Construction Contracts and Site Conditions
Differing Site Condition Denial
Goran Musinovic
March 26, 2013
Introduction
Many standard form construction contracts contain a provision defining two types of differing site conditions: Type I and Type II. Type I differing site conditions consist of subsurface or latent physical conditions at the site, which differ materially from those indicated in the contract. Type II differing site conditions consist of unknown physical conditions at the site, of an unusual nature, which differ materially from those ordinarily encountered and generally recognized as inherent in work of the character provided for in the contract. This article focuses on Type I differing site conditions claims.
- Typically, to establish entitlement to recovery for a Type I differing site condition, a contractor must prove, by a preponderance of the evidence, that: The conditions indicated in the contract differ materially from those actually encountered during performance;
- The conditions actually encountered were reasonably unforeseeable based on all information available to the contractor at the time of bidding;
- The contractor reasonably relied upon its interpretation of the contract and contract related documents; and
- The contractor was damaged as a result of the material variation between expected and encountered conditions.
Failure to prove these elements will likely result in the denial of a contractor’s differing site condition claim, which could have significant cost impacts on the contractor and result in the contractor bearing the liability for delays on the project.
DSC Claims by NDG Constructors
In NDG Constructors, ASBCA No. 57328, 12-2 BCA ¶ 35,138, the Corps of Engineers ("Corps") awarded a Multiple Award Task Order Contract ("MATOC") to NDG Constructors ("NDG"). Under the MATOC, the Corps awarded a task order to NDG, which required NDG to construct a new 16-inch waterline under I-90 to service Ellsworth Air Force Base by boring and jacking roughly 560 linear feet of 54-inch diameter steel casing. The work included removing existing waterlines, installing isolation valves, connecting existing waterlines, testing, seeding, surface restoration, and other incidental work. The task order required NDG to complete the work in 180 calendar days.
As part of the Request for Proposal ("RFP"), the Corps included two geotechnical reports from American Engineering Testing, Inc. ("AET"). AET obtained soil samples and classified them in accordance with the American Society for Testing Materials ("ASTM") designations. Both reports contained a disclaimer stating that the subsurface conditions and soils between boring locations could differ significantly from those encountered at the various boring locations. The reports noted that soft wet soils and possible groundwater should be anticipated, but that excavation in the existing fill and soils should be possible with conventional excavation and dewatering equipment.
NDG asked BT Construction Inc. ("BTC"), a pipeline excavation contractor, if it was interested in the tunneling portion of the project. In preparing its bid for the tunneling portion of the project, BTC relied on the contract, the specifications, the drawings, and the AET geotechnical reports. Based on these contract documents, BTC expected to encounter two types of soils: clay fill material and shale rock material. BTC chose to use an open-faced tunnel boring machine ("TBM") with standard conveyors and mine cars to remove the soil. BTC initially estimated it could tunnel an average of 35 feet a day using field-welded casing and 50 feet a day using Permalock casing. After BTC submitted its bid for the tunneling of the project, NDG awarded the subcontract to BTC.
Although BTC expected to finish tunneling in 11 days, once work commenced, the progress in tunneling was slow because the soil conditions were much more wet than anticipated by BTC. The soil was in fact so wet that the head of the TBM became frequently clogged with dirt, which significantly delayed the project. BTC switched various parts on the TBM in an attempt to increase its productivity and daily tunneling progress.
BTC notified NDG that it had encountered a differing site condition. Based on the contract documents, BTC expected to encounter a mixture of lean and fat clay, with some sand and gravel mixed in. BTC actually encountered very wet, fat clay without any sand or gravel, which significantly slowed its progress. NDG notified the Corps that the soil conditions presented a differing site condition and that it was going to request an equitable adjustment in the contract price and/or time extension, which NDG did. NDG requested money for three differing site conditions: (1) encountering water due to a test hole; (2) encountering soils with elevated moisture content; and (3) encountering unexpected rock.
Corps’ Position
The Corps agreed that (1) and (3) were differing site conditions, but it did not agree that the elevated moisture content of the soils was a differing site condition. The Corps rejected the claim that an elevated moisture content in the soils constituted a differing site condition claim, asserting that the late notice of the alleged differing site condition prevented the contracting officer (CO) from verifying the problem. In addition, the Corps argued that the increased moisture content of the soil was not a differing site condition because the reports by AET warned that the soils between boring locations could differ significantly and that these differences could be compounded by changes in climatic conditions, groundwater levels, and moisture content of the soil. Consequently, the CO denied NDG’s differing site condition claim pertaining to soils with elevated moisture content, explaining that NDG had not substantiated that a material other than that described in the RFP was encountered. As a result, the CO found that NDG failed to meet the elements necessary to establish a Type I differing site condition for an elevated moisture content. NDG appealed the contracting officer’s final decision to the Armed Services Board of Contract Appeals (“ASBCA” or “board”.)
DSC Claim Rejected by ASBCA
The ASBCA found that the soil profile, the soil characteristics, and the moisture content of the soil did not constitute a differing site condition. In reaching this conclusion, the board examined AET’s reports, which specifically warned that subsurface conditions and soil characteristics at other locations at the site could differ from those found at the test boring locations. The board explained that a Type I differing site condition claim is dependent on what is indicated in the contract. The contract documents did not indicate where precisely the contractor would encounter different soil profiles, but they nevertheless indicated that such different soil profiles and characteristics would be encountered. The board also found that the “fat clay” NDG encountered did not materially differ from the information contained in the contract documents, which provided that the soil consisted of “fat to lean clay.” Finally, the ASBCA found that the moisture content of the soil was consistent with the information contained in the contract documents, and that to the extent the actual moisture content of the soil was greater than indicated in the documents, the additional moisture was caused by the manner in which BTC performed the tunneling operation. Consequently, the board held that NDG failed to prove that the profile, characteristics, and the moisture content of the soil constituted a Type I differing site condition.
Practical Tip
As NDG Constructors shows, it is imperative for the contractor performing work on a project to be intimately familiar with the contract documents. If a suspected differing site condition is encountered, prompt written notice is essential. If a dispute arises over whether the conditions that were encountered at the site constituted a Type I differing site condition, the board or court will resolve the issue by scrutinizing the contract documents. If those documents show that the encountered site conditions were foreseeable, the contractor’s differing site condition claim will likely fail. To the extent the contract documents are not clear in informing the contractor about the site conditions that could be expected on the project, the contractor should attempt to resolve any ambiguities before submitting its proposal. Encountering differing site conditions that could arguably be foreseeable under the contract documents may not only result in the contractor not being compensated for the extra work performed as a result of those site conditions, but it could also possibly subject the contractor to liability for causing delays on the project.
SOURCE: www.lexology.com