4.

04 Duty to Disclose Important Information Regarding Construction Projects

The law holds that the owner has a duty to furnish the contractor with all important information
needed to prepare a bid or price for the work. The contractor claims it was harmed because the
owner failed to disclose [or concealed] material information regarding [specify information]. To
establish this claim, the contractor must prove all of the following:

(1) The contractor submitted its bid or agreed to a price and schedule to perform the work without
information regarding [specify missing information]. (2) The information would have materially
affected the contractor’s cost or time to complete the work. (3) The owner had the missing
information. (4) The owner was aware that the contractor did not have it. (5) The missing
information was not generally available to the contractor nor discoverable upon reasonable inquiry
by the contractor. (6) The owner failed to provide the missing information to the contractor. (7) The
contract documents or other information furnished by the owner did not put the contractor on
notice to investigate further regarding the missing information. (8) The contractor was damaged by
the o wner’s failure to disclose the missing information.

Comment With regard to undisclosed information, there is liability only if the failure to disclose
materially affected the cost of performance and actually and justifiably misled the contractor in
bidding on the contract. Contractor does not have to prove the owner intentionally concealed the
information. See L.A. Unified Sch. Dist. v. Great Am. Ins. Co., 234 P.3d 490 (Cal. 2010) (It is not
necessary to show fraudulent intent to conceal). This instruction most frequently applies principally
to public owners awarding fixed-price

construction contracts to contractors required to submit bids based on design specifications and
information provided by the public owner. An excellent discussion of this implied duty and
corresponding cases is available at The Twelve Deadly Sins: An Owner’s Guide to Avoiding Liability
for Implied Obligations during the Construction of a Project, Steven B. Lesser & Daniel L. Wallach, 28
Constr. Law. 15 (Winter 2008). “In addition to disclosing all pertinent information to the contractor
during the prebidding process, the owner has an implied duty during the actual performance of the
project to furnish the contractor with material information that may have a bearing on the
contractor’s work. . . . Id. (citing S. Cal. Edison v. United States, 58 Fed. Cl. 313 (2003); Manuel Bros.
v. United States, 55 Fed. Cl. 8, 34 (2002); see generally 3 Philip L. Bruner & Patrick J. O’Connor Jr.,
Bruner & O’Connor on Construction Law § 9:92 (2006)). This implied obligation typically arises when
the owner has superior knowledge not available to a contractor from other sources.” Id. (citing
Sergent Mech. Sys. Inc. v. United States, 34 Fed. Cl. 505, 519 (1995); Am. Ship Bldg. Co. v. United
States, 654 F.2d 75, 79 (Ct. Cl. 1981); HardemanMonier-Hutcherson v. United States, 198 Ct. Cl. 472,
487 (1972); Helene Curtis Indus. Inc. v. United States, 160 Ct. Cl. 437, 444 (1963)). An owner’s failure
to make appropriate disclosure may entitle the contractor to damages or an equitable adjustment.
For example, in Helene Curtis Industries Inc. v. United States, 312 F.2d 774 (Ct. Cl. 1963), the owner
was aware that the contractor assumed it could perform the contract without utilizing a grinding
process. The owner was liable when it failed so to inform the contractor. Similarly, in City of
Indianapolis v. Twin Lakes Enterprises Inc., 568 N.E.2d 1073, 1080 (Ind. Ct. App. 1991), the owner
breached its implied duty of disclosure when it insisted that a contractor continue to dredge a
reservoir that the owner knew contained large obstructions previously dumped in that area by the
owner; See also S. Stein, Construction L. (MB) ¶ 18.02 (1994); 3 Bruner & O’Connor on Construction
Law § 9:92.

4.05 Duty to Provide Accurate Information to Contractor

The law holds that when an owner provides a contractor with information to prepare a bid or
perform a construction contract, the owner is responsible if the information is not accurate. The
contractor claims the owner provided [specify inaccurate information] regarding [specify type of
inaccurate information provided]. The contractor now seeks damages because it claims that
information was not accurate. To establish this claim, the contractor must prove all of the following:

(1) The owner provided [specify inaccurate information] to the contractor. (2) The contractor relied
on this information. (3) The information was not accurate. (4) The contractor’s reliance on that
information had a material affect on the contractor’s work.

Comment

This duty extends to information related to site conditions. See Wendward Corp. v. Group Design
Inc., 428 A.2d 57, 59 (Me. 1981) (owner’s agent took soil samples at wrong location; as a result, the
true subsurface conditions of the actual site were not revealed until construction of the foundation
was already in progress). In one noteworthy case, the City of Los Angeles provided bidders on a
retaining wall construction project with the logs of two test borings it had conducted at the jobsite;
the logs erroneously reported the soil composition obtained from the borings. Warner Constr. Corp.
v. City of L.A., 2 Cal. 3d 285, 293–94 (1970). Attached to the logs was a caveat disclaiming any
warranty that the test hole information was indicative of conditions elsewhere at the site. The City,
however, knew, but did not disclose, that cave-ins had occurred in both test holes, forcing it “to
change its drilling methods and to abandon the holes before reaching the planned depth of 50 feet.”
Id. When caving occurred in holes that were drilled during construction, and the contractor was
forced to change to a more expensive drilling technique with rotary mud, the City was liable for its
nondisclosure of the