Like darts thrown in the dark, dealing with site conditions you cannot see or predict is risky business. Poking holes in walls or in the earth to try and figure out what might be lurking under the surface is all well and good, but doesn’t always yield perfect information. Hazardous or unsuitable materials, ledge, groundwater, dead bodies, you name it – if encountered, these surprises need to be dealt with in order to complete the project, and somebody needs to absorb the cost of doing so.
If the parties’ contract doesn’t address the issue, the contractor will end up bearing this risk. In many contracts, the risk is shared between owner and contractor through a “Differing Site Conditions” clause. The phrase immediately raises the question, “Different than what?” The answers “Different than represented” and “Different than expected” correspond to the two types of differing site conditions for which an adjustment of the contract price may be available. For example, AIA Document A201-2007 General Conditions of the Contract for Construction contains the following language in § 3.7.4:
“If the Contractor encounters conditions at the site that are (1) subsurface or otherwise concealed physical conditions that differ materially from those indicated in the Contract Documents or (2) unknown physical conditions of an unusual nature, that differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the Contract Documents, the Contractor shall promptly provide notice to the Owner and the Architect before conditions are disturbed and in no event later than 21 days after first observance of the conditions. The Architect will promptly investigate such conditions and, if the Architect determines that they differ materially and cause an increase or decrease in the Contractor’s cost of, or time required for, performance of any part of the Work, will recommend an equitable adjustment in the Contract Sum or Contract Time, or both.”
Federal Acquisition Regulations, 48 C.F.R. 36.502 and 52.236-2, have similar language. It’s easy to see why the owner would benefit from such a clause, even if it means potentially paying more. Without that opportunity for an upward adjustment in price, contractors will pad their bids to protect against the unknown, and the owner will definitely pay more. And with unlimited access to the site, the owner is in a superior position to do subsurface and other investigations than are bidders with limited opportunity to inspect a site.
Even when boring logs, soils reports and other information are provided to bidders, however, most contracts contain disclaimers about relying on their accuracy, and caution the contractor to rely on his own investigation. Such disclaimers are in tension with Type 1 differing site conditions clauses, and won’t overcome them when it would be unfair to the contractor. That was the case in Frederick Snare Corp. v. Maine-New Hampshire Interstate Bridge Authority, 41 F.Supp. 638 (D.N.H. 1941), where the Court awarded a contractor extra compensation for excavations considerably in excess of what was shown on the plans despite a clause in the bid documents stating “Certain borings have been made by the Owner and the data therefrom available to the Engineers is shown on the plans. . . The Owner does not guarantee such data and will not be liable for and will not pay any claim made by the Contractor because the sub-surface conditions found during construction do not correspond with conditions as indicated by the data shown. Should the Contractor consider such data insufficient he shall make such investigations as he considers necessary and shall base his bid upon his own opinion of the conditions.” Id. at 646. The Court relied on the fact that there wasn’t sufficient time for bidders to investigate conditions themselves: “[N]o accurate soundings could be made to determine the subsurface conditions in the four days allotted.” Id.
While each case is different, it is fair to say that “requirements for pre-bid inspection by the contractor have been interpreted cautiously regarding conditions that are hard to identify accurately before work begins, so that ‘the duty to make an inspection of the site does not negate the changed conditions clause by putting the contractor at peril to discover hidden subsurface conditions or those beyond the limits of an inspection appropriate to the time available.’” Metcalf Construction Co. v. United States, 742 F.3d 984, 996 (Fed. Cir. 2014).
If the parties’ contract doesn’t address the issue, the contractor will end up bearing this risk. In many contracts, the risk is shared between owner and contractor through a “Differing Site Conditions” clause. The phrase immediately raises the question, “Different than what?” The answers “Different than represented” and “Different than expected” correspond to the two types of differing site conditions for which an adjustment of the contract price may be available. For example, AIA Document A201-2007 General Conditions of the Contract for Construction contains the following language in § 3.7.4:
“If the Contractor encounters conditions at the site that are (1) subsurface or otherwise concealed physical conditions that differ materially from those indicated in the Contract Documents or (2) unknown physical conditions of an unusual nature, that differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the Contract Documents, the Contractor shall promptly provide notice to the Owner and the Architect before conditions are disturbed and in no event later than 21 days after first observance of the conditions. The Architect will promptly investigate such conditions and, if the Architect determines that they differ materially and cause an increase or decrease in the Contractor’s cost of, or time required for, performance of any part of the Work, will recommend an equitable adjustment in the Contract Sum or Contract Time, or both.”
Federal Acquisition Regulations, 48 C.F.R. 36.502 and 52.236-2, have similar language. It’s easy to see why the owner would benefit from such a clause, even if it means potentially paying more. Without that opportunity for an upward adjustment in price, contractors will pad their bids to protect against the unknown, and the owner will definitely pay more. And with unlimited access to the site, the owner is in a superior position to do subsurface and other investigations than are bidders with limited opportunity to inspect a site.
Even when boring logs, soils reports and other information are provided to bidders, however, most contracts contain disclaimers about relying on their accuracy, and caution the contractor to rely on his own investigation. Such disclaimers are in tension with Type 1 differing site conditions clauses, and won’t overcome them when it would be unfair to the contractor. That was the case in Frederick Snare Corp. v. Maine-New Hampshire Interstate Bridge Authority, 41 F.Supp. 638 (D.N.H. 1941), where the Court awarded a contractor extra compensation for excavations considerably in excess of what was shown on the plans despite a clause in the bid documents stating “Certain borings have been made by the Owner and the data therefrom available to the Engineers is shown on the plans. . . The Owner does not guarantee such data and will not be liable for and will not pay any claim made by the Contractor because the sub-surface conditions found during construction do not correspond with conditions as indicated by the data shown. Should the Contractor consider such data insufficient he shall make such investigations as he considers necessary and shall base his bid upon his own opinion of the conditions.” Id. at 646. The Court relied on the fact that there wasn’t sufficient time for bidders to investigate conditions themselves: “[N]o accurate soundings could be made to determine the subsurface conditions in the four days allotted.” Id.
While each case is different, it is fair to say that “requirements for pre-bid inspection by the contractor have been interpreted cautiously regarding conditions that are hard to identify accurately before work begins, so that ‘the duty to make an inspection of the site does not negate the changed conditions clause by putting the contractor at peril to discover hidden subsurface conditions or those beyond the limits of an inspection appropriate to the time available.’” Metcalf Construction Co. v. United States, 742 F.3d 984, 996 (Fed. Cir. 2014).
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