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What Lies Underneath: A Guide to Differing Site Conditions

Ryan Klein [email protected]

(719) 448-4028

What are Differing Site Conditions?

Photo: Raiders of the Lost Ark (1981)

Definition of Differing Site Conditions

Unanticipated physical conditions at the site that differ materially from those set forth in the contract or ordinarily encountered in work of the same nature

– Means Illustrated Construction Dictionary

Purpose of Differing Site Conditions Clause

• Allow contractors to submit more accurate bids

• How – Eliminate the need for contractors to inflate their bids to account for contingencies that may not occur

• Who Benefits – Contractors – Protection for unanticipated conditions – Government – More accurate bidding

What Law • Federal

– Federal Acquisition Regulations (“FAR”) – Interpreting law

• State – Colorado – No statutes or regulations, except for CDOT – Limited case law

• Private

– Contract – Applicable law

Types of Differing Site Conditions

• Two types

• (1) Type I Differing Site Conditions – Conditions materially different from contract documents

• (2) Type II Differing Site Conditions – Unknown and unusual conditions

Type I Differing Site Conditions

• FAR 52.236-2(a)(1) – “[S]ubsurface or latent physical conditions at the site which differ materially from those in this contract”

• AIA A201-2007, Section 3.7.4 – “[S]ubsurface or otherwise concealed physical conditions that differ materially from those indicated in the Contract Documents”

Type I Differing Site Conditions – Elements

(1) The contract documents affirmatively indicated or represented the subsurface conditions that form the basis for the claim

(2) The contractor acted as a reasonably prudent contractor in interpreting the contract documents

(3) The contractor reasonably relied on the indications of the subsurface conditions in the contract

(4) The subsurface conditions actually encountered differed materially from the subsurface conditions indicated in the contract

(5) The actual subsurface conditions were reasonably unforeseeable

(6) The contractor’s claimed excess costs were solely attributable to the materially different subsurface conditions

Type I Differing Site Conditions – Element (1)

• Contract Documents – Expansive definition – Includes solicitation documents and referenced

documents

• Affirmative Indications – Need not be explicit or specific – Express or implied – If no indication, no Type I DSC


• Element – The contractor acted as a reasonably prudent contractor in interpreting the contract documents


• A contractor must act as a reasonable contractor under similar conditions

• A contractor presumed to have the general skills of a

reasonable contractor – Factor in actual skills and knowledge

• Interpretation does not have be the only reasonable interpretation – just must be a reasonable interpretation – Not reasonable where patent ambiguities or problems


• Element – A contractor must reasonably rely on the indications of the subsurface conditions in the contract

• Usually an easier element to satisfy • Not satisfied where a contractor does not review or consider

the contract indications • Not satisfied where a contractor has knowledge from prior

experience


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• Objective reasonableness standard – Fact specific

• Interacts with Site Investigation and Conditions Affecting the Work

Clause (FAR 52.236-3) – Summary – Contractors must take all steps reasonably necessary

to ascertain the nature and location of the work and to satisfy themselves as to the local conditions affecting the work

– No time-consuming or costly technical investigations – No experts – If the Government requires a greater level of inspection, must

specify it in the solicitation


• Exculpatory Clauses

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• Exculpatory Clauses – Example – “While the sizes and materials included on the

utility maps are generally accurate, the exact location of underground systems cannot be guaranteed and must be verified by the Offeror through site investigation prior to submitting an offer . . . The Government does not assume responsibility for subsurface conditions”

– Generally disfavored by courts and boards • Strictly interpreted

– Upheld where clear and ambiguous


• Element – The contractor’s claimed excess costs must be solely attributable to the materially different subsurface condition

• Another easier element to satisfy • Excess costs caused by concurrent causes not permitted • Establish through damage calculation methods

Type II Differing Site Conditions • FAR 52.236-2(a)(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”

• AIA A201-2007, Section 3.7.4 – “[U]nknown 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”

• Often misunderstood

• Heavy burden

Type II Differing Site Conditions – Elements

(1) The recognized and usual physical conditions at the work site

(2) The actual conditions encountered

(3) Whether or not the actual conditions encountered differed materially from the known and usual conditions

(4) The actual conditions caused an increase in the cost of performance

Type II Differing Site Conditions – Element (3)

• Key as where often fails • Unknown

– A condition that one could not have reasonably anticipated from the contract documents, inspection of the site, or a contractor’s general experience

• Unusual

– Must differ from what is expected in geographic area – Does not have to be a geological phenomenon

Type II Differing Site Conditions

• Differing site condition – Demolition debris while installing underground

electrical conduit on Army base in Colorado – Sewage during excavation project to build parking

garages for Congressional buildings – Tremendous amount of muck while building softball

fields on Air Force base in Florida


• Not differing site condition – Expansive clays while constructing ductbanks at DFW

Airport – Excessive groundwater while building levees near the

Missouri River – Bed of conch shells while dredging near a Navy base

in Georgia


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How Determine if a Differing Site Condition

• Type I – Review contract documents – Review site investigation observations – Review contract language

• Type II

– Consider locale – Consider typical geological conditions

• Hire a consultant

• Hire a construction attorney

Notice

Notice • FAR 52.236-2(a) – “The Contractor shall promptly, and before

the conditions are disturbed, give a written notice to the Contracting Officer of (1) [Type I DSC] or (2) [Type II DSC]”

• AIA A201-2007, Section 3.7.4 – “[T]he Contractor shall

promptly provide notice to the Owner and the Architect before conditions are disturbed and in no event later than 21 days after first observance of the conditions”

• Purpose – Allow the Government (1) an opportunity to investigate and (2) to exercise some control over the costs and effort expended in resolving the differing site condition

Notice

Notice, Notice, Notice

Notice • Notice of what

– Differing site condition – No need cost impact right away

• When give notice – ASAP – Delay may cause loss of rights

• How give notice

– No specific format required – Written notice recommended (See FAR 52.236-2)

Notice

• To whom give notice – Federal – Contracting Officer – State or Private – Check statute, regulation, or

contract

• Duty to proceed – Contractor must proceed

Government’s Duty After Notice

Government’s Duty After Notice

• FAR 52.236-2(b) – “The Contracting Officer shall investigate the site conditions promptly after receiving the notice”

• AIA A201-2007, Section 3.7.4 – “The Architect will

promptly investigate such conditions . . .”

Government’s Duty After Notice • Implied Duty of Good Faith and Fair Dealing

– Implied in every contract, even government contracts – The duty requires each party to:

• (1) Avoid actions that unreasonably cause delay or hinder contract performance by the other party

• (2) Do whatever is necessary to enable the other party to perform

– Should apply to the Government’s obligation to investigate alleged differing site conditions

– If the Government does not investigate, a contractor may claim a breach of the implied duty good faith and fair dealing

Failure to Give Notice

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Failure to Give Notice • FAR 52.236-2(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 paragraph (a) of this clause for giving written notice may be extended by the Contracting Officer”

• FAR 52.236-2(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”

Failure to Give Notice • Courts and ASBCA/CBCA hold that “written notice requirements are

not construed so technically as to deny legitimate claims where the government is otherwise aware of the operative facts”

• Two Requirements (1) Actual or constructive knowledge

• No notice required if actual or constructive knowledge by the Government

• Example – Government’s Daily Reports (2) No prejudice to the Government

• See Next Slide

Failure to Give Notice – Prejudice

• Burden of proof on the Government

• Types of prejudice to the Government (1) Notice might have minimized extra costs if proper notice had been given (2) The passage of time obscured the elements of proof

Seeking Relief

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Seeking Relief – Federal • FAR 52.236-2(b) – “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”

• Submit Request for Equitable Adjustment and/or Certified Claim

• Litigation – Must first get CO’s Final Decision – Timing – Venue – ASBCA/CBCA vs. COFC

Seeking Relief – AIA • AIA A201-2007, Section 3.7.4

• Pre-Litigation Resolution

– “[I]f 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 Contractor in writing, stating the reasons”

Seeking Relief – AIA

• Disputes – Subject to Section 15 • Section 15

– Mediation first – Then arbitration or litigation

Colorado Law

Colorado Law

• Source – No statutes

• Not in Colorado Procurement Code – CDOT Regulations – Limited case law

• Makes it harder to understand applicable law

Colorado Law – Case Law • Not much applicable or relevant case law • Kiewit W. Co. v. City & County of Denver, 902 P.2d 421 (Colo. App.

1994) – A contractor must follow the contract provisions before commencing

litigation

• URS Group, Inc. v. Tetra Tech FW, Inc., 181 P.3d 380 (Colo. App. 2008) – Cited to numerous differing site condition principles based on

federal law – However, applied New Jersey law – Unclear if Colorado courts will rely on this case

Colorado Law – CDOT • Source – Standard Specifications for Road and Bridge

Construction, Section 104.02

• Types I and II – Similar to FAR

• Notice – Prompt written notice before site is disturbed and

work begins

• The Engineer investigates and determines if a change order is warranted

Best Practices – To Avoid DSC • Understand contract documents

– Solicitation – Referenced documents, especially subsurface reports and boring logs

• Conduct a thorough site investigation

– Document

• Ask questions

• Hire a local geotechnical consultant

• Consider conducting independent investigation

• Understand contract provisions on differing site conditions – Exculpatory language

Best Practices – After DSC • Investigation

– Get help if needed

• Notice, Notice, Notice – Written – Timely – Submitted to right person

• Document

– Photos – Cost records

• Claim management

– Preparation – Follow through

Questions?

What Lies Underneath: A Guide to Differing Site Conditions

Ryan Klein [email protected]

(719) 448-4028