15. Differing Site Conditions

Key Words and Concepts

  • The federal differing site conditions clause
  • Type I (Category I) conditions
  • Type II (Category II) conditions
  • Duty of contractor to give notice
  • Duty of government to investigate/issue a determination
  • Equitable adjustment
  • Not an exculpatory clause
  • No implied right to relief
  • Conflicting exculpatory clauses
  • Lack of notice may not prejudice government rights
  • Constructive notice
  • Lack of notice may bar recovery
  • Condition difference must be material
  • Failure to make adequate site inspection
  • Latent conditions
  • Patent conditions
  • Importance of prompt written notice
  • Request for owner’s instructions/directive
  • Reservation of rights
  • Filing of claim
  • Contractor/owner agreement on equitable adjustment
  • Equitable adjustment determined by others
  • Contractor must prove cost and time impacts
  • Determination by provisions of the changes clause
  • Force account equitable for direct costs only

The differing site condition clause has an interesting history. Today many contractors refuse to submit bids on projects where unknown site conditions could result in surprises and the contract does not contain a differing site conditions clause. This was not always the case.

In the past, the risk of encountering adverse physical conditions at the site that were unknown when the contract was entered into was borne by the contractor. For instance, if excavation work that was expected to be entirely in soil turned out to be in rock below a certain depth, the contractor was bound to complete the contract without any adjustment whatsoever. In addition to absorbing the additional costs of excavating rock instead of soil, the contractor could also be required to pay liquidated damages if, due to encountering the rock, the time allowed for performance of the contract was exceeded. In other words, the contractor, not the owner, bore the entire risk of cost and time performance regardless of what was encountered.

Recognizing this considerable risk exposure, prudent contractors included substantial cost contingencies in their bids to protect themselves if unknown adverse site conditions were encountered. The contingencies were, therefore, also included in the contract price. Thus, if these conditions were actually encountered, the owner, in effect, had already paid the cost to deal with them. However, this practice also resulted in the owner paying costs to overcome unknown adverse conditions whether such conditions actually were encountered or not, frequently producing a windfall for the contractor.

The federal government eventually realized that considerable savings in federal contract dollars were possible by the government assuming the risk of unknown adverse site conditions rather than imposing this risk on the contractor. This was the genesis of the current differing site conditions clause. This clause provides that, if unknown conditions are encountered during performance of the work that differ materially from the conditions represented in the contract or those ordinarily encountered in the work of the contract, the contract price and time for performance will be increased accordingly. Under this arrangement, the government pays and allows extra contract time only for conditions that are actually encountered. Contractors do not include cost contingencies in their bids for unknown adverse site conditions and reap no “windfall” if such conditions are not encountered.

The Federal Differing Site Conditions Clause

The federal contract differing site conditions clause reads as follows:

DIFFERING SITE CONDITIONS

  1. The Contractor shall promptly, and before such 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 this contract.

  2. 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 contract and the contract modified in writing accordingly.

  3. 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.

  4. 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.[1]

Type I Differing Site Conditions

The first of the two differing site condition types described in the federal clause refers to any physical condition encountered in the work of the contract that differs materially from a condition indicated in the contract documents. In other words, the condition must be indicated a certain way in the contract documents and, when encountered during actual performance, must be found to be materially different. Such a condition is commonly called a type I or Category I condition. It is not necessary that the indication in the contract be explicit. In other words, conditions implied by the drawings and specifications taken as a whole, as well as conditions that are expressly stated, are considered by a court to be “indications” of the contract.

Two facts must exist to establish a type I differing site condition. First, the contract documents must have indicated a physical condition in a certain way. Second, when the condition was encountered during actual performance, it was found to be materially different. A simple example of a type I differing site condition is finding wet, sticky clay at a location in an excavation where the soil boring logs, which were stated to be part of the contract documents, indicated that the material would be damp sand. In the absence of a differing site condition clause in the contract, this situation constitutes misrepresentation on the part of the owner. Without the clause, a contractor who encounters such a condition has no means of relief except to sue the government for breach of contract and prove in court the necessary elements to establish a misrepresentation breach (see Chapter 13).

Type II Differing Site Conditions

The second type of differing site condition referred to in the federal contract is called a type II or Category II condition. This refers to a physical condition encountered during contract performance that differs materially from conditions normally expected in the type of construction work in the contract involved. In this case, the difference is not between an encountered condition and a condition shown or indicated a certain way in the drawings or other parts of the contract documents, but rather is a difference between the conditions encountered and the conditions considered normal or usual for the type of construction work being done. In other words, the condition encountered must be of such an unusual nature that it could not have been reasonably anticipated for the type of project at hand. To establish a type II differing site condition, a contractor must prove that the condition encountered is truly unusual and thus not anticipated when the contract was signed.

An example of a type II differing site condition is 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—that is, exhibits some abnormal physical property that could not have been reasonably anticipated by an experienced contractor. Without the differing site conditions clause, the contractor has no other means of relief unless it can be established that the government knew about the abnormal behavior of the material and did not disclose this superior knowledge prior to contract formation.

An excellent illustration of a type II differing site condition occurred on one of the tunnels for the Boston Harbor Project in Massachusetts. The tunnel was founded in massive competent argillite, and the specifications required that it be excavated by use of a tunnel-boring machine (TBM). The spoil, or “muck,” produced by a TBM normally consists of small rock chips no larger than two to three inches maximum dimension grading on down to sand size. When handled by the TBM discharge conveyors and muck haulage equipment, the material usually behaves much like sand and gravel. Instead, in a limited section of the Boston tunnel, the TBM produced muck that resembled wet flowing concrete that was difficult to handle on the tunnel muck conveyors and haulage equipment. The material was correctly described geologically in the contract documents, but its behavior was highly unusual and could not have been expected in the work of the contract at hand.

Duty of Contractor to Give Notice

Note that the federal clause requires the contractor to promptly notify the government whenever either type I or type II differing site conditions are encountered and “before such conditions are disturbed.” The purpose of this duty of the contractor to give notice 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. If the condition is disturbed or obliterated, it may be difficult or impossible to do this, which could effectively bar recovery under the clause.

A secondary purpose for giving notice promptly is to provide the government the opportunity to direct the actions to be taken by the contractor in dealing with the differing site condition. Since the government is paying the costs, it clearly has the right to direct the manner in which the condition is dealt with in the field when a choice is available. Also, some encounters with differing site conditions make it necessary to redesign all or part of the project, a function obviously controlled by the government in its capacity as owner.

Duty of Government to Promptly Investigate

The federal clause provides that, once notified, the government has a positive duty to investigate the condition and make a determination that it is or is not a differing site condition. Failure to investigate promptly and make a determination in good faith is a breach of contract.

The significance of this point was illustrated in a contract for the construction of an immigration processing center where the contract documents contained detailed representations of the subsurface soil conditions. During performance, the contractor encountered organic muck that was not indicated in the soil information included with the contract documents. The presence of this material made it impossible to construct the building’s concrete foundations in the manner described in the contract. Although the contractor promptly informed the government’s site representatives when the muck was encountered and requested instructions, three months passed before the government finally acknowledged a differing site condition and directed the contractor to remove the muck. The contracting officer agreed to pay the direct costs for removing the muck but refused to pay delay damages or other impact costs caused by the three months’ delay. When the contractor sued, the U.S. Court of Claims (now the United States Court for Federal Claims) held that the government’s slow response had brought the contract work to a complete halt and that under these circumstances the government must pay the contractor not only its direct costs but all increased costs of contract performance including delay damages.[2]

If the government determines that the condition is not a differing site condition, the contractor may accept the decision or, as with any other contracting officer’s decision, dispute the determination under the provisions of the disputes resolution clause in the contract.

Equitable Adjustment Provided

The federal clause makes clear that if the contracting officer finds that the condition is a differing site condition that increases or decreases the cost or time for performance of the work, an equitable adjustment will be made to the contract price and time. This promise is unequivocal and cannot be overridden by any other provision of the contract. Most, if not all, encounters with differing site conditions result in upward adjustments in contract price and time.

Differing Site Conditions and Government Liability

The federal differing site conditions clause is not an exculpatory clause. It is true that, in the case of a type I differing site condition, the clause does partially exculpate or remove the stigma of fault or blame associated with a breach of contract by the government, but it does not operate to relieve the government of liability. Rather, it has the reverse effect of explicitly establishing the government’s liability for costs and contract time to overcome the condition and provides an orderly process by which the contractor may claim and recover these costs through an equitable adjustment to the contract.

Thus, the clause provides a contract remedy as distinct from a breach remedy—that is, the contractor’s right to relief is based on a specific provision of the contract that promises relief. Without this contractual remedy, the contractor’s only avenue for relief is to sue the government for breach of contract, alleging misrepresentation in the case of a type I condition or failure of the government to disclose superior knowledge in a type II condition.

Other Differing Site Conditions Clauses

The right to relief based on differing site conditions is not an implied right of the contract. There is no right of relief unless the contract contains a differing site conditions clause promising relief. In a typical case on this point, a U.S. District Court ruled that the absence of a differing site condition clause in the contract placed the risk of subsurface conditions squarely with the contractor.[3] Inexperienced contractors sometimes make the mistake of assuming that they will automatically receive cost and time adjustments for encountering conditions different than they expected.

Although many public contracts, and even many in the private sector, contain the federal differing site conditions clause verbatim or nearly verbatim, many others do not. In some contracts, the analogous clause is titled “Changed Conditions” or “Concealed Conditions.” If the federal clause is not used, it is important to read the alternate clause carefully to see what it does and does not provide.

Does the Clause Cover Both Type I and Type II Conditions?

The wording of the clause is particularly important in determining whether both type I and type II differing site conditions are included. Type I conditions will generally always be included, but some differing site conditions clauses do not include type II conditions. There will be no relief under clauses providing only for type I differing site conditions unless the condition that is actually encountered has been indicated differently in the contract documents. It makes no difference how unusual the condition actually was.

Does the Contract Contain Conflicting Exculpatory Clauses?

Some contracts contain conflicting exculpatory clauses—that is, they conflict directly with a differing site conditions clause contained in the same contract. For instance, if the 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. However, if the contract also contains a clause stating that the owner will not be responsible for the accuracy of the soil boring logs, an obvious conflict has been created.

Court decisions resolving this conflict have been mixed. The current judicial and administrative trend is to favor the differing site conditions clause over the exculpatory clause, often on the basis of a “precedence of contract documents clause” that gives precedence to general conditions clauses over clauses in other parts of the contract. The following cases illustrate this point.

A subcontract for performance of excavation work in Illinois contained a differing site condition clause allowing additional compensation for “subsurface and/or latent conditions at the site materially differing from those shown on the Drawings or indicated in the Specifications.” When the excavation subcontractor encountered pockets of peat which were not indicated on the boring logs and which substantially increased the costs of excavation, they submitted a claim under the differing site condition clause. The general contractor would not pay, claiming that the subcontractor was not entitled to rely on the boring logs because the specifications expressly disclaimed responsibility for their accuracy. A trial court ruled for the subcontractor, holding that when a contract contains both a differing site condition clause and a disclaimer of site condition data, the differing site condition clause takes precedence. The Appellant Court of Illinois affirmed on the grounds that the subcontract contained an “order of precedence” clause establishing the precedence of the general conditions over the specifications.[4]

In a similar case, an excavating subcontractor in Idaho encountered subsurface water in the soil that was so serious that its trucks were mired in up to the wheel hubs. A pre-bid site inspection had revealed only a dry cracked surface. The standard AGC form of subcontract agreement had been used that incorporated a differing site conditions clause. However, the contract also contained a disclaimer assigning to the subcontractor the risk for

All loss or damage arising out of the nature of the work aforesaid, or from action of the elements, or from unforeseen difficulties or obstructions which may be encountered in the prosecution of the work until its acceptance by the Principal, and for all risks of every description connected with the work.

When the subcontractor filed a claim for the extra expense in dealing with the muddy conditions, the general contractor refused to pay, arguing that the subcontract agreement imposed that risk on the subcontractor.

In spite of the disclaimer, the Idaho Supreme Court held that the subcontractor had encountered site conditions differing from those indicated in the contract documents and that could not be seen during a reasonable pre-bid site inspection. The subcontractor was awarded additional compensation.[5]

In an earlier federal case, the Engineer Board of Contract Appeals found that a contractor was entitled to extra compensation under the differing site condition clause when it was discovered that a government-approved quarry could not produce acceptable stone when commercially feasible construction methods were employed, even though the government had disclaimed in the contract any knowledge of whether the approved quarry contained acceptable material.

A general contractor had entered into a contract for the construction of a perimeter dike in Lake Huron, Michigan, and had subcontracted the production of stone from the government-approved quarry. The subcontractor was able to produce stone from the quarry only by the use of commercially infeasible and costly procedures. The general contractor was forced to switch to an alternate source 100 miles farther from the jobsite. When the contractor filed a claim for the extra costs involved, the government cited the disclaimer, arguing that designation of the original quarry as an approved source of stone did not amount to a representation regarding the cost of production or of the suitability of the material removed. However, the Board held that the inability to produce satisfactory material from the quarry using normal commercial construction methods amounted to an “unforeseen condition” within the meaning of the differing site condition clause, entitling the contractor to compensation for the additional costs involved in obtaining the stone from the alternate source.[6]

Without the presence of a differing site condition clause, exculpatory language in the contract disclaiming responsibility for the accuracy of the site conditions represented poses a great risk to the contractor. Courts generally will enforce these disclaimers unless it can be shown that the owner withheld site information in their possession from bidding contractors.

A 1987 decision of the New Jersey Supreme Court underscores this point. A highway contractor for the Department of Transportation (DOT) encountered soft soil conditions in saturated clay that greatly increased excavation costs. Nothing in the contract documents indicated that such conditions would be encountered, but the contract did not contain a differing site condition clause. The contract did contain a clause disclaiming the DOT’s responsibility for the accuracy or completeness of site condition data and said that the contractor would not be entitled to a price increase due to differing site conditions. When the contractor sued for additional compensation, they were able to show at the trial that, prior to taking bids, the DOT had received a letter from a consultant warning of difficult work conditions that would be caused by the saturated soil. This letter was never made available, or in any way disclosed, to bidders. In ruling for the contractor, the court stated that, although the DOT could not be held liable for failing to depict site conditions accurately, it must disclose all relevant information in its possession to bidders. The court further said that there was no doubt that the letter contained information that would have assisted bidders in pricing and planning the contract work. For this reason, the contractual disclaimer was unenforceable, and the contractor was entitled to recover its increased costs.[7]

What Are the Notice Requirements?

The federal clause provides that the contractor notify the government promptly when differing site conditions have been encountered and “before such conditions have been disturbed.” The reasons for this requirement were discussed earlier in this chapter. Under the federal contract, the contractor’s failure to furnish notice in accordance with the requirements of the clause is not necessarily fatal to the success of a differing site conditions claim. If it can be demonstrated that the lack of notice did not prejudice the rights of the government in any way, recovery under the clause will usually not be barred. Prejudice to the government’s rights could be caused by both denying the opportunity to make an investigation to verify the condition before it was disturbed and by precluding the opportunity to direct and control the course of action to be taken to deal with the condition. For this reason, when notice has not been given, the contractor must be able to show that the owner was not placed at a disadvantage (or prejudiced) in either of these ways to recover under a differing site conditions claim. The contractor must clearly establish that lack of notice could not possibly have made any difference—that is, where there is no doubt that the condition was a differing site condition and that the contractor had taken the only possible course of action, or at least a course of action that was no more costly and equally preferable from the government’s standpoint to any other course that might have been taken.

The notice requirements in the differing site conditions clause in other contracts can be considerably more restrictive than in the federal clause, particularly in clauses stating that the prompt furnishing of notice is a condition precedent to recovery under the clause. Courts will be more inclined to give full force and effect to the literal interpretation of clauses containing such language rather than applying the no prejudice to the rights of the owner standard.

What Are the Owner’s Responsibilities Under the Clause?

The government’s contractual duty under the federal clause to investigate and determine whether the conditions encountered by the contractor are differing site conditions was discussed earlier in this chapter. The contractor has a legitimate right to know whether the owner agrees that the conditions encountered constitute differing site conditions under the contract and whether a cost and time adjustment to the contract will be forthcoming. The importance of the cost adjustment is obvious. The time adjustment is also important when significant time is involved since the contractor bears the burden of completing the project within the contractually stipulated time allowance. This increase in time allowance should be equal to the additional time needed to complete the project because of differing site conditions. The contractor is entitled to know whether the completion date will be extended by the owner in order to realistically and economically schedule the remaining contract work.

If a time extension is not forthcoming when significant time has been lost, usually the only way the project can be completed by the original completion date is by accelerating the rate of performance of the remaining work, a costly undertaking. Thus, it is important for the contractor to receive the results of the owner’s determination promptly.

Once the owner’s determination has been obtained, the contractor at least knows the owner’s position. If the owner determines that the encountered conditions do not constitute differing site conditions under the contract, the contractor must either accept the determination or dispute it under the dispute resolution provisions of the contract. In either case, the contractor must absorb the extra costs involved (temporarily, at least) and attempt to complete the unextended contract on time by accelerating performance or risk being held in default by the owner. Clearly, the contractor cannot properly explore available options without knowing the owner’s position. The federal clause imposes the duty of making a prompt investigation and determination on the government. Clauses in other contracts may or may not impose a similar duty on the owner. If the clause does not impose this contractual duty, the contractor is placed in a very disadvantageous position when differing site conditions are encountered.

Reasons for Denying Differing Site Condition Claims

Once the contractor has claimed differing site conditions, the owner may deny the claim. Common reasons for denial follow.

Lack of Notice

As discussed earlier, most differing site conditions clauses require the contractor to furnish prompt notice, sometimes (as in the federal clause) before the conditions are disturbed. Lack of notice can bar an otherwise valid claim if prejudice to the owner’s interests can be shown. Some courts interpret the notice clause so strictly that a valid claim will be disallowed even when it is shown that the lack of notice did not prejudice the owner’s interests.

The following cases illustrate how courts deal with the lack of notice issue. In the first case, a government contractor removing and stockpiling riprap from a government quarry encountered explosive charges in the rock left by a previous government contractor. Although the contractor did not provide prompt written notice as required by the federal differing site conditions clause, they later submitted a claim for lost productivity because of the explosive charges found in the quarry. When the contracting officer failed to pay, the contractor filed an appeal with the Interior Board of Contract Appeals. The board held that the contractor’s failure to give notice was prejudicial to the government because the contracting officer did not know about the conditions encountered by the contractor. Having this knowledge would have enabled the contracting officer to elect to terminate the contract for the convenience of the government rather than pay the increased costs involved in dealing with the explosives. The contractor’s appeal was denied.[8]

In the second case, a contractor for a federal contract for the construction of a post office building encountered soft clay not indicated on the soil boring logs when excavating the site. They removed the clay without putting the government on notice after calling in a consultant who advised that there was no reasonable alternative. By the time the government’s architect learned of the situation, the contractor had removed the clay and was backfilling the area. The contracting officer denied the contractor’s differing site condition claim because of failure to comply with the notice requirement providing the government an opportunity to investigate and control the fix. The contractor appealed.

The Postal Service Board of Contract Appeals found that a differing site conditions claim can be denied because of lack of notice but only when the government can show that its options were limited by the lack of notice. This was not true in this case, and the government had suffered no prejudice. The board said:

There is sufficient reliable evidence to conclude that a differing site condition existed in the southwest corner of the site. The government, however, has not demonstrated there was a reasonable alternative to the method adopted by the contractor to deal with the problem which would have been more efficient or less costly. Accordingly, the contractor may recover the costs of removing and replacing 1,794 cubic yards of soil in the southwest corner of the post office site.[9]

Difference Not Material

The owner may deny a contractor’s claim on the basis that the condition is not different, or not sufficiently different, from the condition indicated in the contract (Type I differing site condition) or from the conditions normally encountered (Type II differing site condition). To qualify as either a Type I or Type II differing site condition, the condition difference must be material. Marginal differences are not sufficient.

For instance, the Armed Services Board of Contract Appeals was not convinced that an 18-inch difference between the depth of an existing sewer line shown on contract drawings and the actual depth of the sewer line encountered during contract performance was a “material” difference under the meaning of the differing site conditions clause. The drawings indicated that the invert of the sewer line was 10 feet below the ground surface. The contractor asserted that the 18-inch lower depth of the sewer required working below the water table, necessitating more expensive construction techniques. In ruling that the 18-inch difference was not a material difference, the board said:

We are simply not persuaded on the evidence that had the sewer line been 18 inches higher, none of this would have happened and instead, the 8 foot section of pipe could have been replaced with the rubber tire backhoes without the shoring, a trench box, or dewatering.[10]

Unfortunately, there are no generally accepted rules for deciding whether a particular difference is significant enough to be material. The question often rests on judicial determination.

Failure to Conduct an Adequate Pre-Bid Site Inspection

Frequently, owners deny contractor’s differing site conditions claims based on the owner’s contention that, if the contractor had conducted a reasonable and proper site inspection prior to contract formation, the condition would have been discovered and the contractor would have included additional costs in the bid to deal with it. Most bid documents strongly suggest or even require that the contractor make such a site inspection prior to submitting a bid. A bidding contractor who had knowledge prior to the bid that an actual physical condition at the site was more severe than indicated in the contract documents and who had then bid only an amount to cover the less severe condition indicated in the contract cannot reasonably expect relief under the differing site conditions clause. For this reason, the argument that the contractor’s failure to make an adequate pre-bid site inspection can be effective in barring the contractor’s differing site conditions claim.

On the other hand, the contractor will not be held to a standard of clairvoyance—that is, that the requirement for a reasonable pre-bid site inspection does not mean that the contractor will be held responsible for the discovery of latent conditions or be held responsible for failing to make “a skeptical analysis of the plans and specifications.” This means that unless there are specific instructions to verify certain measurements or to determine certain quantities of work to be done, the contractor is entitled to take the drawings and specifications at face value and to rely on them.

The application of this general concept to differing site conditions is illustrated by the words of the U.S. Court of Claims (now the United States Court of Federal Claims) in a related case:

Contractors are businessmen, and in the business of bidding on Government contracts, they are usually pressed for time and are consciously seeking to underbid a number of competitors. Consequently, they estimate only those costs which they feel the contract terms will permit the Government to insist upon in the way of performance. They are obligated to bring to the Government’s attention major discrepancies of errors which they detect in the specifications or drawings, or else fail to do so at their peril. But they are not expected to exercise clairvoyance in spotting hidden ambiguities in the bid documents, and they are protected if they innocently construe in their own favor an ambiguity equally susceptible to another construction.[11]

A latent condition is one that is hidden or not obvious, whereas a patent condition is obvious. Generally speaking, bidding contractors are only expected to note patent conditions in pre-bid site inspections. If a condition is not patent, a bidding contractor’s failure to discover it during a pre-bid site inspection will not bar a later claim for a type I condition under the differing site conditions clause.

The following cases illustrate how our courts have dealt with the site inspection issue. In the first case, the contractor was denied a differing site conditions claim because it failed to conduct any pre-bid site inspection at all. The contract required renovation of dormitories at a military base, and many of the contract drawings bore the notation for the contractor to “verify in field” many of the building dimensions. The government provided bidders an opportunity to inspect the building prior to submitting bids. During performance, the contractor encountered a number of discrepancies in various building dimensions from those indicated on the drawings and asserted a differing site conditions claim. The Armed Services Board of Contract Appeals denied the claim on the grounds that the discrepancies could have been detected during a reasonable pre-bid site inspection. The contract called for the renovation of an old building, and the drawings specifically required field verification. The board said:

The contractor certainly knew that this was a renovation contract which included demolition from the invitation to bid. There were two scheduled walk-through site investigations where the type of construction and likelihood of irregular dimensions could be uncovered. Unfortunately, the contractor chose not to look at the subject of its bid. It chose to rely on what because of the nature of the undertaking were less than perfect drawings, definitively labeled as such by the terms “verify” and “verify in field.”[12]

In the next case, the contractor conducted a pre-bid site inspection, but the General Services Administration Board of Contract Appeals concluded that the inspection was inadequate. The contract required the renovation of a ten-story building including the replacement of the flooring. During performance, the contractor found that the north wall of the building was out of square with the other walls, which increased the total square footage of each floor. They asserted this was a differing site condition. The board concluded that the drawings strongly suggested that the walls were out of square and that the contract documents required the contractor to conduct a pre-bid site inspection and verify the dimensions shown on the drawings. The board felt that if the contractor had complied with these requirements, it would have known the exact floor area of the building. In denying the contractor’s claim, the board opined:

The contract drawings gave ample indication that a problem possibly existed regarding the angles at which the east and west walls intersected with the north wall. The effect of uneven angle of intersection on the calculations of surface areas is obvious, and the significance of this fact is only enhanced by the fact that we are dealing here with a 10-story building. When, in making the site inspection, the party ignores such data in contract drawings and makes no measurements for purposes of verification, we cannot conclude that the inspection is reasonably adequate.[13]

In another case, the Armed Services Board of Contract Appeals supported a contractor’s differing site condition claim, holding that the contractor had no obligation to pretest soil samples to determine whether subsurface conditions were suitable for the proper bedding of pipe. In a contract to replace sewer lines at an Air Force base, the contract documents expressly represented that the material to be excavated would be sand and that no hard material would be encountered. Pipe was required to be set on a bedding of sand or gravel. The contractor priced its bid on the basis that it could bed the pipe on the native material but instead encountered hardpan sandstone that had to be removed and replaced to bed the pipe properly. The contracting officer denied the contractor’s differing site conditions claim, asserting that a more thorough pre-bid site inspection would have revealed the presence of the hardpan. The board ruled that the pre-bid site inspection requirement did not impose a duty on the contractor to test subsurface materials. The contractor was entitled to rely on the affirmative representations in the contract documents, and the removal and replacement of the hardpan constituted a differing site condition.[14]

Dealing With Differing Site Conditions

The following course of action will greatly enhance the chances of an equitable contract cost and time adjustment being granted when differing site conditions are encountered.

Prompt Written Notice

The importance of prompt written notice to the owner that differing site conditions have been encountered cannot be overemphasized. The notice should be given before the conditions are disturbed. Although constructive notice may have occurred, written notice is far preferable. An example of constructive notice would be a contractor encountering a differing site condition during excavation operations when the owner’s inspector was present, observed the condition, and thus was aware of it.

The written notice should also request the owner to investigate promptly the encountered conditions and to issue a determination that differing site conditions have been encountered.

Request for Owner’s Instructions

The contractor should also request the owner’s instructions or directive on how to deal with the encountered conditions, unless there is only one possible course of action. Further, the contractor should advise that contract performance will be delayed due to lack of instructions if instructions or a directive from the owner is not received within a reasonable period of time.

Failure to Receive Determination or Receipt of Adverse Determination

If the owner either fails to make a determination within a reasonable period of time or determines that the encountered condition does not constitute a differing site condition, the contractor must assume that no cost or time adjustment to the contract is immediately forthcoming. Unless the contractor is prepared to concede the matter, the owner should be advised in writing that the contractor disagrees with the determination and is reserving all rights under the contract. A claim should then be filed in accordance with the disputes resolution provisions of the contract for later adjudication by others. In the interim, contract work must be continued according to the owner’s instructions or directive with no guarantee that an equitable contract cost or time adjustment will ever be received. Although placed in a very disadvantageous position, the contractor has no alternative but to proceed on this basis. If the encountered condition is truly a differing site condition under the contract, the contractor usually will eventually be made whole through the disputes resolution provisions of the contract.

Determination of the Equitable Adjustment

The adjustment in contract price and time may be determined by agreement between contractor and owner or, if the owner and contractor are unable to agree, the equitable adjustment may be determined by others under the dispute resolution provisions of the contract. In either case, the contractor must prove cost and time impacts—that is, the performance cost increases and impact of the overall contract performance time extension as a basis for the equitable adjustment.

As a general rule, the same principles that govern determination of contract price and time adjustments resulting from contract changes apply (see Chapter 14). In fact, the differing site conditions clause in many contracts provides that the price and time adjustment be determined by the provisions of the changes clause, although the federal clause and the clauses in some other contracts are silent on this point. If force account provisions under a changes clause are used to determine differing site conditions cost and time adjustments, the difficulty discussed in Chapter 14 arises when the force account indirect cost markups are not high enough to meet the contractor’s actual costs when project performance time has been extended. In this case, the contractor would receive less than an equitable adjustment. Therefore, when the contract has been extended due to differing site conditions, force account provisions can be considered equitable for direct costs only. Indirect costs should be determined on the basis of the contractor’s provable actual costs and a reasonable profit should be added.

Conclusion

Differing site conditions, contract changes, and breach of contract situations usually result in delay to the project. In the following chapters, we turn to the general subject of delay and how it is handled in a contractual sense.

Questions and Problems

  1. Explain the reason why differing site conditions clauses are included in construction contracts.
  2. Without a differing site conditions clause in the contract, what must the contractor do to obtain relief if conditions are encountered that are different from those indicated in the contract documents?
  3. What is a type I differing site condition? A type II? Does the federal differing site conditions clause include both?
  4. What does the federal clause provide regarding the contractor’s duty to notify the government when a differing site condition has been encountered? What does the clause state that the contracting officer must do when notified that a differing site condition has been encountered?
  5. Explain why the federal clause is not an exculpatory clause.
  6. Can the rights provided by differing site conditions clauses ever be considered to be implied by the contract?
  7. What four specific points should you look for when reading the differing site conditions clause in contracts other than the federal contract?
  8. List the three common reasons discussed in this chapter that owners deny contractor differing site conditions claims.
  9. What is constructive notice? Is constructive notice an adequate substitute for written notice? What request should a contractor make to the owner as part of a written notice that a differing site condition has been encountered? What should the contractor do when the owner does not respond within a reasonable period of time?
  10. What two actions should the contractor take after receiving the owner’s determination regarding previous notice of encountering a differing site condition when the contractor disagrees with the determination?
  11. By what two avenues mentioned in this chapter can the amount of differing site conditions cost and time adjustments to the contract be determined? What does the contractor have to prove regardless of which avenue is used?
  12. What other prominent contract clause provisions are frequently used to make the equitable adjustment resulting from encountering a differing site condition? What restrictions should be placed on the use of force account provisions to ensure that an equitable adjustment is reached?

  1. F.A.R. 52.236-2 48 C.F.R. 52.236-2 (Nov. 1996).
  2. Beauchamp Construction Co., Inc. v. United States, 14 Cl. Ct. 430 (1988).
  3. Pinkerton and Laws Co., Inc. v. Roadway Express, Inc., 650 F.Supp. 1138 (N.D. Ga. 1986).
  4. Roy Strom Excavating & Grading Co., Inc. v. Miller-Davis Co., 501 N.E.2d 717 (Ill. App. 1986).
  5. Beco Corp. v. Roberts & Sons Construction Co., Inc., 760 P.2d 1120 (Idaho, 1988).
  6. Appeal of Construction Aggregates Corporation, ENGBCA No. 4242 (Dec. 31, 1980).
  7. P. T. & L. Construction Co. v. State of New Jersey Department of Transportation, 531 A.2d 1330 (N.J. 1987).
  8. Appeal of M. D. Activities, IBCA No. 2113 (Dec. 7, 1987).
  9. Appeal of M & M Builders, Inc., PSBCA No. 2886 (May 29, 1991).
  10. Appeal of H. V. Allen Co., Inc., ASBCA No. 40645 (Oct. 4, 1990).
  11. Blount Bros. Construction Co. v. United States, 346 F.2d 962 (Ct. Cl. 1965).
  12. Appeal of Zenith Construction, ASBCA No. 33576 (Mar. 11, 1989).
  13. Appeal of J. S. Alberici Construction Co., Inc., GSBCA No. 9897 (Aug. 31, 1989).
  14. Appeal of Tenaya Construction, ASBCA No. 27799 (Nov. 5, 1986).

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