Differing site conditions - an introduction for federal construction contractors

Glen L. Eaton
March 15, 2016 — 2,192 views  



First, please be acutely aware of what this is, and is not. It is not authoritative legal advice. Only skilled construction attorneys are equipped to furnish such. However, construction, per se, and construction legal issues, are inexorably intertwined, increasingly more so as time passes. To prevail in an expensive owner-caused performance delay, for example, absolutely nothing replaces contractor early awareness of its legal entitlement. That turns on the facts at issue and how they apply to the specific theory of damages, which, in turn, permits entitlement to recover the damages.

Contracting is complicated and thus dispute-prone. You as a contractor have a better early-on grasp of the facts than any attorney or construction consultant possibly could at that stage of the problem. Therefore, some rudimentary understanding of the legal side of your entitlement to damages – resulting from the facts at the root of the problem – will empower you, the contractor, toward making early, timely, notification to your facility owner, and taking other important initial action.

Perhaps the most commonly occurring set of disruption and delay issues at construction sites comes under the heading of "differing site conditions",(DSC). Things found by the contractor after contract signing that are different than represented by the contract documents are a "Type I Differing Site Condition". Instead, the condition may fall under the heading of a "Type II Differing Site Condition"; conditions unusual in nature that differ in a materially physical way from those normally encountered in similar contracts.

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, many subcontracts have no DSC clause, nor even an equitable adjustment clause. Be forewarned! By their absence you have there the invisible bully brother to the onerous risk shifting clause, i.e., the "no-damages-for-delay" clause! Your owner or prime contractor intends any and all responsibility for suspension, delay and disruption be shifted to the contractor or subcontractor.

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.

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.

The AIA, state governments and private contracting entities have similar contract clauses, as the Federal Acquisition Regulations (FARs) tend to set the standard.

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 Universityof Florida in 2002 titled -

"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.ascjournal.ascweb.org/journal/2002/no1/Spring 2002, Vol. 7, No. 1, pp. 31-44.pdf -

101 federal court cases were analyzed. Eight (8) separate issues which would nullify the contractors' claims were studied. The courts found for the contractors in only 37 out of the 101 cases.

On whether the contractors were correct in claiming that the documents contained the proper indications of conditions to be encountered was the only winner of the right (8) issues; 19 out of 30 cases. Otherwise the courts found them guilty of imprudent contract interpretation in 29 out of 37 cases, they were wrong in 8 out of 13 cases on whether actual conditions differed materially from contract "indications", wrong 5 out of 6 times by claiming the actual conditions were reasonably unforeseeable, and failed in 2 cases out of 2 to timely file the proper DSC notice with the owner. Perhaps the most glaring but easily remedial contractor failure was pre-bid site investigation. Of 7 cases, the courts found the contractors failed 6 times. All 64 contractor failures were case-decisive; they each gutted the contractor's entire case.

All of which, I respectfully submit, makes a strong argument that if you have expensive loss issues not of your own making and you hope to collect damages, you have to know exactly what you are doing, sooner rather than later. Under those conditions, engaging the services of a construction claims expert would be well worth serious consideration.

Glen L. Eaton, President, Eaton Contract Services, Inc., http://constructionclaimsexpert.com - Providing contractors nation-wide with a full range of professional construction claim services. 40 years experience. Specialize in Federal contract dispute issues. Former Government prime contractor.

Glen L. Eaton

Eaton Contract Services, Inc