Project Owner Liablility for Nondisclosure of Superior Information

The concept of “superior knowledge” or “superior information” is unique to construction contracting. Contract law in general holds a party responsible for intentionally withholding significant information in order to mislead the other party. This is usually characterized as “fraudulent misrepresentation” or “fraudulent inducement.”  With construction contracting, a project owner may be liable to a contractor for failing to disclose significant information even though the nondisclosure was not intentional or fraudulent.

The California Supreme Court recently issued an important decision on nondisclosure of superior information by public project owners. If a public project owner (1) possesses information which will affect the contractor’s bid price or performance cost; (2) knows the contractor does not possess that information; and (3) includes nothing in the contract documents which would cause the contractor to inquire about the information; then (4) the owner can be liable for nondisclosure of the information for any reason. No intent is required.

A dissenting opinion in the California case argued that public project owners, and the taxpayers, should not be exposed to liability for accidental or unintentional nondisclosure of information. The dissent said the majority’s ruling absolved contractors of any responsibility for independently investigating contract performance conditions and would foster extensive claims litigation.

What do you think? Should project owners be responsible for undisclosed information even when the failure to disclose was merely careless or accidental? Or should there be a standard, in effect, of strict liability for nondisclosure of significant superior information?

Featured in next week's issue of Construction Claims Advisor . . .

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• Excavator Held Responsible for Utility Damage in “Hand-Dig Zone”
• Court Addresses Change Order Pricing Formula

Bruce Jervis, Editor
Construction Claims Advisor

Comments

[J. M. Shetland]

This invovles the subject of problems within the bidding documents that are the responsibility of the owner and Architect/Engineer to coordinate and fix before the public bid. As opposed to using statments inthe specifications that refer to contractors being responsible for review of all drawings and specifications for discrepencies.

A specific case might be where the Architect shows 10 roof drains on a roof layout, but the Engineer shows 9 roof drains and niether has the last roof drain shown on the plumbing drawings or the piping for that missing roof drain.

Is it the responsibility of the contractor to pick this up prior to the bid and report it to the Engineer for correction when given a week or two to sumbit a price on a project that it took six months to draw and design?

[JHW]

Do you have a case name or citation?