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- 1. CONSTRUCTION CONTRACTS DIFFERING SITECONDITIONS Chapter – 15
- 2. THE FEDERAL DIFFERINGSITE CONDITIONS CLAUSE • Type I Differing Site Conditions – Refers to physical conditions encountered in work that differs materially from a condition indicated in contract documents – Two facts must establish a type I differing conditions • The contract document must have indicated a physical condition in a certain way • When condition encountered during actual performance- found to be materially different – Example: Finding wet, sticky clay at a location in an excavation where soil boring logs indicated that material would be damp sand – In absence of this clause, it constitutes misrepresentation on owner’s part if differing site conditions are found
- 3. THE FEDERAL DIFFERINGSITE CONDITIONS CLAUSE • Type II Differing Site Conditions – Refers to a physical condition encountered during work that differs materially from conditions normally expected in the type of construction work – Here difference is not between encountered conditions & indicated conditions but between encountered conditions & the conditions considered normal or usual for the construction work – To establish Type II differing site conditions contractor must prove that condition encountered is truly unusual and thus not anticipated when contract was signed – Example: Finding a material in an excavation that, even though identified correctly on the soil boring logs, behaves in a manner materially different from the material’s usual behavior
- 4. THE FEDERAL DIFFERINGSITE CONDITIONS CLAUSE • Duty of contractor to give notice – Contractor must notify promptly whenever differing site conditions are encountered and “before such conditions are disturbed” – The purpose is to provide an opportunity for the government to view and investigate the condition to verify that the condition is, in fact, a differing site condition – No claim for relief after final payment on the contract – A secondary purpose is to provide the government the opportunity to direct the actions to be taken by contractor in dealing with differing site condition
- 5. THE FEDERAL DIFFERINGSITE CONDITIONS CLAUSE • Duty of government to promptly investigate – Once notified, the government has a positive duty to investigate the condition and make determination that it is, or not a differing site condition – Failure to investigate promptly and make a determination in good faith is a breach of contract – If government determines the condition not a differing site condition, contractor may accept the decision or with any other contracting officer’s decision, dispute the determination under provisions of dispute resolution clause
- 6. THE FEDERAL DIFFERINGSITE CONDITIONS CLAUSE • Equitable adjustment provided – If contracting officer finds that condition is a differing site condition that increases or decreases the cost or time for performance of work, an equitable adjustment will be made to contract price and time – This promise is indisputable and cant be overridden by other contract provisions • Differing site conditions and Government liability – Differing site conditions clause is not an exculpatory clause – In type I conditions, clause does partially exculpate, or remove, the stigma of fault or blame associated with a breach of contract by government, but it does not operate to relieve the government from liability
- 7. THE FEDERAL DIFFERINGSITE CONDITIONS CLAUSE – It explicitly establishes government’s liability for costs and contract time to overcome the condition – Provides an orderly process by which contractor may claim and recover costs through an equitable adjustment to the contract – This clause provides contractual remedy – Without contractual remedy contractor’s only avenue is to sue the government for breach of contract, alleging misrepresentation (in Type I condition) or non disclosure of superior knowledge (in type II condition)
- 8. OTHER DIFFERING SITECONDITIONS CLAUSES • The right to relieve based on differing site conditions is not an implied right of contract • No right of relief unless contract contains this clause • In some contracts analogous clause is titled “Changed conditions” or “Concealed conditions” - important to read them carefully • Does the clause cover both Type I and Type II conditions? – Wording of clause is important in determining whether both type I and type II differing site conditions are included – Type I is generally included; some differing site conditions don’t include Type II
- 9. OTHER DIFFERING SITECONDITIONS CLAUSES • Does the contract contain conflicting exculpatory clauses? – Example • If contract contains soil boring logs and a differing site conditions clause, the contractor is clearly protected if adverse soil conditions different from those indicated in the boring logs are encountered • If the contract also contains a clause stating that the owner will not be responsible for the accuracy of soil boring logs, an obvious conflict has been created – Current judicial and administrative trend is to favor differing site conditions clause over exculpatory clauses-on basis of “precedence of contract documents clause”
- 10. OTHER DIFFERING SITECONDITIONS CLAUSES • What are the notice requirements? – When differing site conditions are encountered contractor must notify promptly to “before such conditions have been disturbed” – If “lack of notice did not prejudice rights of government” in anyway then recovery under clause not barred – Prejudice-caused by both denying opportunity to make investigation & by precluding the opportunity to direct and control course of action to be taken to deal with the condition – In federal contract clause-failure to furnish is not necessarily fatal – In other contracts-prompt furnishing of notice is a “condition precedent” to recovery – Courts inclined to give full force to literal interpretation of clauses rather than “no prejudice to the rights of owner standard”
- 11. OTHER DIFFERING SITECONDITIONS CLAUSES • What are the owner’s responsibilities under the clause? – Government’s contractual duty to investigate and determine whether the conditions encountered are differing site conditions – Contractor has legitimate right to know whether owner agrees with conditions encountered and whether cost & time adjustment will be forthcoming – If time extension is not forthcoming then, the rate of performance has to be accelerated, a costly undertaking – Federal clauses imposes the duty of making prompt investigation and determination on government – In other contracts if no contractual duty is imposed on owner then contractor is in a very disadvantageous position
- 12. REASONS FOR DENYINGDIFFERING SITE CONDITIONS CLAIMS • Lack of notice – Most differing site conditions clauses require contractor to furnish prompt notice, sometimes (as in federal clause) before conditions are disturbed – Lack of notice can bar an otherwise valid claim if prejudice to the owner’s interests can be shown • Difference not material – To qualify as either Type I or Type II differing site conditions, the difference must be material – Marginal differences are not sufficient
- 13. REASONS FOR DENYINGDIFFERING SITE CONDITIONS CLAIMS • Failure to conduct an adequate pre-bid site inspection – If pre-bid site inspection is conducted-site conditions discovered-additional costs could be included in bid – Most bid documents strongly suggest to conduct pre-bid site inspection – Contractor’s failure to make an adequate pre-bid site inspection can be effective in barring the different site conditions claim – On other hand contractor will not be held responsible for discovery of latent conditions or be held responsible for failing to make “a critical analysis of the plans and specifications”
- 14. REASONS FOR DENYINGDIFFERING SITE CONDITIONS CLAIMS – Latent condition is one that is hidden or not obvious – Patent condition is obvious – Generally bidding contractors are only expected to note patent conditions in pre-bid inspections – If condition is not patent - contractor’s failure to discover them will not bar a later claim for a Type I condition
- 15. DEALING WITH DIFFERINGSITE CONDITIONS • Prompt written notice – The importance of prompt written notice to owner cannot be overemphasized – Notice should be given before conditions are disturbed – Although constructive notice may have occurred, written notice is far preferable – Example for constructive notice: contractor encountering a differing site condition during excavation when owner’s inspector was present – Written notice should also request owner for proper investigation and to issue a determination that differing site conditions have been encountered
- 16. DEALING WITH DIFFERINGSITE CONDITIONS • Request for owner’s instructions – The contractor should request the owner’s instructions or directive on how to deal with encountered conditions unless there is only one possible course of action – Contractor should advice that contract performance will be delayed if instructions or directive from owner is not received within reasonable time • Failure to receive determination or receipt of adverse determination – If owner fails to make determination or determines that encountered condition is not differing site condition- contractor must assume no cost or time adjustment will be there
- 17. DEALING WITH DIFFERINGSITE CONDITIONS – Unless contractor is prepared to concede the matter, owner should be advised in writing that contractor disagrees with determination and is reserving all rights under contract – A claim should be then filed under disputes resolution provisions for later adjudication – In the interim, contract work must be continued according to owner’s instructions with no guarantee that an equitable cost or time will ever be received
- 18. DETERMINATION OF THEEQUITABLE ADJUSTMENT • Adjustment in contract price and time-determined by agreement between contractor and owner • Equitable adjustment may also be determined by others as per dispute resolution clause • In either case, contractor must prove the performance cost increases and impact of overall contract performance time extension • Differing site condition clauses in many contracts provides that price and time adjustment be determined by provisions of changes clause • Force account provisions should be employed only to determine the direct cost portion of equitable adjustment to which demonstrable indirect costs & reasonable profit added