Sometimes an apparently general specification calls for a type of device or piece of equipment, and it turns out that only one manufacturer makes it. Similarly, a hidden “sole source” specification may be inserted that requires a component to have certain characteristics and there is only one source. Regardless of whether the specification writer intentionally tried to hide a sole-source requirement or just failed to provide expressly for a specific manufacturer’s product, the result can be the same: a surprise to the electrical contractor.


In one case, the specifications contained a description of an alpha-numeric keyboard to be used with a programmable logic controller (PLC) in a package handling facility. When the time came to order the keyboard, the contractor discovered that none of its electrical suppliers could locate a keyboard with the specified configuration. Because the electrical contractor was never able to find a manufacturer for this unique keyboard, final completion of the project was delayed. The owner, it turned out, knew who the manufacturer was (a small, foreign company), yet failed to disclose this information. Although the owner had used the product in another facility, it did not believe that it had any obligation to disclose its knowledge of the source of the product.


If you discover, after contract signing, that you have a sole-source specification, you may also discover that the cost of purchasing the item exceeds your budget. There are instances where a manufacturer’s representative sells the owner on his company’s product, and his company then knows that the resultant specification is “written around” that product. With that knowledge, the manufacturer need not price competitively, and worse, because of this knowledge, the manufacturer’s loyalties may be more with the owner than the contractor.


When this issue arises, the question becomes: What remedies, if any, are available to the contractor? Should the contractor have investigated the specifications in advance of bidding? Does the owner have any responsibility to tell the contractor of its sole-source intention? Does the changes clause cover the extra costs? Who is liable for any delays in acquiring a specially made product?


Private (nongovernment) contracts


As a general rule, silence is not actionable. In other words, an owner is not necessarily required to tell a contractor everything it knows about the project. Using this starting point, if an architect writes a specification around a particular product without identifying the product by its trade name and without noting that only one company makes the product, the contractor may not be able to avoid the consequences. The argument is that, with some investigation, the contractor could have learned of the “hidden” sole-source nature of the specification.


To establish some liability upon the owner, the contractor will have to prove something akin to fraud, a difficult standard. The term of art used in this circumstance is “superior knowledge.” In private contracts, this term means “fraudulent concealment.” The contractor will have to prove that the owner intentionally misled the contractor concerning a specification requirement, perhaps to get a lower bid price. The contractor will also have to show that it could not have reasonably uncovered the information that was withheld.


State law in this area is not well-defined, and it varies. The courts try to balance a private owner’s right to specify whatever he or she wants for the project against a fairness consideration for the unwitting contractor. The owner’s right is straightforward. On the other hand, the courts are faced with spongy factual questions of whether the contractor was truly misled by the owner or merely did not pay close enough attention to the 
bid documents.


Government contracts


For federal government contracts and, to a lesser extent, state government contracts, the rules on proprietary specifications are different. The government, as opposed to private owners, has an obligation to foster competition and, generally, not to waste public funds.


Under the standard Federal Material and Workmanship Clause, “References in the specifications to equipment, material, articles or patent processes by trade name, make, or catalogue number, should be regarded as establishing a standard of quality and shall not be construed as limiting competition.”


This clause requires the contractor to be allowed to submit an “or equal” product, even though the contract does not state “or equal,” and even though the specifications require equipment that is “the same as” existing equipment. In one case, for example, the contract required that a nurse-call system “match existing equipment.” The contractor still should have been allowed, according to a Board of Contract Appeals’ decision, to use an “equal” system made by a different manufacturer. The government’s disallowance of the or-equal product entitled the contractor to an equitable adjustment to the contract price.


Where there is a proprietary specification (where a specification does not list a make or model but is written around a sole-source product), the result is the same: an “or equal” is permitted.


A few qualifications need to be made. Whether the government overtly uses a sole-source specification or describes a product that can only be supplied by one manufacturer (a proprietary specification), if the contract further sets forth the functional requirements of the product (the reasons why only one product will suffice), the contractor may not have an “or equal” option.


In such cases, the contractor may be advised to pursue a prebid challenge to the specifications through government bid protest procedures. The problem, of course, is that with a proprietary specification, the contractor may not know that there is a hidden sole-source requirement until after contract award.


The boards have allowed contractors to recover their excess costs for a hidden sole-source item under the argument that the government had a “duty to disclose” the sole-source nature of the specification. In other cases, however, particularly where the features of the product, and the reasons why those features are important, are described in the specifications, the boards have ruled that the government did not have a duty to disclose.