Differing Site Conditions Part 1

There is an unwritten law in human nature that is referred to as Murphy’s law. 

When contracts are executed and construction starts, claims prevention can become more difficult because there are now more parties involved and increased chances for problems. Since there are many items involved in construction claim disputes, we’re going to address the three major problems, each covered in a separate blog post. The main three issues are:

• Differing site conditions
• Deviation from original plans
• Time-related issues

For the first part of our series, we’re going to dive into differing site conditions. Let’s get started!

Differing Site Conditions

The first thing that you should probably understand is what the different site conditions are. 

There are two different types of site conditions: Type I and Type II.

Type I
Type I differing site conditions are situations when a drawing, specification, or other document doesn’t accurately represent the physical conditions of the site. For example, a document may indicate that a site doesn’t contain any rocks that need removal, but a contractor could visit the site and may notice that there are rocks.

Examples of Type 1 differing conditions can be:

• Dissimilar shrink or swell is found in the soil than was described
• The water level or water pressure may not be the same as indicated
• There may be more of or a different type of rock encountered on the site

Type 2
Type 2 conditions are when there are unknown physical conditions at the site. These conditions are typically unusual and are not ordinarily encountered or recognized as inherent in these types of projects.

Examples of Type 2 differing conditions can be:

• Corrosive groundwater
• Unusual moisture conditions in the soil
• Soil that cannot be compacted
• Rock that did not fracture as planned

Now that you have a basic understanding of the different conditions you may face when bidding on a site, let’s look at a scenario that could happen when working on a project.

The Scenario

Let’s say a contractor finds a project out to bid that is of interest for their company. As with any new job to bid on, they must first obtain the bid package that will contain the plans, specifications and maybe a geotechnical report. Most contractors don’t have the time to do a thorough investigation of the site conditions prior to the bid and must rely on the accuracy of the bid package.

If all goes well, the contractor may be able to accept the big and begin work on the site. This is where the contractor may start experiencing ‘Murphy’s law’ which states that anything that can go wrong, will go wrong. Since the contractor could only rely on the plans and specifications from the bid package, they may begin to notice other issues that weren’t initially reflected.

Some of the conditions may be of no concern, but others could potentially sink the contractor financially if not protected by the contract.

Because of adverse court decisions and the increased number of claims, some project owners have attempted to draft an exculpatory clause, which is contract terms and specifications that transfer the risk back to the contractor. Some contracts contain “Site Inspection Clauses” which require the contractor to perform their own site inspection to better understand the surface conditions.

Sample Provision

The contractor will then report back that they have had sufficient time to examine the site of the project, and that they have determined and are fully aware of the surface conditions when they begin to work on the site.

A key point in this provision is that because the contractor has looked and verified the site for themselves, they will receive no additional compensation for unforeseen site conditions.

If the contractor’s contract contains a “Differing Site Condition Clause”, then the “Site Inspection Clause” may NOT eliminate the contractor’s exposure to an unexpected surface or subsurface project site condition. It’s easy to see how damaging this type of “Site Inspection Clause” can be to contractors if they’re uninformed.

Suggestions For Contractors

As you can see, taking on a project isn’t as simple as just bidding on it. With so many risks involved, it’s hard to remember what you should look out for and how to avoid financial losses. Since construction work can be complicated, here are some tips we believe can help lower the risk you will encounter when bidding on a project.

• Prior to submitting your bid, analyze the contract documents and be aware of how it transfers the risk of “Differing Site Conditions.”
• Locate any contract language or exculpatory clauses disavowing the accuracy of the geotechnical report or other contract documents.
• Does the clause include the type of condition encountered?
• Execute your own inspection and take notes, pictures, and video of anything that could present a problem. You should even survey the adjoining properties for possible drainage issues or other potential problems.
• Do the conditions differ materially from those indicated in the contract documents or those ordinarily encountered?
• If you discover a potential problem, follow the contracts notice requirements by notifying the owner, architect, and engineer prior to disturbing the conditions.
• Have the conditions encountered increased your company’s costs in performing the work or time required to complete the work? If so, you should break out and detail an itemized list of additional expenses created by the “Differing Site Conditions.”
• You should always check with your lawyer before signing any contract.

Suggestions For Owners

As the owner of a project, the last thing you want is to hold out on information to contractors. It’ll only cause future issues and more work down the road. Here are some tips to help smooth the process:

• To mitigate your liability exposure for unforeseen site conditions, you should make aware of all parties prior to receiving bids of “All Known Conditions.”
• Transparency of known facts can’t be overstated in your risk mitigation strategy.
• If you misrepresent the surface/subsurface site conditions in a positive light within the contract documents, your exculpatory clauses may not help.
• If you have incorporated a “Differing Site Condition Clause”, then you should implement precise notice requirements and consider limiting the contractor’s reimbursable costs to specifically “job site costs” incurred only.
• Be sure you understand from your attorney how the contract transfers the exposure of unknown and “Differing Site Conditions.”

Site Conditions Legal Considerations

There are also other legal considerations to take into account when working on a project. Be sure to follow and understand the legal terms when it comes to the site conditions. 

Type 1

An owner may be required to provide an equitable adjustment for a Type I differing site condition if:

• The contract indicated the conditions that the contractor could expect to find at the site.
• The conditions indicated in the contract differed materially from the actual conditions.
• The actual conditions were reasonably unforeseeable based upon all the information available to the contractor at the time of bidding.
• The contractor acted as a reasonably prudent contractor in interpreting the contract documents.
• The contractor incurred additional costs as a result of the difference between the expected conditions and the actual conditions.

Type II

An owner may be required to provide an equitable adjustment for a Type II differing site condition if:

• The contractor did not know about the actual condition found at the site.
• The contractor could not reasonably have anticipated the actual condition at the site from inspection or general experience.
• The actual condition was unusual from similar contracting work.

Remember, laws vary from state to state so it is critically important to discuss all contract clauses and how they transfer risk and responsibility by either party with your attorney. 

As you can see, there’s a lot to know about differing site conditions and ensuring that you are fully aware of the different outcomes that could present themselves. Don’t worry though! As long as you stay vigilant and fully assess potential risks and the legal documents that are attached to the projects, you’ll be able to complete your work on time without losing any money for your work. Be sure to check out part two of our blog series and learn more about deviation from original plans during construction.