DIFFERING SITE CONDITION

Every construction contract allocates risks between the owner and the contractor. The effect of unforeseen conditions is one of those risks. The owner is best able to assess and avoid the risk of unforeseen conditions by employing engineers and architects to research the project and draw the plans.

The purpose of incorporating a differing site condition clause in a construction contract is to transfer the risk of an unforeseen site condition to the owner, giving the opportunity to decrease construction cost while simultaneously compensating the bidder who encounters a subsurface condition not foreseeable when preparing a bid for an unanticipated condition not readily apparent after completing a site observation or bid document review.

Historically, the use of a differing site condition clause first arose in public sector contracting for the reasons mentioned in the previous paragraph.  This risk transferring provision later gained acceptance in private contracts for the same reasons.

FEDERAL GOVERNMENT CLAUSE

During the progress of the work, if (1) subsurface of latent physical conditions are encountered at the site differing materially from those indicated in the contract or if (2) unknown physical condition of an unusual nature, differing materially from those ordinarily encountered and generally recognized as inherent in the work provided for in  the contract, are encountered at the site, (A) the party discovering such conditions shall promptly notify the other party in writing of the specific differing conditions before they are disturbed and before the affected work is performed.

Upon written notification, the (B) Engineer will investigate the conditions, and if the Engineer determines that the conditions materially differ and cause an increase or decrease in the cost or time required for the performance of any work under the contract, an adjustment, excluding loss of anticipated profits, will be made and the contract modified in writing accordingly.

When this provision is included in the contract documents, the government or the private owner typically provides subsurface information to bidders so they can provide realistic and accurate estimates. With the protections afforded by the differing site condition clause, contractors do not have to include the cost of conducting their own subsurface investigations or price contingencies for unexpected conditions.

Moreover, in order to avoid disruptions and to alleviate the unnecessary expense of contractor’s site borings and investigations, the typical owner normally obtains information during design programming regarding site conditions. The contractor then examines the information via bid documents.

The policy supporting the purpose of a differing site condition clause was described by the Court of Claims in Foster Constr. C.A. v. United States 193 Ct. Cl. 587: 

“The purpose of the changed conditions clause is thus to take at least some of the gamble of subsurface conditions out of bidding.  Bidders need not weigh the cost and ease of making their own borings against the risk of encountering an adverse subsurface, and they need not consider how large a contingency should be added to the bid to cover the risk.  They will have no windfalls and no disasters.  The Government benefits from more accurate bidding, without inflation for risks which may not eventuate.  It pays for difficult subsurface work only when it is encountered and was not indicated in the logs.”

If the contractor reasonably interprets the information contained in the contract documents, the contractor is generally relieved from the risk of the unexpected condition

Faithful execution of the policy [underlying the differing site condition clause]  requires that the promise in the changed conditions clause not be frustrated by an expansive concept of the duty of bidders to investigate the site.  That duty, if not carefully limited, could force bidders to rely on their own investigations, lessen their reliance on logs in the contract and reintroduce the practice sought to be eradicated —  the computation of bids on the basis of the bidders’ own investigations, with contingency elements often substituting for investigation.  The changed conditions clause “makes it clear that bidders are to compute their bids, not upon the basis of their own pre-award surveys or investigations, but upon the basis of what is indicated and shown in the specifications and on the drawings. 

The clause “should induce the bidder not to consider such contingencies” as the latent or subsurface conditions, for which the Government has assumed responsibility.

Foster Construction, 435 F.2d at 887  (citations omitted).

The most specific information that the owner normally provides are the boring logs It is important to note that the purpose of a boring log is to accurately depict the subsurface conditions encountered during the investigation.

A log is a written record of the data concerning materials and conditions encountered in individual test holes.  It provides the fundamental facts on which all subsequent conclusions are based, such as need for additional exploration or testing, feasibility of the site, design treatment required, cost of construction, method of construction, and evaluation of structure performance.  A log may represent pertinent and important information that is used over a period of years; it may be needed to delineate accurately a change of conditions with the passage of time; it may form an important information that is used over a period of years; it may be needed to delineate accurately a change of conditions with the passage of time; it may form an important part of contract documents; it may be required as basic evidence in a court of law in case of dispute.  Each log, therefore, should be factual, accurate, clear, and complete.  It should not be misleading.

See Unified Soils Classification System.

When interpreting subsurface information included in contract documents, bidders are held to the standard of a reasonable contractor and not that of a geotechnical expert or geologist.  P.J. Maffei Building Wrecking v. United States, 732 F.2d 913 (Fed. Cir. 1984);

Each differing site condition provision allows equitable relief to the contractor when encountering a genuine differing site condition that subsequently increases the contractor’s time or cost to perform the contract work.  This equitable relief comes in the form of an equitable adjustment to time of performance (date of substantial completion) or contract price (cost and overhead), or both resulting from a condition not foreseeable definitive in the original contract scope of work.

The provision contractually obligates the project owner to grant the relief to the contractor if the same can prove that the differing site condition causes an increase to project time or cost resulting there from.  When a differing site condition claim does arise, federal case law precedent is heavily relied upon to resolve the claim since a derivation of the federal clause language is used in many construction contracts.

DIFFERING SITE CONDITION TYPE I AND TYPE II

An understanding of the differing site condition clause begins with knowledge regarding the types of differing site conditions.  There are two types: a) Type I and b) Type II.  The first category, a Type I (sometimes referred to as a category I) condition is defined as, subsurface or latent physical conditions at the site differing materially from that indicated in the contract and, thus hidden from view (Jervis, Levin, 1998; Lunch, 1995); Dayton Construction Co., HUDBCA, 83-2 BCA ¶ 16,809. 

A Type I condition is sometimes referred to as a misrepresented condition because the condition actually existing materially (substantially) differs from conditions represented by the construction contract.

Some examples of a typical unforeseen, or differing site condition is: (a) striking rock (cobbles or boulders) where none is shown on the contract documents (b) that in the underground the soils are not dense, but soft and there are caving conditions  (c) underground water where the boring logs show dry or no water. (d) That the soils are very dense and the piles cannot penetrate or cannot be drilled. (e) That there are underground obstructions such as metals, steel sheet piles, concrete pipes etc. that are not shown on the plans.

The second category, a Type II (category II) condition is defined as, unknown physical conditions at the site, of an unusual nature, differing materially from those originally encountered and generally recognized as inheriting in work of the character provided for in the contract.

A Type II condition may also be referred to as an unknown condition due to the unknown and unusual nature or circumstances relative to project scope.

DEMONSTRATING OR PROVING THE DIFFERING SITE CONDITION

1. TYPE I

As previously noted, a Type I differing site condition occurs when subsurface or latent physical condition at the project site materially differs from those indicated in the contract.  In Weeks Dredging and Contracting, Inc. v. United States 13 Cl. Ct. 193, the court identified six indispensable elements necessary to successfully claim a Type I equitable adjustment to the contract.  A listing of these elements is as follows:

1. The contract documents must have affirmatively indicated or represented the subsurface conditions which form the basis of the plaintiff’s claim;

2. The contractor must have acted as a reasonably prudent contractor in interpreting the contract documents;

3. The contractor must have reasonably relied on the indications of subsurface conditions in the contract;

4. The subsurface conditions actually encountered, within the contract site area, must have differed materially from the subsurface conditions indicated in the same contract area;

5. The actual subsurface conditions encountered must have been reasonably unforeseeable; and finally;

6. The contractor’s claimed excess costs must be shown to be solely attributable to the materially different subsurface conditions within the contract site.

2. TYPE II

A Type II differing site condition occurs when an unknown physical condition at the site of an unusual nature, differs materially from a similar condition ordinarily encountered and generally recognized as inheriting in the work scope as defined by the contract documents.  Unusual conditions are judged or legally tested by the normal or typical condition type for the area.

Type II differing site conditions occur less frequently than a Type I condition.  Thus, a contractor is confronted with a relatively heavy burden of proof when asserting a Type II differing site condition. 

The elements must be established by a preponderance of evidence test.  Due to the amorphous basis of comparison, the Type II differing site condition is generally more difficult to establish for a contractor.