.
- Know your contract and any plans or specifications incorporated into it. The law will likely presume that you do and hold you to it. If possible, address any concerns about the specifications before you sign the contract or submit your bid.
- Even if your contract or bid specifications contain an “or equal” clause, be wary about using substitutes, especially if safety, quality, or performance is – or even may be – a reason a certain product is specified. A contractor, supplier, or vendor who deviates from the specifications likely does so at its own peril. In the words of one Texas court, “There is no law compelling him to submit his bid, but, if he bids, he must execute his contract or respond in damages.”³ Cutting corners by using lower quality or less expensive products may seem “penny wise” at the time but may prove to be “pound foolish” if a dispute later arises.
- Sometimes substitutes will not suffice because there are instances when only one product meets the project requirements. However, if conforming alternatives exist and you decide to substitute products, then be sure you strictly comply with the “or equal” clause in your contract or bid specifications. Caution now may avoid headaches – and liability – later.
- Obtain prior written approval to use substitutes whether or not the contract or bid specifications require you to do so. Absent such approval, stick to the specifications.
- Finally, consult an attorney if you have questions about whether substitutes are allowed on a particular project, the interpretation of an “or equal” clause, or the applicable law.
¹ Appeal of Meisel Rohrbau GmbH & Co., KG, ASBCA No. 35622, 94-1 B.C.A. (CCH) P26,530, 1992 ASBCA LEXIS 455, at *132050 (Armed Services Board of Contract Appeals Nov. 19, 1993) (quoting Rixon Electronics, Inc. v. U.S., 536 F.2d 1345 (Ct. Cl. 1976)).
² P.W. Constr., Inc. v. U.S., 53 Fed. Appx. 555, 560 (Fed. Cir. 2002).
³ McDaniel v. Beaumont, 92 S.W.2d 552, 561 (Tex. Civ. App. – Beaumont 1936, no writ).
This article is for informational purposes only and does not constitute legal advice. It contains general information and may not reflect current legal developments. It does not create an attorney-client relationship. It is not to be relied upon as a substitute for competent legal advice from an attorney licensed in the jurisdiction where you are located and/or conduct business.
ABOUT THE AUTHORS:
David A. Palmer (pictured top) and Timothy D. Howell (pictured bottom) are founding partners of Moses, Palmer & Howell, L.L.P., a commercial litigation law firm in Fort Worth, Texas. Both are AV Preeminent® Peer Review Rated by Martindale-Hubbell. The firm is equipped to handle most types of business disputes and transactions, including construction, oil and gas, real estate, banking, and probate matters, and represents clients ranging from publicly traded companies and government entities to small businesses and individuals. The firm is a member of Primerus, a prestigious international society of independent, boutique law firms.
This article was produced under the auspices of Pieresearch®, manufacturer of quality concrete accessories, exclusively for the benefit of the structural and geotechnical engineering, architectural and construction communities and is copyrighted by Pieresearch® and the authors 2020.