By Michael C. Loulakis, Esq., FDBIA, M.ASCE, and John M. Neary, Esq., M.ASCE
Design-build contracts place enormous responsibility on the contractor. Unlike traditional design-bid-build delivery, where the owner furnishes a complete design, design-build requires the contractor to develop the final design and construct the project accordingly.
This allocation of risk raises hard questions when things go wrong: What happens when the contractor’s design fails to meet a performance standard, even though the government approved the drawings? Can the contractor recover for extra costs caused by hidden conditions that the government’s preliminary drawings failed to depict? And what happens when the contractor’s design inadvertently specifies something better than the contract requires? Can the government extract a credit when the contractor ultimately delivers exactly what the contract called for?
A decision by the Armed Services Board of Contract Appeals addresses all three scenarios. In Appeals of Meltech Corporation Inc., the board resolved three consolidated appeals arising from the design-build renovation of a barracks at Fort Meade, Maryland, offering important lessons for the construction industry.
The case
The U.S. Army Corps of Engineers awarded Meltech a task order for the design-build renovation of Building 8609, a roughly 39,000 sq ft, three-story barracks originally constructed in 1954. The Corps issued the task order in September 2014 with a 540-day performance period. The contract incorporated standard Federal Acquisition Regulation clauses for design-build, including 52.236-23 (Responsibility of the Architect-Engineer Contractor), 52.236-2 (Differing Site Conditions), and 52.246-12 (Inspection of Construction). Three disputes arose during performance.
First, the design criteria required emergency egress lighting that complied with NFPA 101 Life Safety Code, which states that the emergency lighting must provide a minimum of 1 foot-candle illumination with 90 minutes of battery backup. Meltech’s 100% design drawings were approved by the government and a fire protection engineer. In December 2017, a Fort Meade fire inspector conducted a predawn test, which the building failed for various reasons. Rather than challenge the results, Meltech directed its subcontractor to install the correct fixtures.
Meltech later sought additional time and money, arguing government approval of its drawings shifted responsibility to the government as a “constructive change,” in its claim to the project’s contracting officer.
Second, the renovation required new domestic water piping along the first-floor corridor to serve private bathrooms in each dorm room. The request for proposal drawings showed concrete girders running to either side of the corridor, but the drawings did not depict them continuing across it, nor did they show any variation in girder heights. During the guided prebid site visit, bidders could not see above the ceiling due to mechanical obstructions and were given no ladders or destructive-testing access. Meltech planned to run the piping above the corridor ceiling.
After demolition in late 2015, Meltech discovered that the girders ran continuously across the corridor and four of them were 6 in. to 8 in. lower than the others, leaving only 8 ft of clearance. Forced to reroute piping to an unheated crawl space, Meltech incurred approximately $130,134 in additional heat-trace costs and sought 59 additional days from the Corps.
Third, the RFP specified that cabinet finish material in the dayroom be “plastic laminate,” according to the opinion. During design development, Meltech’s 100% submittal mistakenly specified “quarter slice white oak” veneer — an apparent drafting error, since Meltech’s actual subcontract was for plastic laminate. When Meltech sought to correct the error, the government agreed but insisted on a cost credit. Meltech objected, noting that plastic laminate was what the contract had required all along.
The decision
With respect to the disputes concerning the emergency lighting, the board denied Meltech’s claim. Under FAR 52.236-23, the government’s approval of design drawings “does not operate as a waiver to contract requirements” on a firm fixed-price design-build contract, per the opinion. The design risk is borne by the contractor. The board found Meltech’s belated challenge to the fire inspector’s testing methods unpersuasive: Meltech’s contemporaneous conduct — immediately fixing deficiencies without protest, never requesting a retest, and presenting no evidence of its own pretest inspection — undercut any later attack on the test’s validity. The board emphasized that FAR 52.246-12 required Meltech to maintain its own adequate inspection system, which it failed to do.
On the second dispute, the board sustained Meltech’s differing site conditions claim. Applying the four-part test for a Type I differing site condition, the board found: (1) The RFP drawings affirmatively indicated — through repeated depictions and the absence of any detail showing the beam continuing across the corridor — that the girders were interrupted and that column heights were uniform; (2) the true condition was unforeseeable, since the Corps’ project engineer admitted the omission was “human error”; (3) Meltech reasonably relied on the RFP documents because a nondestructive site visit could not have revealed the hidden condition; and (4) Meltech proved real added costs. The board also rejected the government’s untimely notice defense (Meltech waited 21 months) because the government failed to show any prejudice from the delay.
On the third and final dispute, the board also sustained Meltech’s appeal. Distinguishing prior cases where a contractor’s design mistakenly specified something below the contract standard (where the government may hold the contractor to the higher RFP requirement), the board noted that here the mistake went the other way: The submittal specified something exceeding the RFP’s requirement. Because Meltech installed plastic laminate — precisely what the RFP required — there was no “cost savings” to Meltech and no loss to the government.
A contractor’s good-faith drafting error that results in a design exceeding contract requirements should not obligate it to provide the higher-quality material or refund money for delivering what was actually contracted for.
The takeaways
Government approval of your design does not shift the risk. Design-build contractors cannot treat government review and approval of design submittals as a safety net. Under FAR 52.236-23, approval is not a warranty that the design meets contract requirements. Contractors and their design professionals must independently verify that their designs satisfy performance criteria, particularly life-safety requirements, before construction because they will not be able to pass the cost of corrections to the government.
Maintain your own inspection and quality control systems. The fact that Meltech had no evidence of its own pretest inspection — and immediately fixed deficiencies without challenge — influenced the board’s decision. If a contractor disagrees with a government inspection or test, it must object promptly and preserve the record. Years-later attacks on a test that the contractor contemporaneously accepted are unlikely to succeed.
Differing site conditions claims remain viable in design-build when the RFP drawings affirmatively mislead. Although design-build contractors assume broad design responsibility, they are entitled to rely on factual representations in government RFP documents. Where drawings omit critical structural information and a reasonable prebid investigation could not have revealed the true condition, a differing site conditions claim can succeed. Engineers should document what they could and could not observe during site visits, and contractors should file timely notice — even if the untimely notice defense requires the government to show prejudice.
A drafting mistake that exceeds contract requirements should not become a windfall for the government. The cabinet credit issue is a cautionary tale for both sides. Contractors should exercise careful quality control over design submittals because a good-faith error specifying a more expensive material can trigger months of dispute. For owners, insisting on a credit when the contractor delivers exactly what the contract requires is unlikely to succeed, and, as the board’s pointed footnote suggests, it may reflect a failure of ordinary contract administration. Both parties should resolve such discrepancies cooperatively rather than through expensive litigation.
Michael C. Loulakis, Esq., FDBIA, M.ASCE, is the president and CEO of Capital Project Strategies LLC in Reston, Virginia.
John M. Neary, Esq., M.ASCE, is co-chair of Akerman’s construction practice and represents owners, developers, contractors, and design professionals in civil litigation matters.
This article first appeared in the September/October 2026 issue of Civil Engineering as “Who Bears the Risk When a Design-Build Contractor's Own Design Falls Short or Exceeds Contract Requirements?”
