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Differing Site Conditions Claims

On Behalf of | Apr 10, 2021 | Firm News

Construction projects involve a great many risks. In projects involving deep foundations or other subsurface work, one significant risk is that the subsurface conditions encountered during construction will differ from either what is expected or is indicated in the geotechnical report or other documents provided to the contractor. For these projects, the risk of differing subsurface conditions must be accounted for, managed and, ultimately, the duty of one party or the other to bear that risk.

The primary tool used to allocate the risks among the project participants is the construction contract. How construction contracts allocate the risk that subsurface conditions will differ has changed substantially over the past century. Today, many contracts put that risk on the owner. One rationale behind that risk allocation is that the owner is in the best position to conduct (or more correctly, have conducted on its behalf) pre-construction site investigations to discover what subsurface conditions actually exist. Moreover, shifting that risk to the contractor typically carries a significant premium that owners wish to avoid.

In most public contracts, with a few notable exceptions, the risk of differing site conditions is allocated to the owner. For example, most federal construction contracts include the FAR 52.236-2, which provides

If the conditions do materially so differ and cause an increase or decrease in the Contractor’s cost of, or the time required for, performing any part of the work under this contract, whether or not changed as a result of the conditions, an equitable adjustment shall be made under this clause and the contract modified in writing accordingly.

To establish a claim under this clause, the contractor must generally show either that the “conditions at the site … differ materially from those indicated in this contract” or that the “conditions at the site [are] of an unusual nature [and] differ materially from those ordinarily encountered and generally recognized as inhering in work of the character provided for in the contract.” This framework is generally accepted in many contracts, including many private contracts on commercial projects, and are referred to as either type 1 claims (where the conditions differ from those indicated) and type 2 claims (where the conditions are unexpected).

An important point of contention in most differing site conditions claims is notice. In fact, the primary difference between contracts that select this framework of allocating the risk of differing site conditions is in (1) when notice is required, (2) what constitutes sufficient notice, and (3) the procedure for providing notice. Of course, there are other important points that are often contentious too–like whether the contractor must suspend work in the area when differing conditions are encountered, at what point the contractor “should have” recognized the conditions, and, especially in type 2 claims, whether, in fact, the conditions are unusual and, thus, unexpected.

Even where notice does not conform strictly to the notice required by the contract, the applicable common law rules will be critical. For example, in some jurisdictions, even where a contractor fails to provide the contractually required notice of a differing site conditions, the contractor may still be able to recover provided the delay in providing notice (or other problem with the notice that was timely provided) does not prejudice the owner. These rules vary between states and the federal common law of contracts (applicable to federal construction contracts).

As with any claim, the contract will ultimately be pivotal to the success or failure of a differing site condition claim. In addition to the contract, the contractors access to the site and familiarity with the geologic conditions in the area of the project prior to contracting will also be important. Also, especially with respect to type 1 claims, the geologic information (and any disclaimers included with that information) will also be important.

A question I am asked frequently is, what about contracts where there is no clear allocation of the risk of differing site conditions? The answer I typically give is it it depends–an answer that causes many owners and civil engineers to raise an eyebrow or two. In most jurisdictions there are facts that, if true, could give rise to a claim by a contractor even where the contract does not expressly include a differing site conditions clause (or other names clause that provides a road map for such a claim). Most of these common law claims fall in the category of a negligent misrepresentation claim. Negligent misrepresentation is a unique claim because, while it is of the “tort” genre, it may still apply even where the parties are in privity of contract and the only damages sought are economic damages–two problems that typically prevent contractors from bringing “tort” claims against a project owner.

The bottom line is if a differing site condition is encountered, the first point of reference with respect to the recoverability for that condition will be the contract, including documents incorporated into the contract by reference. Second will be the pre-contract circumstances, e.g., site investigations, time the site was made available, etc…. Finally, any other communications or information provided to the contractor that was not incorporated into the contract. Having an attorney familiar with these types of claims is also critical because even where a careful reading of the contract can be informative, it is not dispositive. Jones Law’s attorneys have extensive experience advising owners, engineers, and contractors who have encountered a differing site condition on their project or where a differing site condition claim has been presented to them.