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.” In construction contracting, a project owner may be held 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. The intermediate appellate courts of that state had applied a variety of standards for liability, including careless nondisclosure, intentional nondisclosure, and nondisclosure with fraudulent intent. The court resolved these inconsistencies with a four-part test.
If a public project owner (1) possesses information that will affect the contractor’s bid price or performance cost; (2) knows that the contractor does not possess that information; and (3) includes nothing in the contract documents that 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.
Other cases this week address a “standstill” provision in a subordination agreement with a construction lender and a contractor’s proposed early completion. The standstill clause effectively waived the contractor’s mechanic’s lien rights and was therefore unenforceable. And, the contractor’s proposed schedule was properly treated as unrealistic due to the contractor’s lack of experience.
