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Latent Defects

Latent defects are defects which existed at the time of acceptance but would not have been discovered by a reasonable inspection, Stewart Avionics, Inc., ASBCA 15512, 75-1 BCA p 11,253 (1975). In Herley Industries, Inc., ASBCA 13727, 71-1 BCA p 8888 (1971), the board set out the essential elements of latent defects at 41,309:

Under the first of these exceptions by which the Government seeks to avoid the conclusive effect of final acceptance, it must establish the existence of defects at the time of final acceptance which were hidden from knowledge as well as sight and could not be discovered by the exercise of reasonable care. It is further well established that defects which can be discovered readily by an ordinary examination or test are not latent and a failure to make the examination or test does not make them so, the finality of acceptance is not diminished by such failure. Polan Industries, Inc., ASBCA Nos. 3996 et al., 58-2 BCA p 1982; Hercules Engineering & Manufacturing Company, ASBCA No. 4979, 59-2 BCA p 2426.

In Royson Engineering Co., ASBCA 15438, 73-2 BCA p 10,229 (1973), the board found a defect to be patent since it could have been discovered "without undue effort." If the 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 p 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").

In deciding whether a defect is latent (or patent) 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 latent, 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); Arrow Aluminum Castings Co., ASBCA 2513 (1955) (x-ray examination of castings was a reasonable test in light of various contract provisions which specified its use). However, many of the cases addressing the latent defects issue do not involve contractually-specified inspections or tests. In these cases various methods of analysis have been used to determine whether an inspection or test should reasonably have been conducted by the Government.

a. Nature of the Specification

The more critical the item or the more detailed its description in the contract specification, the greater the likelihood the Government will be expected to test it. In Geranco Manufacturing Corp., ASBCA 12376, 68-1 BCA p 6898 (1968), it was held that the contractor's failure to use a noncorroding pump in a steam cleaner constituted a patent defect. The board stated at 31,860:

The contracting officer states that normal inspection does not require the dismantling or teardown of the cleaner and an analysis of the materials used. This would seem to be true if one were buying one, or a small quantity of, "off the shelf" cleaners. But we are here concerned with contracts for 456 cleaners, at a total price of $347,268.89, to be designed and produced to conform to Government specifications. The specifications contain requirements to be met by materials and components. When the Government specifies that materials and components are to have certain properties and meet certain requirements it presumably has some way of inspecting or testing to see if the specifications are met.

Accord, Dixie Printing Ink Co., ASBCA 896 (1952) (contractor's use of dehydrated castor oil instead of specified pure castor oil held not a latent defect because Government could have used a standard chemical analysis); Action Diamond Tool Co., ASBCA 625, 5 CCF p 61,271 (1951) (failure of grinding wheels to meet specified hardness requirement held not a latent defect since a simple test of the wheel in operation would have revealed this deficiency).

b. Ease of Government Inspection

The degree of difficulty and expense of conducting tests are important factors in determining the reasonableness of a Government test. For example, dimensional defects, discoverable by measurement, are commonly held not latent, Jo-Bar Manufacturing Corp., ASBCA 18292, 73-2 BCA p 10,353, mot. for reconsid. denied, 74-1 BCA p 10,392 (1973) (cylinder assemblies did not conform to dimensions). However, the number and type of inspections necessary to discover such defects may not be reasonable under the circumstances. In Kaminer Construction Corp. v. United States, 203 Ct. Cl. 182, 488 F.2d 980 (1973) the court upheld the board's finding that sixteen undersized bolts in a 11,967 bolt structure, constituted a latent defect. 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. 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). Compare Cross Aero Corp., ASBCA 14801, 71-2 BCA p 9075 (1971) where the board found that dimensional nonconformities in 385 pins were patent defects since a 100% inspection or a random sample inspection could have led to their discovery. Although the court in Kaminer found that the defects in question were not discoverable, many defects are discoverable by a visual inspection. Since a visual inspection is in most circumstances considered reasonable, such defects would therefore be patent. See, e.g., Royson Engineering Co., ASBCA 15438, 73-2 BCA p 10,229 (1973) (presence of .30 carbon steel instead of .40 was a patent defect since a simple visual examination of certifications on end fittings would have revealed this); Harold Bailey Painting Co., ASBCA 28443, 84-1 BCA p 17,043 (1983) (loose boards, lack of featheredging and improperly driven nails were readily discoverable and therefore not latent defects).

The availability of test facilities has also been a consideration in determining whether a test could reasonably have been made. See Herley Industries, Inc., ASBCA 13727, 71-1 BCA p 8888 (1971) where a defect in the composition of metal was found to be patent because the Government had a readily available laboratory which conducted metal analyses. Compare Jung Ah Industrial Co., ASBCA 22632, 79-1 BCA p 13,643 (1978), mot. for reconsid. denied, 79-2 BCA p 13,916 (1979), where the board found a defect to be latent in spite of the fact that there was a testing facility available to determine whether wall paneling was "incombustible treated." The board concluded that the Government had acted reasonably in not submitting the material to this testing facility since the contractor stated on the invoice and made oral assurances that the material met the requirement.

If a defect can only be discovered by operating the item for a period of time, it may be considered latent. See Keco Industries, Inc., ASBCA 13271, 71-1 BCA p 8727 (1971) where the board found defects in sealed clutch assemblies to be latent since they could only have been discovered, in many instances, by continual operation beyond the required 500 hour service life until the failures occurred. Because the imposition of such a test would have amounted to "a requirement for destruction of the component, and a frustration of the purposes of the operational warranty," the board concluded the test was not reasonable and the defects were therefore latent. Similarly, in Triple "A" Machine Shop, Inc., ASBCA 16844, 73-1 BCA p 9826 (1972) the board found that a defect which went undetected after the units were test run for one and a half to two hours was latent since this appeared to be a reasonable test. See also General Electric Co., IBCA 442-6-64, 65-2 BCA p 4974 (1965) where a metal fatigue failure was held to be a latent defect because it appeared only after operation of the unit and could not have been discovered by a reasonable inspection prior to acceptance.

c. Past Experience

The degree of past experience with the items, the past performance of the contractor, and representations made by the contractor have all been considered in determining whether it would have been reasonable for the Government to conduct a test which would have disclosed the defect. The experience of the contractor has been considered in determining what constitutes a reasonable inspection, Triple "A" Machine Shop, Inc., ASBCA 16844, 73-1 BCA p 9826 (1972) (one hour per day of Government inspection was reasonable for work that was not difficult for such an experienced contract); T.M. Industries, ASBCA 19068, 75-1 BCA p 11,056 (1975) (reasonable inspection should have included first article testing or thorough inspection of completed units where contractor had no experience in manufacturing items).

FAR 46.504 permits the use of a certificate of conformance instead of source inspection when, because of the contractor's reputation or past performance, it is likely that the supplies or services "will be acceptable" and "any defective work would be replaced." In two cases the boards have reasoned that the execution of such a certificate justified the Government in conducting a limited inspection, Harrington & Richardson, Inc., ASBCA 9839, 72-2 BCA p 9507 (1972) and Jung Ah Industrial Co., ASBCA 22632, 79-1 BCA p 13,643 (1978), mot. for reconsid. denied, 79-2 BCA p 13,916 (1979). See also United States v. Franklin Steel Products, Inc., 482 F.2d 400 (9th Cir. 1973) stating that a limited inspection was reasonable where the contractor warranted that the goods conformed. In cases where no certificate of conformance is submitted by the contractor but the Government has limited its inspection in reliance on contractor inspection, the boards have generally followed the normal analysis as to whether a latent defect exists. See, e.g., Metalstand Co., GSBCA 4682, 77-1 BCA p 12,418 (1977) (Government mistakenly thought a Quality Approved Manufacturer Agreement was in effect and that therefore no Government inspection was necessary).