Knowing the Difference Between Patent vs Latent Defect Can Save Tens of Thousands in Unnecessary Litigation

Latent Defect Construction Government Contracts (Patent vs Latent)Many contractors often ask what is a latent defect? Knowing the answer is essential to your decision on whether or not to litigate the dispute. Latent defects on government contracts can severely impact the cost of performance both for the agency and the contractor. 

When it comes to federal government construction contracts, the immediate responsibility to act becomes an important issue for the outcome of any litigation.  Government contracting agencies have some level of responsibility to inspect goods and services.

However, legal disputes and contractor defenses usually fall within the extent to which the government has acted.

Disputes about the difference between latent and patent defects often to lead to litigation and appeals. Contractors should be aware of the underlying legal principles that can create costly litigation. Asserting the proper contract defense is essential to winning in court.

Understand the Difference Between a Patent Defect vs Latent Defect

What is a Latent Defect?

When you decide if a construction defect if latent or patent, you should first look to see what level or inspection or test could have discovered the defect. One must look to see if the government would have found the defect and whether the government could have used the argued level of test or inspection to find the defect.

  • If the alleged defect could have been found through a test specified in the contract it is not latent, Stewart Avionics, Inc., ASBCA 15512, 75-1 BCA ¶ 11,253 (citing Gordon H. Ball, Inc., ASBCA 8316, 1963 BCA ¶ 3925 (the government did not perform x-ray inspections of the welds as provided by the specifications until after acceptance)).

What is a Patent Defect?

Was the defect obvious or could have been found through a reasonable inspection? The legal test for dealing with a patent defect in government contracting  is to inquire if  an average contractor could find the defect during a reasonable inspection. A reasonable inspection is circumstantial. If the inspection only reveals a problem and not its cause, that problem might not be a patent defect. 

In Royson Engineering Co., ASBCA 15438, 73-2 BCA ¶ 10,229 (1973), the Armed Services Board of Contract Appeals found a defect to be patent since it could have been discovered “without undue effort.” If the alleged defects were actually known to the government at the time of acceptance, they are patent, Southwest Welding & Manufacturing Co. v. United States, 188 Ct. Cl. 925, 413 F.2d 1167 (1969), even if they might otherwise not have been discoverable by a reasonable inspection, Hercules Engineering & Manufacturing Co., ASBCA 4979, 59-2 BCA ¶ 2426 (1959) (“a defect known to exist prior to acceptance cannot be considered a latent defect. A known defect can no more defeat the conclusiveness of a final acceptance than can a defect discoverable by reasonable inspection”.)

Under FAR Latent Defects in Construction Contracts? 

What is the Rule of Law?

Federal Acquisition Regulations and procurement law governing the agency’s rights for latently defective goods is well-settled. Under FAR 52.246-2(j), “[t]he Government shall accept or reject supplies as promptly as practicable after delivery, unless otherwise provided in the contract.” 48 CFR 52.246-2(j). If the Government accepts supplies after delivery, its acceptance is “conclusive, except for latent defects, fraud, gross mistakes amounting to fraud, or as otherwise provided in the contract.” Id. § 52.246-2(k).

In federal government construction contracting, a latent defect exists at the time of acceptance but would not have been discovered by a reasonable inspection. The most important positive aspect of providing services or products to the federal government is to show your internal testing methods. However, much of the analysis presupposes that there is a method of testing that if used, could have exposed the defect. It could go to both the contractor and government. When the government finally realizes that something is wrong, there is no question that it will demand conformance with the contract terms.

  • Understanding the acceptance and inspection rules will put you in a better place to defend against allegations.
  • The level of difficulty and expense of conducting tests are important factors in determining the reasonableness of a government test.
  • Getting the industry standard for testing is also essential to the outcome.
  • Does the government have test facilities? If so,  then determining whether a test could reasonably have been made  can be part of the contractors argument. See Herley Industries, Inc., ASBCA 13727, 71-1 BCA ¶ 8888 (1971)

Government Contracting Agency Legal Requirements for Proof

 Before proceeding  with an argument for having a latent defect, one must also remember that the mere existence of a latent defect in a government construction contract  negates the effect of a final acceptance. See Spandome Corp. v. United States, 32 Fed. Cl. 626, 630 (1995)(citing United Techs. Corp. v. United States, 27 Fed. Cl. 393, 398(1992)).

  • The federal government will always seek to avoid the ultimate effect of final acceptance. However, it must prove the defects existed at final acceptance that were hidden from knowledge as well as sight and could not be discovered by the exercise of reasonable care. 

Where latent defects in manufactured articles are present, the contracting agencies have  a “reasonable time” to take action and bring a claim against your company. See  Bar Ray Prods., Inc. v. United States, 162 Ct.Cl. 836, 837-38, 1963 WL 8524 (1963). “In order to revoke acceptance of the supply, the government must assert its claim in a timely manner, and prove by a preponderance of the evidence that the alleged latent defect existed at the time of the governments final acceptance, it was hidden from knowledge as well as sight, and the government could could not have discovered it by the exercise of reasonable care.” Spandome Corp. v. United States, 32 Fed.Cl. 626, 630 (1995) (citing United Techs. Corp. v. United States, 27 Fed.Cl. 393, 398 (1992)).

  • Waiting one year could be unreasonable ( Ordnance Parts & Eng’g Co., ASBCA No. 40293, 90-3 BCA ¶23,141 (1990)

Government contracting agencies have a heavy burden in showing that you performed a contract for services or construction with a defect.  To prove its case the government must show:

  1. The existence of a defect;
  2. The defect existed at the time of acceptance of the work;
  3. The defect was latent.

In one case on appeal, the Armed Services Board of Contract Appeals ruled that latent defects on government contracts that can be discovered readily by an ordinary examination or test are not latent defects and a failure to make the examination or test does rise to the level of defect. The finality of acceptance is not diminished by such failure. See Polan Industries, Inc., ASBCA Nos. 3996 et al., 58-2 BCA p 1982Hercules Engineering & Manufacturing Company, ASBCA No. 4979, 59-2 BCA p 2426.

  • Contractors do have some recourse when the Agency fails to meet its obligations.

Government Contracts Latent Defects Rule for Fixed Price Contracts for Supplies

Generally speaking, the Inspection Clause incorporated into a fixed-price government contract for supplies, provides that government acceptance is final and conclusive, except for construction latent defects, fraud, or gross mistakes amounting to fraud.

A fundamental goal of the federal acquisition process is to obtain quality goods, construction contract work or services.  In furtherance of this objective, the Government inspects tendered supplies and services to ensure conformance with contract requirements. While the right to inspect and test is very broad, it is not without limits.

  • Simply because the government alleges a defect is not the end of the analysis.
  • Proper inspections are critical because once the Government accepts a product or service, it can only revoke acceptance in narrowly defined circumstances.
  • The contractor should develop internal processes that heavily document their actions before shipping products or delivering services to the Agency.

Both prime and subcontractors should remember that the Government has the right to inspect and to ensure that it receives conforming goods and services.

Manufactured Equipment and Possible Latent Defect Construction Claims

Particularly with the equipment manufacturing, if the contract specifies no particular test, the contracting officer must consider:

  • The intended use of the product or service;
  • Measure compliance with contractual requirements;
  • Or use industry standard tests.

For example, just because the government may have performed a preliminary analysis on equipment does not mean that acceptance by the government bars any legal action for a latent defect claim. The facts of each case are critical to the outcome.  See Responding to Government Cure Notice Letter.

The Importance of Inspections

An issue arises when a piece of equipment is manufactured and developed to be shipped under a destination contract. In deciding whether there are latent vs patent defects, it must first be determined what type of inspection or test would have discovered the defect and whether it was reasonable for the Government to have used that inspection or test procedure in the circumstances.

  • If the defect could have been discovered by a test specified in the contract it is not a latent defect, Gordon H. Ball, Inc., ASBCA 8316, 1963 BCA p 3925 (the Government did not perform x-ray inspections of the welds as provided by the specifications until after acceptance).
  • When equipment is going overseas, the question becomes what level of inspection is required at a local port of shipment is allowed.
  • The Government’s failure to discover defects during an initial investigation does not relieve the contractor of the requirement for conforming goods.

A court may find that the agency acted  reasonably when it delays revocation of acceptance to determine conclusively that the supplies were defective or to work with the contractor to solve the problem. See Perkin- Elmer, 47 Fed. Cl. at 674-675 (citing Jung Ah Indus. Co., 1978 WL 2436, ASBCA No. 22632, 79-1 B.C.A. (CCH) ¶ 13,6743 (1978)).

Appeal Cases on Patent Vs Latent Defect Construction Issues

The most common issues when litigating federal construction cases and appeals invlove knowing the difference between patent vs latent defects in construction contracts. The Board of Contract Appeals ruled that although the defects could have been easily discovered by a torque wrench inspection which was specified in the contract, the board determined that a simple visual inspection was reasonable under the circumstances and that the undersized bolts could not have been discovered thereby. Hence, there was a latent defect. See also Triple “A” Machine Shop, Inc., ASBCA 16844, 73-1 BCA p 9826 (1972) (defects hidden from sight inside sealed units were latent since a reasonable test did not include opening the units). See information about the Prompt Payment Act.

When analyzing your case for the existence of a latent defect, another question must be answered. Did the government actually know about the defect at the time of acceptance? If so, then there is no latent defect. Instead, you have a patent claim defect.  See Southwest Welding & Manufacturing Co. v. United States, 188 Ct. Cl. 925, 413 F.2d 1167 (1969). 

Can You Recover in a Claims for Defective Specifications?

Depending on the facts of your case, one should government contractors can entitled to an equitable adjustment for increased costs of performance due to
defective specifications.” See Clearwater Constructors, Inc. v. United States, 71 Fed. Cl. 25, 32 (2006) (citing L.W. Foster Sportswear Co. v. United States, 405 F.2d 1285 (Ct. Cl. 1969)); see also AAB Joint Venture v. United States, 75 Fed. Cl. 414, 429-30 (2007) (deciding that when the specifications in a contract were largely inappropriate for the construction anticipated under the contract, the plaintiff could recover under a theory of defective specifications).

Get  Immediate Help

If you’re a federal government contractor, or organization seeking to retain a construction latent defect lawyer to resolve disputes about the difference between patent vs latent defects, call our government contract law and construction attorneys for a FREE initial consultation. 1-866-601-5518.

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