HOW TO MANAGE CONSTRUCTION DISPUTES TO MINIMIZE SURETY AND CONSTRUCTION CLAIMS. PART 5: DIFFERING SITE CONDITIONS CONSTRUCTION CLAIMS
Construction is a business fraught with risk. Disputes over even the smallest of issues can quickly escalate, with crippling consequences to the project and the parties. Over the years, the construction industry has developed various methods of contractually allocating the risk of project delay and disruption. Some of these methods include liquidated damages provisions, "no damages for delay" clauses, mutual waivers of consequential damages, provisions that limit liability, claims notice provisions, and provisions addressing responsibility for the adequacy of the construction plans and specifications. Parties frequently litigate the sufficiency of these risk-shifting efforts in conjunction with the underlying merits of delay and disruption disputes.
Construction Claims & Disputes
In Part I of our series of how to manage construction disputes to minimize surety and construction claims, we addressed the construction delay claims and the methods typically used to analyze them.
We indicated there that the most frequently encountered claims include:
1. Construction Delay Claims
2. Disruption and Loss of Labor Productivity Claims
3. Design and Construction Defect Claims
4. Force Majeure Claims
5. Acceleration or Compression of the Schedule Claims
6. Suspension, Termination and Default Claims
7. Differing Site Conditions Claims
8. Change Order and Extra Work Claims
9. Cost Overrun Claims
10. Unacceptable Workmanship or Substituted Material Claims
11. Non-payment Claims (stop notice (or Notice to Withhold) claims, mechanics’ lien (only for private construction projects) and payment bond claims)
Part V of this series discusses item 7 above: Differing Site Condition Claims
The Problem
A construction bid package typically contains plans, specifications and possibly a geotechnical report. When contractors put together bids based upon the information in the bid package, they typically have limited time to investigate site conditions and assume that the site information reflected in the bid package is generally correct and that the project can be constructed pursuant to the plans and specifications. Everyone knows, however, that construction does not always proceed as planned. All too frequently contractors encounter subsurface conditions that differ from the information contained in the geotechnical report, or other conditions in the field that differ from what was expected or shown on the plans, in ways sometimes minor and sometimes significant.
Who Bears the Risk?
As between an owner and a contractor, who bears the risk of the additional costs associated with differing site conditions? Generally, a court will first look to the contract documents; and, if they are unambiguous, the Court will assign the costs associated with the differing condition to the party to whom they are assigned by the contract. In the context of fixed price contracts, the general rule, with some exceptions, is that a contractor assumes the risk of additional costs associated with differing site conditions of which neither party was aware. In some jurisdictions, and particularly with respect to publicly-owned projects, the traditional allocation of differing site conditions risks may be altered by an owner’s misrepresentation of site conditions or concealment of site information from the contractor.
In many construction contracts, attempts to alter the common law allocation of risks are made by a variety of contract terms. Consider the possible impacts of the frequently encountered contract clauses discussed below.
Geotechnical Information Disclaimers
Some owners attempt to avoid responsibility for unexpected site conditions by including in the contract exculpatory clauses disclaiming liability for the accuracy of site condition and subsurface data presented in the contract documents or in geotechnical data made available to the contractor. For example, a standard geotechnical disclaimer might read as follows:
Subsurface information shown on these drawings was obtained solely for use in establishing design controls for the project. The accuracy of this information is not guaranteed and it is not to be construed as part of the plans governing construction of the project. It is the bidder’s responsibility to inquire of the [owner] if additional information is available, to make arrangements to review the same prior to bidding, to conduct whatever site investigation or testing may be required, and to make his own determinations as to all subsurface conditions.
Such broad exculpatory clauses are increasingly common in construction contracts. In some jurisdictions, these exculpatory clauses have been enforced by the courts to the detriment of the contractor encountering unknown site conditions. In other jurisdictions, courts have been less willing to give unqualified effect to such clauses, especially if the contract also contains a differing site conditions clause allowing for the recovery of unanticipated costs. Nevertheless, the contractor encountering such an exculpatory clause must consider at least the following:
· A possibly contingency in its bid;
· A pre-bid letter to the owner requesting all site information available to the owner; and
· A site inspection which goes beyond the traditional “sight” inspection conducted by most contractors.
DIFFERING SITE CONDITIONS
Perhaps the most commonly occurring claims at construction sites are the so-called “differing site conditions” (DSC) claims. There are Type I and Type II DSC claims, mostly applicable to federal government contracts.
In federal government contracting, a Type I DSC is defined as follows:
1. The contract indicated a particular site condition;
2. The contractor reasonably interpreted and relied on the indications;
3. The contractor encountered latent or subsurface conditions which differed materially from those indicated in the contract; and
4. The claimed costs were attributable solely to the differing site conditions.
As an example, the contract boring logs may indicate that the excavation for a building foundation will be entirely in overburden soil, above bedrock. If instead the contractor encounters a substantial quantity of rock excavation, a Type 1 differing site condition was encountered. The key element in establishing a Type 1 DSC hinges on to what extent pre-bid subsurface representations were made. As another example of an unforeseen condition in an existing structure would be the discovery of asbestos that must be abated before the work proceeds. Differing underground conditions are classified as either Type I or Type II. Type I conditions are subsurface or latent conditions which differ from those on the plans or in the contract documents. Type II conditions are unusual physical conditions which differ materially from those ordinarily encountered.
A Type I differing site condition is typically defined as subsurface or latent physical condition at the site which differs materially from conditions indicated in the contract. As its definition suggests, contractors typically expect Type I differing site conditions to be physical in nature. For example, a contractor may encounter unexpected subsurface rock formations on the project, which should have been but were not disclosed in the contract documents. Or a contractor building a road on the side of a mountain may encounter an undisclosed geological thrust fault, which requires the contractor to spend additional money installing anchors and bolts to stabilize the fault zone to prevent it from collapsing on the road.
It is important to remember, however, that Type I differing site conditions do not always have to involve these types of physical conditions. A Type I differing site condition may arise from incomplete and unfinished work by a previous contractor. Regardless of which type of physical condition gives rise to a Type I differing site condition, the terms of the contract will be the most important factor in determining whether a contractor who has encountered a Type I differing site condition is entitled to additional time or money.
If a contractor is given an opportunity to view the project site, it should do so. If the contractor fails to visit the site before submitting its bid, it runs the risk of bearing the cost of performing additional work that was not in the plans and specifications but reasonably ascertainable on a site visit. If you undertake a site inspection and the owner refuses to provide access to critical portions of the prospective project site, the contractor should confirm such limitations by so informing the owner.
If positive representations made proved inaccurate, the recovery potential is high. Additionally, such representations need not only be affirmatively expressed in the contract documents. If a logical deduction can be drawn or inferred from the entire contract document, such inference will in fact be construed as a positive representation.
In connection with this “inference” criteria, the issue of quantity variations potentially giving use to a DSC is worthy of note. Although a variation from the owner’s bid estimated quantity is in itself not a DSC, if it materially deviates from what was reasonably foreseeable, a DSC may well exist.
On the other hand, in the same setting, a Type II DSC occurs where
1. the contractor did not know about the actual condition found during performance at the site;
2. the contractor could not reasonably have anticipated the actual condition at the site from inspection or general experience; and
3. the actual condition varied in a material way from the norm in similar contracting work.
An example of a Type II DSC is the encountering of a high water table, when no one was expected or known, requiring very active dewatering.
Typically, to establish entitlement to recovery for a Type I differing site condition, a contractor must prove, by a preponderance of the evidence, that: The conditions indicated in the contract differ materially from those actually encountered during performance;
The conditions actually encountered were reasonably unforeseeable based on all information available to the contractor at the time of bidding;
The contractor reasonably relied upon its interpretation of the contract and contract related documents; and
The contractor was damaged as a result of the material variation between expected and encountered conditions.
Failure to prove these elements will likely result in the denial of a contractor’s differing site condition claim, which could have significant cost impacts on the contractor and result in the contractor bearing the liability for delays on the project.
It is imperative for the contractor performing work on a project to be intimately familiar with the contract documents. If a suspected differing site condition is encountered, prompt written notice is essential. If a dispute arises over whether the conditions that were encountered at the site constituted a Type I differing site condition, the board or court will resolve the issue by scrutinizing the contract documents. If those documents show that the encountered site conditions were foreseeable, the contractor’s differing site condition claim will likely fail. To the extent the contract documents are not clear in informing the contractor about the site conditions that could be expected on the project, the contractor should attempt to resolve any ambiguities before submitting its proposal. Encountering differing site conditions that could arguably be foreseeable under the contract documents may not only result in the contractor not being compensated for the extra work performed as a result of those site conditions, but it could also possibly subject the contractor to liability for causing delays on the project.
The AIA, state governments and private contracting entities have similar contract clauses, as the Federal Acquisition Regulations (FARs) tend to set the standard.
All federal construction contracts contain some form of a so-called equitable adjustment clause. This clause is designed to do financial equity for contractors should they meet (for example) a DSC during contract performance. Realizing that contractors who, under the contract would otherwise be held responsible for all costs of completing the contract, even those of which no one has knowledge at bid time, would compel inclusion by bidders of large contingency figures in the bids driving up bid costs needlessly where no problems ultimately exist, the government began employing the clause in 1927.
Numerous non-federal contracts, and many subcontracts have no DSC clause, nor even an equitable adjustment clause. Because of this, subcontractors are at financial risk and frequently contingencies are added to bids to cover the risk. In order to reduce the extent to which contingencies are priced in the bid, subsurface conditions expected to be encountered are incorporated into the contract. While a step in the right direction, an owner’s representing subsurface conditions will give rise to liability for incorrect data. Make sure you include such a clause in the contract to avoid the risk of suspension, delay and disruption caused by the DSC be shifted to you.
In a contract which does not contain a DSC clause, an increased level of complexity regarding a contractor’s potential recovery for “changed conditions” exists. In general, a contractor will not have an implied right to extra costs because of a differing site condition if there is no specific contract clause addressing DSC or changed conditions. In a case in which the owner provides subsurface information and a contractor actually encounters materially different conditions, the legal basis for recovery is along the lines of either breach of contract, misrepresentation, superior knowledge or breach of implied warranty.
In addition, just because the problem issue meets the precise tests for a DSC does not mean the contractor will prevail in a claim for a DSC. Most of the time the owner will vigorously defend based on a number of reasons, largely consisting of failings of the contractor. At least one scholarly paper sounds a cautionary note for contractors claiming DSCs. In a study done at the University of Florida in 2002 entitled
“Analysis of a Type I Differing Condition Claim: An Empirical Study to Determine Which Proof Element is Most Frequently Disputed and Which Party Interest Most Often Prevails”, found at http://www.tamu.edu/faculty/choudhury/articles/9.pdf
In that study, 101 federal court cases were analyzed. Based on the data findings and analyses, the following conclusions are proffered. The majority of differing site condition complications regarding a contractual dispute between the owner and contractor occur during the bidding phase. The issue regarding whether the contractor acted in a reasonably prudent manner when interpreting the contract was the most occurring dispute element. The proof element, contract documents contain indications of conditions to be encountered, was the second highest litigious matter to appear in the study sample, followed next by the contractor must have reasonably relied on the contract indicates. As can be concluded, the most occurring or recurring proof element disputes occur at and result from the bidding phase of a construction project. Two of these proof elements, namely: a) acted in a reasonable manner, and b) reasonably relied on contract indicates, are concerned with a contractor processing of bid document indicates. The fourth most frequently recurring proof element at issue is: failure to investigate site. Here again, being a bidding phase process failure, more particularly having a strong contractual relation to the disclaiming language within the contract. The fifth most disputed proof element is actual condition encountered must be reasonably unforeseeable. This proof element bifurcates into both a bidding phase analyses and an actual construction phase question.
Use of DSC clauses has spread well beyond just federal contracting. The Engineers Joint Contract Documents Committee, which had previously employed a Standard Form 23A type of DSC clause, has evolved even further. For instance, the extent to which an owner may be held liable for subsurface facilities has been altered by distinguishing between such facilities from other physical conditions. In the case of underground facilities which were not disclosed or represented in the contract, the contractor may recover monetary compensation. On the other hand, if the underground facility is indicated in the contract but is inaccurately indicated, the risk shifts to the contractor.
A Type I differing site condition need not always involve project site’s geotechnical conditions. Something as simple as a previous contractor’s failure to build the preceding work in accordance with the applicable building codes, which in turn prevents or hampers another contractor’s performance, could be considered a differing site condition entitling that contractor to an adjustment in the contract price. Regardless of which type of condition is encountered, it is imperative for the contractor performing work on a project to be intimately familiar with the contract documents.
If a dispute arises over whether the contractor is entitled to additional money as a result of a condition that was encountered on the project, the court will resolve the issue by scrutinizing the contract documents. If those documents show that the encountered site conditions were concealed or unforeseeable, as they were in this case, a contractor’s differing site condition claim may well succeed.
Significant Decision by the Federal Circuit Court of Appeals in 2014
As was stated above, the contractors lose about two thirds of these DSC claims. A recent case law may change this trend and make it easier for the contractor to prove his case.
A recent decision by the Federal Circuit Court of Appeals represents a major triumph for contractors pursuing certain types of claims against the Federal Government. In Metcalf Construction Co. v. United States, 742 F.3d 984 (Fed. Cir. 2014), the Federal Circuit reinforced the principles underlying the Government’s implied duty of good faith and fair dealing, reversing a trial court decision that would have made it exceedingly difficult for contractors to show that the Government had breached that duty. The Federal Circuit in Metcalf also clarified that a contractor’s duty to investigate site conditions after contract award will not prevent a successful differing site conditions claim that arises from the Government’s pre-award representations.
Background
The project in Metcalf required the prime contractor to design and build 212 military housing units at the Marine Corps base in Oahu, Hawaii. The Request for Proposal ("RFP") included a geotechnical report that indicated that the soil at the site had “slight expansion potential.” The RFP indicated that the information in the soils report was “for preliminary information only,” and it required the successful bidder to conduct its own post-award site investigation. The Government stated during pre-bid questions and answers that the contract would be modified if unforeseen soil conditions were encountered.
After Metcalf Construction Company (“Metcalf”) was awarded the contract, it hired a soil consultant to investigate the site. The consultant concluded that, contrary to the RFP, the soils exhibited “moderate to high” – as opposed to merely “slight” – expansion potential. Because this heightened expansion potential could adversely affect the stability of the constructed units, the consultant made several recommendations for mitigating the soil conditions.
Metcalf immediately notified the Government of the differing condition and requested permission to follow its consultant’s recommendations. However, the Government insisted that Metcalf follow the contract’s original construction requirements. Discussions continued for over a year. Although still without an approved contract modification, Metcalf pursued its consultant’s recommendations by over-excavating and replacing the soil with imported fill. Subsequently, the Government determined there was no differing site condition and refused to pay Metcalf for the majority of the added costs associated with the issue.
Besides mitigating unanticipated expansive soils, Metcalf had to remediate certain contaminated soils at the Project site, despite the Government’s pre-award assurances that no such remediation would be necessary. Although the Government ultimately issued a change order concerning the contaminated soils, Metcalf claimed the compensation was inadequate and failed to address the costs it incurred. Metcalf also faced other disruptions and hindrances before completing the Project several months past the contract completion date.
Metcalf subsequently submitted to the Contracting Officer a claim seeking its costs associated with the expansive soils and the other issues it encountered during performance. In its claim, Metcalf argued that the Government had materially breached the contract and the implied duty of good faith and fair dealing by failing to timely investigate the findings of Metcalf’s soils consultant and interfering with Metcalf’s work. After receiving the Contracting Officer’s Final Decision denying its claim, Metcalf sued in the United States Court of Federal Claims. The Government asserted a counterclaim for liquidated damages due to Metcalf’s failure to meet the contract completion date.
Although the trial court ruled in Metcalf’s favor on certain claims, it awarded the Government more than $2.4 million in liquidated damages due to late completion of the Project. The court also ruled that the Government had not violated the implied duty of good faith and fair dealing, because the Government had not undertaken “specifically targeted action” to gain the benefit of the contract or intended to delay or hamper performance of the contract. The trial court also stated that unless at least one factor is present, “incompetence and/or the failure to cooperate or accommodate a contractor’s request do not trigger the duty of good faith and fair dealing.”
Regarding Metcalf’s differing site condition claim, the trial court ruled that the RFP’s representations regarding swell potential and contaminated soils were excused by Metcalf’s obligations to conduct a post-award site investigation. According to the court, Metcalf was entitled to rely on the Government’s representations only “for bidding purposes” and not “in performing the...project.” Metcalf therefore assumed the financial responsibility for any differing conditions encountered at the site.
The Federal Circuit Reverses
Implied Duty of Good Faith and Fair Dealing
The Federal Circuit reversed, holding that the trial court applied the wrong standard in analyzing Metcalf’s good faith and fair dealing claim. The Court held that to prevail on this claim, a contractor need not show that the Government “specifically targeted” the contractor. Rather, the contractor need show only that the Government “interfere[d] with the [contractor’s] performance” and “destroy[ed] the [contractor’s] reasonable expectations...regarding the fruits of the contract.” The Federal Circuit emphasized that “a breach of the implied duty of good faith and fair dealing does not require a violation of an express provision in the contract,” and the Court sent the case back to the trial court to determine whether these standards had been met.
Differing Site Conditions
The Federal Circuit also rejected the trial court’s conclusion that Metcalf’s post-award duty to investigate site conditions shifted the risk of any differing site conditions to Metcalf, finding that this rationale misinterpreted the contract:
Nothing in the contract's general requirements that Metcalf check the site as part of designing and building the housing units, after the contract was entered into, expressly or implicitly warned Metcalf that it could not rely on, and that instead it bore the risk of error in, the government's affirmative representations about the soil conditions. To the contrary, the government made those representations in the RFP and in pre-bid questions-and-answers for bidders' use in estimating costs and therefore in submitting bids that, if accepted, would create a binding contract. The natural meaning of the representations was that, while Metcalf would investigate conditions once the work began, it did not bear the risk of significant errors in the pre-contract assertions by the government about the subsurface site conditions.
The court examined the purpose of the standard differing site condition clause, Federal Acquisition Regulation (FAR) 52.236-2, which the court noted was intended to “take at least some of the gamble on subsurface conditions out of bidding” by enabling contractors to obtain contract modifications if they encounter differing subsurface conditions. In that regard, the Federal Circuit confirmed that provisions requiring a pre-bid site investigation (such as FAR 52.236-3(a)) have been interpreted “cautiously,” and that even those provisions do not preclude a successful differing site condition claim, as long as a reasonable pre-bid site investigation was actually performed. Similarly, the Court held that the Government could not avoid liability simply because its RFP indicated that the information was “preliminary.” The RFP and other pre-bid information had advised bidders that they would be entitled to a change order if they encountered differing conditions, and the fact that Government-provided information was “preliminary” did not shift the risk of differing conditions to Metcalf.
Metcalf’s Impact for Federal Contractors
The Metcalf case represents an important victory for federal contractors for at least two reasons. First, it reversed the Court of Federal Claims’ narrow reading of the Government’s duty of good faith and fair dealing. As a result, Metcalf opens the door for potentially viable claims based on the Government’s failure to cooperate or failure to properly administer the contract, even where the Government has not breached an express provision of the contract or “specifically targeted” the contractor.
Second, Metcalf reaffirms previous case law regarding the federal differing site conditions clause and the contractor’s duty to investigate. After Metcalf, contractors may pursue successful differing site conditions claims even when their contract contains provisions that seem to bar recovery. For example, contracting officers will often use FAR 52.236-3, which generally requires contractors to investigate the site pre-bid, to shield the Government from liability. As Metcalf and its cited cases clarify, however, those clauses do not create a duty by the contractor to investigate conditions beyond a reasonable degree, nor do they completely shift the risks associated with differing conditions to the contractor.
Example Case where the Court found for the Owner and Against the Contractor
A 2010 decision from the Ohio Court of Claims sets forth a dispute over whether a differing site condition claim was adequately proven, and whether the contractor had followed the contract’s notice requirements for making a differing site condition claim. The case is Central Allied Enterprises, Inc. v. The Adjutant General’s Department (June 18, 2010), Court of Claims of Ohio No. 2007-Ohio-07841, 2010-Ohio-3229.
A state agency was having a helicopter apron rebuilt. The agency had an engineering firm assess the soil composition and prepare a report that determined that the soil was suitable for construction when brought to proper moisture conditions. The contractor read the report and walked the site prior to submitting a bid for the lump sum contract. The plans required the removal of the existing asphalt and excavation of the soil to a depth of twenty inches, to be replaced with twelve inches of aggregate topped with eight inches of new asphalt to accommodate heavier helicopters.
During construction, the contractor encountered areas of unsuitable soil which required the contractor to excavate several additional inches to reach stable soil, and replace the excavated soil with more aggregate. The contractor also layered geo-fabric with the aggregate to achieve suitable soil strength. The contractor and the owner’s engineer were unable to reach an agreement as to payment for the additional work. The contractor chose to proceed with the work to avoid delaying the project. Both the contractor and the engineer agreed that the additional costs would be reconciled by a final change order to be submitted upon completion of the project.
After substantial completion, the contractor requested the engineer to verify final quantities for the change order. The engineer did not do so, and the contractor completed its own calculations and requested the engineer to submit the proposed change order to the owner. The engineer did not respond to the request. The contractor then sued the state agency for breach of contract, unjust enrichment and constructive change order.
The Court of Claims quickly dispensed with the Type II differing site condition premise by holding that there was insufficient evidence to establish that the actual nature of the soil differed from the type of soil normally encountered during excavation in that part of Ohio. The court relied upon the engineer’s soils report which stated that all soil values were typical of glaciated deposits found in the area.
With respect to a Type I differing site condition claim, the court held that the conditions encountered by the contractor were not materially different from those outlined in the contract, and that the actual conditions were reasonably foreseeable. The court based its conclusion on the soils report, the presence of standing water in various areas of the apron on the day of the pre-bid meeting, the engineer’s inclusion of catch basins and a detention pond to facilitate drainage, and the inclusion of geo-fabric in the design. These factors provided notice to the bidders that there were excessive moisture and drainage problems in the subsoil.
Notice for a change order
According to legal precedence, when a construction contract provides that altered or extra work must be ordered in writing, the provision is binding upon the parties to the contract. The contractor cannot recover for such work unless a written directive (change order) is executed in compliance with the contract, unless waived.
The contract in this case provided a Change Order Procedure which prohibited the contractor from proceeding with any change in the work without written authorization. Whenever the contractor seeks additional compensation for causes arising out of or related to the project, the contractor has to follow the contract procedures, including providing timely notice. Under this contract, the contractor was required to make a written claim with the engineer prior to contract completion and no more than 10 days after the initial occurrence of the facts giving rise to the claim for additional costs. When it comes to notice provisions, the contractor should always follow the letter of the contract.
The court found that the contractor failed to submit a written change order to the engineer or to the owner prior to the contractor’s completion of the project. The court rejected the contractor’s argument that the notice provision was waived when the engineer agreed with the contractor’s decision to proceed with the work and to submit a final change order at the completion of the project. There must be a clear and unequivocal act demonstrating the owner’s intent to waive the contractual notice, change order and claim review requirements.
Constructive change order
A claim for a constructive change order may have been sustained by the court if the owner had independent knowledge of the condition complained of and had oral notice of the contractor’s complaint, and the owner was not prejudiced by lack of prior written notice. In this case, however, the contractor had communicated only with the engineer regarding the differing site conditions, and had not documented these communications. The contractor had failed to submit a formal written change order to the engineer or to the owner within the time permitted by contract or even within a reasonable period of time.
When a contractor has missed a contractual notice deadline, the contractor should continue written communications to the owner and the owner’s representative addressing the disputed issue. Even when there has been no response from the owner or owner’s representative, the contractor should not remain silent.
Central Allied Enterprises, Inc. v. The Adjutant General’s Department (June 18, 2010), Court of Claims of Ohio No. 2007-Ohio-07841, 2010-Ohio-3229.
Tips and Misc. Case Law on DSC
A common mistake to avoid is appealing denial of a claim for contract interpretation that does not include a separate monetary claim for consideration by the contracting officer. The Board lacks jurisdiction over any request for monetary relief found in the complaint for an appeal. See Dick Pacific/GHEMM, JV, ASBCA No. 55829, 08-2 BCA ¶ 33,937 (portions of complaint stricken as claim did not include a request for release of withholdings or liquidated damages).
Liquidated Damages Construction Claims. When the government asserts liquidated damages against you, a question arises as to whether you must obtain a contracting officer’s final determination. The government does not have to “certify” its own claim against a contractor. An experienced government construction claims appeal lawyer should assert that there is sufficient jurisdiction because the contracting officer made a final decision on the government construction claim asserting liquidated damages and you filed a timely appeal from that final decision. See Placeway Construction Corp. v. United States, 920 F.2d 903, 906-07 (Fed. Cir. 1990); cf. M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323 (Fed. Cir. 2010) (contractor’s separate claims for time extensions and related contract modifications had to be certified); Sikorsky Aircraft Corp. v. United States, 102 Fed. Cl. 38, 47-48 (2011).
When the government assesses construction claims against you, you want to also present facts that any causes of damages were not due to a situation that is your fault or within your control.
Project Solutions Group v. DOT, CBCA 3411 (Oct. 23, 2013) (nonprecedential; excessively high relative humidity levels at installation site for new flooring were not differing site condition but likely were caused by fact that contractor repeatedly watered the area to keep down the dust)
Drennon Construction & Consulting, Inc.. v. Dept. of Int., CBCA 2393 (Jan. 4, 2013) (defective specifications and differing site condition made resulting period of suspension of work unreasonable per se)
D&M Grading, Inc. v. Dept. of Agr., CBCA 2625 (Apr. 24, 2012) (upholds Default termination because conditions encountered by contractor under roadway vegetation maintenance contract did not amount to Type I or Type II Differing Site Condition)
JRS Management v. DOJ, CBCA 2475 (Mar. 1, 2012) (dismisses appeal for lack of jurisdiction (no contract) because contractor responded to government order for services by announcing it was substituting different individual from the one specified in the order, thus making a counteroffer the Government refused to accept)
Beyley Constr. Group Corp. v. Dept. of Veterans Affairs, CBCA 5, 763 (July 23, 2007) (differing site conditions, constructive change)
Instability of a highway embankment was held to be an unusual soil condition entitling the contractor to an equitable adjustment under the Differing Site Condition Clause. Paul N. Howard Co. v. Puerto Rico Aqueduct Sewer Authority, 744 F. 2d 880 (1st Cir. 1984)
Additional Practical Tips
An assessment of the contractual allocation of risks should be performed before a bid is submitted to answer questions such as:
Is there a DSC clause in the contract?
Are the boring logs (and other geotechnical data) part of the contract?
Are there exculpatory clauses wherein the owner denies responsibility for incorrect subsurface conditions?
These are but a few of the questions a prudent contractor will address in the course of bid preparation.
Site Inspection
In the process of establishing the basis of recovery for a DSC, a contractor should show that a site inspection would not have disclosed the conditions encountered. Regardless of the representations (or lack of) made in the contract, the necessity to perform a reasonable site inspection is vital. Quite obviously, a contractor will not be held responsible to perform numerous borings (or other investigations) during the usual short bid period. However, a contractor will be expected to ascertain, to the extent possible, subsurface conditions from a reasonably conducted site visit. If conditions are discernable from the site visit (particularly if they contradict the “represented data”), the contractor should take such information into account. This relates back to whether (or not) a site investigation would have allowed the contractor to ascertain the actual conditions encountered. If the actual conditions could not be reasonably discovered, the contractor stands a better chance to recover.
Even in situations where the owner includes all subsurface information in the bidding documents and makes no attempt to disclaim responsibility for the information provided, contactors cannot rest easy. In Foster Construction C.A. and Williams Brothers Company, A Joint Venture v. The United States the U.S. Court of Claims ruled that:
“The contractor is unable to rely on contract indications of the subsurface only where relatively simple inquiries might have revealed contrary conditions.”
For example, in a highway project where the subsurface investigation report contains 30 borings to a depth of 45 feet (and the deepest cut on the drawings is approximately 25 feet) all of which show no groundwater, bidders may not be able to rely on the lack of indication of groundwater. If the contractor could have, for example, reviewed and determined from the local Soil Conservation Service office that groundwater records show that at certain times of the year groundwater levels rose to within three meters of the surface, then bidders cannot rely upon the bidding information when preparing their bids.
Similarly, if a pre-bid site walk would have revealed the condition, even though it was not shown in the geotechnical report, then the contactor cannot rely exclusively on the bidding information.
Timely Notification
The most substantial roadblock to recovery of a DSC claim is failure to provide notification. Contracts often contain a notification requirement, particularly with regard to DSC, and have even required that the uncovered unknown subsurface conditions remain undisturbed until investigated by the owner. Failure to strictly adhere to these notice requirements can foreclose a contractor’s recovery for an otherwise valid DSC claim. This procedure is necessary to afford the owner the opportunity to modify and alter the design or performance requirements and thereby minimize and mitigate the actual effects of the DSC.
Root Causes of Most Construction Claims
· Lack of Communication
· Misinterpretation of plans, specs or directions
· Plan errors / Poorly coordinated contract drawings
· Poor Project Management
· Lack of Familiarity with Specifications
· Impacts of Third parties (damage to your work, delays, utilities, etc.)
· Changes in work scope
· Unknown / Differing Site Conditions
· Work Interruptions (Loss of Productivity)
· Project Acceleration / Delay
Steps to Avoid Construction Claims
1. Thoroughly Review Your Contract / Plans
2. Properly Plan / Manage your Project
· Including detailed schedules with critical dates, constraints and critical tasks
· Be able to show how you planned to do work, equipment needed, man-hours, etc.
3. Track your own work Progress
· Are you On Schedule, ahead, or already behind, etc.?
· Have you documented any delays/impacts to your schedule?
4. Keep Good Records
· Document, Document, Document
· Photos, time logs, foreman reports, engineers' inspection records, etc.
5. Constant Communication
· Confirm things in writing, respond to communication promptly (one way or the other)
· Never Assume things when it comes to contract work
· Ask questions before starting extra work, confirm scope and payment in writing.
6. Always attempt to Resolve Disputes Early
· Average time to resolve a claim is often over 15 months.
Avoid Five Costly Mistakes Made By Government Construction Contractors
Although not intentional, contractors tend to make the following mistakes which can cost them thousands or millions in construction projects.
Failure to understand how the various FAR clauses impact your ability to have equal footing with the agency. Federal contracts are primarily written for the benefit of the agency. Having your people trained in the various clauses can save the company a substantial amount of money.
Not understanding the difference between a Request for Equitable Adjustment and a CDA claim. There is a difference between the two. Having a government construction lawyer to guide you around the lurking pitfalls can also save you thousands in unnecessary attorney fees.
Failures to submit a construction claim that meets the CDA requirements. Both small and large contractors make fatal procedural and substantive errors then submitting their claims. See information on Contract Disputes Act and Pass Through Claims. There are statutory requirements that you must meet including getting the contracting officer’s final decision. Failure to meet them can create delays and even rejection.
Not understanding what constitutes a Contracting Officer’s final decision. Your construction claim must have a CO’s final decision before you can appeal to the Court of Federal Claims or Board of Contract appeals.
Failure to properly address cure notices. When a contracting agency believes that you are a performance risk, a cure notice is forthcoming.
Prepare, Negotiate and Litigate Construction Claims in Federal projects allow contracting officers (COs) great latitude in resolving disputes. However, you may often find your company trying to negotiate a claim that you know has merit.
Avoid Costly Pitfalls With Requests for Equitable Adjustment Claims: An important part of the government construction claims process is understanding the nuances between a CDA claim and a Request for Equitable Adjustment. Develop Internal Policies and Controls: Given the mandated increased oversight on federal contractors, both small and large companies are targeted for audits and investigations.
Get Help With Government Construction Proposal Writing: Bidding on government contracts is very tough business. Whether you are writing proposals for Army Corps Projects, Navy projects or for another agency, you want to strengthen your technical proposals, construction bid bond submissions and management approaches.
Federal Construction Contracting for Small Businesses: The laws associated with government contracting include a wide array of complex regulations that dictate how you perform. For example, small businesses are restricted to certain guidelines under teaming agreements and joint venture contracts. Issues arise concerning SBA size standards and limitation in subcontracting requirements. At the law office of Watson & Associates our government construction law attorneys provide legal advice on matters pertaining to:
· Prime and subcontracting agreements
· Size standard disputes
· Subcontracting plans
· Teaming agreements
· Joint venture agreements
· Filing construction claims
· Addressing construction defect disputes
METROPOLITAN ENGINEERING, CONSULTING & FORENSICS (MECF)
Providing Competent, Expert and Objective Investigative Engineering and Consulting Services
P.O. Box 520
Tenafly, NJ 07670-0520
Tel.: (973) 897-8162
Fax: (973) 810-0440
E-mail: metroforensics@gmail.com
Web pages: https://sites.google.com/site/metropolitanforensics/
https://sites.google.com/site/metropolitanenvironmental/
https://sites.google.com/site/metroforensics3/
We are happy to announce the launch of our twitter account. Please make sure to follow us at @MetropForensics or @metroforensics1
Metropolitan appreciates your business.
Feel free to recommend our services to your friends and colleagues.
Metropolitan has been engaged by design-build engineering firms, general contractors, and specialty subcontractors to prepare and substantiate differing site conditions claims and has been engaged by project owners and public agencies to evaluate claims submitted by contractors. Metropolitan has in-house multidisciplinary expertise of engineers, geologists, construction management professionals, and schedulers to analyze all aspects of DSC claims. The results of our development and evaluation of DSC claims have been presented in discussions with our clients, written reports, and testimony at review board hearings, arbitrations, mediations, and trials.
In general, Metropolitan has expertise to evaluate issues related to:
· Entitlement (technical merits of claim)
· Cost analysis
· Delay impacts
· Disruption
· Productivity Loss
· Acceleration
· Design defects
· Construction defects
In Metropolitan’s evaluations of entitlement, our engineering and construction professionals have used their education, training, and expertise to address issues related to the following types of site conditions:
· Excavation and trench failure
· Embankment failure
· Pile-driving refusal
· Rock suitability for drilled shafts
· Import fill suitability
· Borrow source characterization
· Unsuitable material
· Subgrade suitability
· Embankment/subgrade R-value
· Construction equipment mobility
· “Pumping” and “rutting” of subgrade
· Expansive soil
· Collapsible soil
· Liquefiable soil
· Cobbles and boulders (particle size)
· “Running ground”
· Sinkholes
· Excessive ground moisture
· Groundwater and seepage
· Groundwater pumping rates and volumes
· Rock rippability
· Back-cut slope stability
· Unmapped landslides
· Faults
· Ground fissures
· Hazardous materials (naturally occurring and man-made)