Differing Site Conditions

Transcription

1 Chapter Seven Differing Site Conditions Melissa A. Beutler and Christopher M. Burke 7.01 Introduction Differing Site Condition Explained (Type I and Type II) Claim for Extra Work (Type I) Express Indication (Type I) Implied Indication (Type I) Contract Silent (Type I) Misrepresentation Not Required (Type I) Claim for Extra Work (Type II) Reasonable Expectation (Type II) Unusual or Unexpected Condition (Type II) Knowledge from Available Information (Type II) Inspection Requirement Performance Specification and Differing Site Conditions

2 114 Model Jury Instructions: Construction Litigation, 2nd Edition Chapter 7: Differing Site Conditions 7.01 Introduction Construction contracting is an exercise in assigning various risks related to a construction project. The risk regarding differing site conditions is a key category included within the risk transfer exercise. A construction contract provision that addresses which party is responsible if site conditions are different from those reasonably expected is commonly referred to as a differing site conditions clause. The purpose of a differing site conditions clause is to determine in which situations the contractor is responsible for the cost associated with overcoming adverse subsurface or latent physical conditions versus those situations in which such cost is to be borne by the owner. Differing site conditions clauses apply only to physical conditions that existed at the time of contracting and not to those that develop during performance (if any). See Olympus Corp. v. United States, 98 F.3d 1314 (Fed. Cir. 1996) (differing site conditions clause applies only to physical conditions at the time of contract execution, and temporal limitations apply to such clauses). Impacts arising from nonphysical conditions should be addressed by other provisions in the contract. Determining whether a differing site condition exists is a fact-intensive inquiry that requires consideration of what the contractor knew at the time of bidding, what the contractor should have known at the time of bidding, what information was available to the contractor, what information the contractor relied upon, and what a contractor might typically encounter on a similar project. This chapter s instructions and commentary outline these considerations and provide practical guidance. This chapter reflects majority views and trends related to differing site conditions. As with other construction risk issues, evaluation of the applicable law in specific jurisdictions will be necessary in order to most properly tailor these instructions to the specific issues in a case. Further, when considering apparent differences in the law among jurisdictions, be sure to consider whether an applicable court

3 Differing Site Conditions 115 decision turned on a difference of fact rather than a true difference in law. Finally, the precise contract language regarding differing site conditions is of course essential to determine how the parties intended for differing site conditions to be evaluated Differing Site Condition Explained (Type I and Type II) In this case, the contractor seeks additional compensation for extra costs it incurred because it encountered [insert differing site condition]. The contractor argues this constituted a differing site condition and that it is entitled to additional compensation and/or time. The contract provides that the contractor can recover money and/or time if the contractor can prove that the differing site condition fell into one of two categories: (1) site conditions different from those identified in the contract [Type I] or (2) site conditions different from those reasonably anticipated for a similar project [Type II]. Consider the instructions that follow to determine whether the contractor has proved that the [insert differing site condition] constitutes either a Type I or Type II differing site condition. See commentary associated with Instructions 7.03 and 7.07 for a discussion of each Type I and Type II differing site condition claims Claim for Extra Work (Type I) The contract permits the contractor to receive additional compensation and/or time for subsurface or latent physical conditions at the site differing materially from those indicated in the Contract. [Quote exact contract language.] The contractor claims that it is entitled to additional costs arising from [insert differing site condition]. To show that this condition was a Type I differing site condition, the contractor must prove the following:

4 116 Model Jury Instructions: Construction Litigation, 2nd Edition (1) The contract documents describe certain site conditions. (2) The contractor reasonably relied on the description to price and schedule the work. (3) The actual site conditions were different from those described in the contract documents. (4) The different site conditions increased the contractor s cost and/ or time to perform the contract work. If you find that the contractor has met its burden of proof for the above elements, you may award the contractor the cost and time that you determine arose from the Type I differing site condition (as explained in other instructions). If you find that the contractor has not met its burden of proof for the above elements, then the [insert differing site condition] does not constitute a Type I differing site condition and the contractor is not entitled to additional costs and/or time. The clause referenced in the foregoing instruction describes what are commonly referred to as Type I differing site conditions. For a contractor to recover additional compensation under such a provision, the contractor must show that the actual condition in the field is at variance with something stated or depicted in the contract documents. If the contract merely failed to indicate the presence of a condition encountered in the field, that condition is not a Type I differing site condition. See Quality Servs. of N.C. Inc., ASBCA No , 89-2 BCA 21,836, 1989 WL It is possible, however, for contractors to prevail on an argument that a Type I condition exists when a contractor would draw reasonable inferences from the lack of an indication in the contract documents. See, e.g., I.A. Constr. Corp. v. Dep t of Transp., 591 A.2d 1146 (Pa. Commw. Ct. 1991) (finding that a drawing showing a drainage pipe to be laid in a straight line indicated that no underground utility pipes or lines were in the vicinity of the work). Common examples of conditions that have been determined to constitute Type I differing site conditions include the following:

5 Differing Site Conditions 117 rock: Substrata rock not indicated in government-supplied logs of exploratory borings, Fehlhaber Corp. v. United States, 151 F. Supp. 817 (Ct. Cl. 1957); rock constituted differing site condition when government-supplied boring logs indicated mostly sand and gravel, Bernard McMenamy Contractor Inc., ENGBCA No. 3413, 77-1 BCA 12,335, 1976 WL rock proportions: Boulders and ledges constituted differing site condition when contract indicated merely stones and rocks, Gil Wyner Co., ASBCA No. 6114, 61-1 BCA 2994, 1961 WL 730; larger cobbles than indicated in the contract, Brezina Constr. Co., ENGBCA No. 3215, 75-1 BCA 10,989, 1974 WL hardness of rock: Harder rock than indicated and which required blasting and drilling constituted a differing site condition, American Dredging Co. v. United States, 207 Ct. Cl (1975). quantity of rock: Removal of subsurface shale not depicted in contract drawings constituted rock and entitled contractor to compensation, Gen. Cas. Co. of Am. v. United States, 127 F. Supp. 805 (Ct. Cl. 1955). unstable soil: Type of soil encountered constituted differing site condition when it prevented use of heavy excavation equipment, J.J. Welcome Constr. Co., ASBCA No , 75-1 BCA 10,997, 1974 WL groundwater: Contractor entitled to additional compensation when boring profiles supplied by government did not show undue amounts of subsurface water, United Contractors v. United States, 368 F.2d 585 (Ct. Cl. 1966) Express Indication (Type I) The first element a contractor must prove for a Type I differing site condition is that the contract documents described certain site conditions. An express indication of site conditions is demonstrated when the specification or drawings affirmatively depict a specific condition at the jobsite (such as the presence of subsurface soft rock or soil in the area).

6 118 Model Jury Instructions: Construction Litigation, 2nd Edition In a case where contract documents expressly indicated soft rock in the excavation area, a Type I differing site condition existed when the contractor encountered hard rock. Fehlhaber Corp. v. United States, 151 F. Supp. 817 (Ct. Cl. 1957). Practitioners must be aware that what is indicated in the contract documents is largely an issue of law for the court to determine. Frequently, however, disputes turn not on what was indicated in the contract documents, but rather what was actually encountered in the field, which is obviously a question of fact as to the difference between the actual condition and the stated condition. See Arundel Corp. v. United States, 515 F.2d 1116 (Ct. Cl. 1975) (denying contractor claim for changed conditions when quantity of rock did not greatly exceed what it anticipated from examination of contract documents and other information). Practitioners should be aware of this distinction as they consider which aspects of the determination are a question of law within the province of a court and which are questions of fact regarding what the jury should be instructed Implied Indication (Type I) If there is not an express indication of conditions in the contract documents, the contractor must demonstrate that the contract documents implied that certain conditions would (or would not) exist. If the contractor can prove that the contract documents, taken as a whole, implied that certain conditions would (or would not) be present, you may determine the contractor proved this element. Where contract documents specified the required excavation method was dry excavation, it was reasonable for the contractor to infer from the contract documents that no subsurface water would be present even when the contract documents were silent on whether subsurface water would be encountered. See Foster Constr. C.A. & Williams Bros. Co. v. United States, 435 F.2d 873 (Ct. Cl. 1970). Similarly, when contract documents required steep excavation, a nine-foot layer of sand constituted a Type I differing

7 Differing Site Conditions 119 site condition. Morgen & Oswood Constr. Co., IBCA No. 389, 66-1 BCA 5522, 1966 WL 207. Because it was not possible to perform steep excavation in unstable soil such as sand, the actual conditions were determined to be different from those reasonably inferable from the contract documents Contract Silent (Type I) If the contract is completely silent and does not expressly state or reasonably imply what subsurface conditions will be encountered, the contractor cannot prove that a Type I differing site condition existed. When a contractor sought to recover additional costs for subsurface water encountered, the U.S. Court of Claims determined that the test borings supplied by the government said nothing one way or the other about subsurface water, meaning that the contractor [could not have] encountered subsurface or latent conditions materially different from those specifically shown in the drawings or indicated in the specifications. Ragonese v. United States, 120 F. Supp. 768, 769 (Ct. Cl. 1954) (note, however, that the court ultimately found in favor of the contractor because the government failed to turn over certain information that may have impacted the contractor s bid estimate and that the contractor would not likely have expected the subsurface conditions on a similar project); see also PK Contractors Inc., ENGBCA No. 5584, 92-1 BCA 24583, 1991 WL (holding that when a contract is silent as to a particular condition, a Type I differing site condition does not obtain). Practitioners should be aware that while contractors are typically unable to prevail on a differing site conditions claim when the contract documents are silent, in some cases a contractor is justified in drawing a negative inference from the silence. See Cosmo Constr. Co., ENGBCA No. 2785, 67-2 BCA 6516, 1967 WL 314, aff d, 451 F.2d 602 (contractor was entitled to compensation after planned fill material was contaminated with waste when contract documents were silent, but other portions of contract documents showed waste in adjacent areas).

8 120 Model Jury Instructions: Construction Litigation, 2nd Edition 7.07 Misrepresentation Not Required (Type I) To demonstrate that the contract documents expressed or implied certain site conditions, the contractor does not need to prove that the owner was at fault due to error, negligence, or misrepresentation. If the contractor can prove all elements of a differing site condition claim, the contractor is entitled to recover and does not need to demonstrate that the owner made such error, acted negligently, or made a misrepresentation. Practitioners are advised to ensure that juries understand that their charge is to determine the existence of a differing site condition and that the jury does not need to determine the extent of fault on the part of the owner. The mere existence of an established differing site condition is enough for the jury to move to the damages phase of its analysis. It is not necessary for the contractor to show an affirmative breach of contact, misrepresentation, or fraud by the government. See, e.g., Foster Constr. C.A. & Williams Bros. Co. v. United States, 435 F.2d at 882 ( The causes of an erroneous indication in the contract whether simple error, negligence, or other are [not] important. ) Claim for Extra Work (Type II) The contractor claims additional cost and/or time because it encountered [insert differing site condition] at the site. To show that these conditions constitute a Type II differing site condition, the contractor must prove the following: (1) what conditions are recognized as known or usual physical conditions at the site of the work; (2) what physical conditions were actually encountered at the site; (3) that the actual conditions differed materially from the known or usual conditions; and

9 Differing Site Conditions 121 (4) that the actual conditions impacted the cost and/or time to perform the contract work. If you find that the contractor has met its burden of proof for the above elements, you may award the contractor the cost and time that you determine arose from the Type II differing site condition (as explained in other instructions). If you find that the contractor has not met its burden of proof for the above elements, then the [insert differing site condition] does not constitute a Type II differing site condition and the contractor is not entitled to additional costs and/or time. Remember, unlike a Type I differing site condition, a Type II differing site conditions does not depend on what is shown or indicated in the contract documents themselves. Rather, whether a differing site condition existed depends on the conditions being unsual when compared against that which would be expected for similar projects. A Type II differing site condition is a physical condition that is of such an unusual nature that it differs materially from those ordinarily encountered and generally recognized as inherent in work of the character provided for in the contract at issue. See Youngdale & Sons Constr. Co. v. United States, 27 Fed. Cl. 516 (1993) (holding that contractor failed to establish a Type II differing site condition where contractor could not establish that conditions encountered were either unknown to it or were not usual conditions for the type of work to be performed); Servidone Constr. Corp. v. United States, 19 Cl. Ct. 346, 376 (1990) (finding that the actual degree of soil toughness was in excess of that ordinarily encountered or generally recognized as inhering in work of the character provided and ruling that a differing site condition did exist); Philip L. Bruner & Patrick J. O Connor Jr., Bruner & O Connor on Construction Law 14:53 (2002).

10 122 Model Jury Instructions: Construction Litigation, 2nd Edition 7.09 Reasonable Expectation (Type II) One of the elements of a Type II differing site condition claim is that the contractor must demonstrate the physical conditions that a reasonable contractor would have expected to encounter on the project. You must determine what an objective, reasonable contractor would have expected to encounter at the time of contracting. Do not consider what the contractor could have expected with the benefit of hindsight the relevant inquiry is what was reasonable at the time the contractor prepared its bid. To make this decision, you can consider whether the contractor performed a reasonable site investigation, performed an appropriate study of the contract documents, and reasonably assessed the requirements of the project based upon sound construction experience. Practitioners are encouraged to stress the objective standard that applies to the determination of a Type II differing site condition the focus is on what a reasonable bidder in the shoes of the plaintiff would have expected to encounter. This inquiry is frequently the subject of contrasting testimony and often involves the testimony of expert witnesses. See, e.g., Robert McMullan & Son Inc., ASBCA No , 74-2 BCA 10,946, 1974 WL 1807 (contractor s Type II differing site condition claim denied, with board holding that a construction contractor is presumed to be aware of known general and local conditions affecting his work, whether or not these conditions are referenced in the contract ); Sw. Eng g Co. v. United States, 1975 WL (Ct. Cl. 1975) (contractor Type II differing site condition claim denied because contractor admitted having knowledge of some area rock formations gained during performance of a previous contract) Unusual or Unexpected Condition (Type II) To demonstrate that the condition encountered was unusual or unexpected, the condition does not need to be totally unforeseeable. Rather, it is enough

11 Differing Site Conditions 123 if the contractor establishes that the condition is not ordinarily encountered in work similar to that of the subject project. Courts and boards typically hold that complete unforeseeability is not required and that an ordinary standard is applicable. See Conrad Weihnacht Constr. Inc., ASBCA No , 75-1 BCA 11,069, 1975 WL 1834 (finding that a Type II differing site condition requires that the condition be unusual in nature and does not require the existence of a freakish condition ); Wall St. Roofing, VABCA No. 1373, 81-2 BCA 15,417, 1981 WL 6930 ( In the instant case, we also find that the removal method contemplated by Appellant was reasonable and that Appellant encountered conditions requiring extraordinary removal measures. Thus, the Appellant encountered a differing site condition and is entitled to recover the increased costs of performance which resulted therefrom. ) Knowledge from Available Information (Type II) In order to establish a Type II differing site condition, the contractor must prove that the condition it encountered was unknown or not reasonably foreseeable. A condition is not unknown or unforeseeable if the contractor was aware or should have been aware of the condition through any the following: (1) its own experience; (2) a reasonable site inspection; (3) study of the contract documents; or (4) off-site information made available to the contractor including geological surveys, field logs, utility records, etc. Contractors will have been expected to use their own experience in conjunction with the documents and other materials made available to them during the bidding phase of the project. Like the reasonable standard for

12 124 Model Jury Instructions: Construction Litigation, 2nd Edition the condition itself, a contractor will be expected to perform its obligations to the standard of a reasonably experienced and diligent contractor operating under similar conditions. See Perini Corp. v. United States, 381 F.2d 403 (Ct. Cl. 1967) (holding that a changed condition did not exist and applying the test of whether the parties, from the information available to them, should reasonably have expected a material variation in the contract estimates of the water that would have to be pumped); E.J.T. Constr. Co., ASBCA No , 73-2 BCA 10,050, 1973 WL 1781 (denying a Type II differing site conditions claim predicated on alleged differing water levels where appellant s own expert witness testified that it was a matter of common knowledge that water table levels are not static ) Inspection Requirement Here, the contractor had an obligation to inspect the site before it entered into the contract [insert inspection language]. If you find that the contractor should have identified [the differing site condition] during a reasonably thorough inspection, the contractor is not entitled to additional cost and/ or time arising from this work. If, however, the [differing site condition] was an underground or concealed condition that the contractor could not have discovered during a reasonable inspection, the contractor may be entitled to additional cost and/or time if the contractor can prove the condition constituted a differing site condition. To determine whether the contractor conducted a reasonable site investigation, you should consider what a reasonable and experienced contractor would have discovered with the time and access allowed for a site investigation. This standard does not imply that the contractor should discover what a trained engineer or geologist would discover in the performance of a site investigation only what a reasonable contractor would discover. Typically, a contractor will not be able to recover additional compensation for readily observable site conditions and is charged with knowledge of all

13 Differing Site Conditions 125 conditions that could have been observed during a reasonable inspection. See Tectonics Inc., VABCA No. 1187, 77-1 BCA 12,228, 1976 WL 2401 (denying contractor s claim for differing site condition where board found that the contractor s site inspection was merely limited and rather casual ); Constr. Mgmt. Eng rs of Fla., ASBCA No , 85-1 BCA 17,757, 1984 WL (denying a differing site conditions claim citing to lack of inspection and noting it is difficult to understand how demolition subcontractors, on whose quotations appellant admittedly relied, at least in part, could have made reasonable bids or reasonable site visits without looking at the buildings they were to demolish ). Additionally, contractors are expected to draw reasonable inferences from observable conditions while applying the knowledge of an experienced contractor. See Crookham Vessels Inc. v. Larry Moyer Trucking Inc., 699 S.W.2d 414 (Ark. Ct. App. 1985) (ruling against contractor appellee and finding that contractor had the duty to acquaint himself before bidding with the conditions, nature, and extent of the work to be performed ). Contractors may also be responsible for information that is not included in the contract but is readily available from other sources, such as relevant documents on file in public offices or a project manual s reference to a soils testing report. See Ashbach Constr. Co., PSBCA No. 2718, 91-2 BCA 23,787, 1991 WL (documents readily available); Thomas J. Young Jr., PSBCA No. 3885, 98-2 BCA 29,772, 1998 WL (testing report). The duty to perform a pre-bid site investigation does not require a highly technical survey of the facility or the expertise of a trained engineer or geologist. See Nelson Bros. Constr. Co., AGBCA No. 393, 77-2 BCA 12,660, 1997 WL 2828 (finding that a contractor was entitled to rely on the representations in the bid documents and would only be held to a standard of what a contractor might reasonably perform for a site inspection). Additionally, if the owner prevents the contractor from performing a site investigation or a thorough site investigation, the contractor is entitled to recover for a differing site condition even if it could have discovered such condition with a proper inspection. Pavement Specialists Inc., ASBCA No , 73-2 BCA 10,082, 1973 WL 1784.

14 126 Model Jury Instructions: Construction Litigation, 2nd Edition 7.13 Performance Specification and Differing Site Conditions Here, the contractor seeks cost/time associated with [insert differing site condition] because it did not expect to encounter such condition. The owner contends that the specifications related to the site condition constituted performance specifications (explained in other instructions). If you determine that the specifications related to the site condition at issue constituted a performance specification, you must determine the contractor is not entitled to additional cost and/or time associated with [the differing site condition] even if the condition in question might otherwise constitute a differing site condition. In situations where the owner specifies only the measure of performance required and does not outline the site conditions in question, the contractor bears the risk of identifying and working through such site conditions. For example, when a contract to perform dredging work was deemed to be a performance specification, the contractor s claim for a differing site condition was denied. Stuyvesant Dredging Co. v. United States, 834 F.2d 1576 (Fed. Cir. 1987). In Stuyvesant, the contract did not indicate or describe the materials, or their characteristics, that the contractor would find within the acceptable or prescribed prisms, and the technical provision was a performance specification that contained no warranty. As a result, the contractor not the owner bore the risk to determine what material was at the site and to determine the appropriate methodology to address such conditions. The contractor sought an increase in price because it claimed the density of material was different from what it anticipated. The court denied relief because the specification was deemed to be a performance specification. The court stated the density of the material is only one of several factors that determine the difficulty of dredging. Similarly, when the government only provided performance specifications, the failure of a contractor to adequately inspect the site subsequently bears the risk of the site s conditions. See Hardwick Bros. Co. II v. United States, 168 F.3d 1322 (Fed. Cir.); see also Frontier Founds. v. Layton Constr. Co.,

15 Differing Site Conditions P.2d 1040 (Utah App. 1991) (denying differing site condition claim when contractor was cautioned not to rely on the logs ). A differing site condition claim was also denied when the contract also stated performance goals that PCL was to meet, and did not tell PCL the methods or processes to use to achieve the specified end result.... It was up to PCL to provide the precise details of how the structures were to be built. PCL Constr. Servs. Inc. v. United States, 47 Fed. Cl. 745, 795 (2000).

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