NOTICE PROVISIONS

Construction contracts typically contain numerous notice requirements governing the process by which one party to the contract may submit a claim for additional compensation or additional time for performance of that party’s contractual obligations. These contract provisions often include strict requirements for both the timing and form of a claimant’s notice and provide that a claimant’s failure to comply with such procedural requirements serves as a complete waiver of the claimant’s right to pursue its claim. In other words, a claimant’s failure to submit timely notice of its claim or failure to utilize the correct method of serving its notice precludes the claimant from subsequently pursuing its claim, regardless of the merits of such claim.

Timely notice of a claim serves an important purpose, one aspect of which is the ability to mitigate the situation given the problem. There may be more than one solution, and the owner may want to consider alternatives. Lack of timely notice can frustrate those options.

NOTICE REQUIREMENTS ON DIFFERING SITE CONDITIONS

All of the standard industry form clauses contain specific notice provisions related to the discovery of a possible differing site condition. Although basically similar, there are differences in the notice requirements, which could be significant depending upon the factual circumstances.

I. FEDERAL ACQUISITION REGULATIONS (“FAR”)

The FAR clause obligates the contractor to provide written notice to the Contracting Officer “promptly” and “before the conditions are disturbed. That clause does not expressly authorize the contractor to stop work.

This clause authorizes additional compensation for: (1) “subsurface or latent physical conditions at the site which differ materially from those indicated in this contract (referred to as…Type I conditions);” and (2) “unknown physical conditions at the site, of an unusual nature, which differ materially from those ordinarily encountered and generally recognized as inhering in work of the character provided for in the contract (referred to as…Type II conditions).” 

NOTICE PROVISION ON FEDERAL CONTRACTS “FAR”

(a) The Contractor shall promptly, and before the conditions are disturbed, give a written notice to the Contracting Officer of (1) subsurface or latent physical conditions at the site which differ materially from those indicated in this contract, or (2) unknown physical conditions at the site, of an unusual nature, which differ materially from those ordinarily encountered and generally recognized as inhering in work of the character provided for in the contract.

(b) The Contracting Officer shall investigate the site conditions promptly after receiving the notice. 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.

(c) No request by the Contractor for an equitable adjustment to the contract under this clause shall be allowed, unless the Contractor has given the written notice required; provided, that the time prescribed in (a) above for giving written notice may be extended by the Contracting Officer.

(d) No request by the Contractor for an equitable adjustment to the contract for differing site conditions shall be allowed if made after final payment under this contract.

II. FEDERAL HIGHWAY ADMINISTRATION “FHWA”

Except as provided in paragraph (b) of this section, the following changed conditions contract clauses shall be made part of, and incorporated in, each highway construction project, including construction services contracts of CM/GC projects, approved under 23 U.S.C. 106:

(1) Differing site conditions.

(i) During the progress of the work, if subsurface or latent physical conditions are encountered at the site differing materially from those indicated in the contract or if unknown physical conditions 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, the party discovering such conditions shall promptly notify the other party in writing of the specific differing conditions before the site is disturbed and before the affected work is performed.

(ii) Upon written notification, the engineer will investigate the conditions, and if it is determined 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 anticipated profits, will be made and the contract modified in writing accordingly. The engineer will notify the contractor of the determination whether or not an adjustment of the contract is warranted.

(iii) No contract adjustment which results in a benefit to the contractor will be allowed unless the contractor has provided the required written notice.

(iv) No contract adjustment will be allowed under this clause for any effects caused on unchanged work. (This provision may be omitted by the State DOT’s at their option.)

III. AMERICAN INSTITUTE OF ARCHITECTS

Concealed or Unknown Conditions

Section 3.7.4 of AIA A201 states that the contractor shall “promptly provide notice to the Owner and the Architect before conditions are disturbed.” In addition, that provision adds a 14-day overall notice requirement after “first observance of the conditions.”22 There is no provision stating that the contractor may stop work.

3.7.4 Concealed or Unknown Conditions. 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 14 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.

If the Architect determines that the conditions at the site are not materially different from those indicated in the Contract Documents and that no change in the terms of the Contract is justified, the Architect shall promptly notify the Owner and the Contractor in writing, stating the reasons. If either party disputes the Architect’s determination or recommendation, that party may proceed as provided in Article 15.

IV. ENGINEERS JOINT CONTRACT DOCUMENTS COMMITTEE

The Engineers Joint Contract Documents Committee ® (EJCDC ®) is a joint venture of three major organizations of professional engineers. Since 1975, EJCDC ® has developed and updated fair and objective standard documents that represent the latest and best thinking in contractual relations between all parties involved in engineering design and construction projects.

The EJCDC regarding Differing Site Conditions under section 4.03 Differing Subsurface or Physical Conditions state:

A. Notice: If Contractor believes that any subsurface or physical condition at or contiguous to the Site that is uncovered or revealed either:

1. Is of such a nature as to establish that any “technical data” on which Contractor is entitled to rely as provided in Paragraph 4.02 is materially inaccurate; or

2. Is of such a nature as to require a change in the Contract Documents; or

3. Differs materially from that shown or indicated in the Contract Documents; or

4. Is of an unusual nature, and differs materially from conditions ordinarily encountered and generally recognized as inherent in work of the character provided for in the Contract Documents; then Contractor shall, promptly after becoming aware thereof and before further disturbing the subsurface or physical conditions or performing any Work in connection therewith (except in an emergency as required by Paragraph 6.16.A), notify Owner and Engineer in writing about such condition. Contractor shall not further disturb such condition or perform any Work in connection therewith (except as aforesaid) until receipt of written order to do so.

B. Engineer’s Review: After receipt of written notice as required by Paragraph 4.03.A, Engineer will promptly review the pertinent condition, determine the necessity of Owner’s obtaining additional exploration or tests with respect thereto, and advise Owner in writing (with a copy to Contractor) of Engineer’s findings and conclusions. 

C. Possible Price and Times Adjustments

1. The Contract Price or the Contract Times, or both, will be equitably adjusted to the extent that the existence of such differing subsurface or physical condition causes an increase or decrease in Contractor’s cost of, or time required for, performance of the Work; subject, however, to the following:

a).- Such condition must meet any one or more of the categories described in Paragraph 4.03.A; and

b) With respect to Work that is paid for on a Unit Price Basis, any adjustment in Contract Price will be subject to the provisions of Paragraphs 9.07 and 11.03.

2. Contractor shall not be entitled to any adjustment in the Contract Price or Contract Times if:

a).-  Contractor knew of the existence of such conditions at the time Contractor made a final commitment to Owner with respect to Contract Price and Contract Times by the submission of a Bid or becoming bound under a negotiated contract; or

b). If the existence of such condition could reasonably have been discovered or revealed as a result of any examination, investigation, exploration, test, or study of the Site and contiguous areas required by the Bidding Requirements or Contract Documents to be conducted by or for Contractor prior to Contractor’s making such final commitment; or

c).-.If Contractor failed to give the written notice as required by Paragraph 4.03.A.

V. DESIGN-BUILD INSTITUTE OF AMERICA

The Design-Build Institute of America (DBIA) has issued DBIA Document No. 535, Standard Form of General Conditions of Contract between Owner and Design-Builder (Second Edition, 2010 © Design-Build Institute of America) that contains a differing site conditions clause reflecting the concepts found in the FAR clause, as well as other industry standard forms.

The DBIA is an organization that states that its goal is to provide education on the design-build project delivery system and promote best practices in the use of design-build. Section 4.2 of DBIA Document No. 535 provides:

4.2 Differing Site Conditions

1. 4.2.1 Concealed or latent physical conditions or subsurface conditions at the Site that (i) materially differ from the conditions indicated in the Contract Documents or (ii) are of an unusual nature, differing materially from the conditions ordinarily encountered and generally recognized as inherent in the Work are collectively referred to herein as “Differing Site Conditions.” If Design-Builder encounters a Differing Site Condition, Design-Builder will be entitled to an adjustment in the Contract Price and/or Contract Time(s) to the extent Design-Builder’s cost and/or time of performance are adversely impacted by the Differing Site Condition.

2. 4.2.2 Upon encountering a Differing Site Condition, Design-Builder shall provide prompt written notice to the Owner of such condition, which notice shall not be later than fourteen (14) days after such condition has been encountered. Design-Builder shall, to the extent reasonably possible, provide such notice before the Differing Site Condition has been substantially disturbed or altered.

COMPARISON ANALYSIS

The differing site condition clauses in the widely used form contracts reveal some basic similarities but also some important differences. The FAR and the FHWA clauses define differing site conditions as “subsurface or latent physical conditions,” while the EJCDC clause refers to “subsurface or physical conditions.” The Consensus Docs, AIA, and the DBIA clauses refer to the site conditions as “concealed or unknown” or “concealed or latent.”

ACTUAL KNOWLEDGE AND LACK OF PREJUDICE
DEFENSE TO LACK OF NOTICE 

While contractual notice provisions often explicitly require a specific method of providing notice, the doctrine of actual notice may protect a party who fails to abide by such requirements. Indeed, pursuant to this doctrine, so long as there exists legally sufficient evidence that the recipient was actually made aware of the potential claim, failure to satisfy the technical notice requirements of the contract may be excused.

Some courts are reluctant to enforce burdensome notice provisions. This is particularly true where an owner may be deemed to have actual knowledge of events giving rise to a claim, even if the contractor’s notice was technically non-compliant. See, e.g., Hoel-Steffen Constr. Co. v. United States, 456 F.2d 760 (U.S. Ct. Cl. 1972) (refusing to strictly enforce a notice provision where government and project owner had actual knowledge of a situation that was the subject of the contractor’s claim); but see Eggers & Higgins v. United States, 403 F.2d 225 (U.S. Ct. Cl. 1968) (owner prejudiced by lack of notice where claim was brought nearly five years after the required date).