Differing Site Conditions

By on November 4, 2016
Leave a comment

Background. Some of the greatest risks construction projects encounter occurs during their underground phases of work. This results from the difficulty in quantifying what lies below the ground’s surface. For building construction Differing Site Conditions claims are frequently asserted by contractors performing excavation work, shoring, drilled piers, tiedowns / tiebacks, micropiles, and pile driving work.

Geotechnical investigations are commonly performed to gain a better understanding of the characteristics of sub surface soils but are limited by the number of tests and locations, more being better but also more expensive. These investigations are used by an owner’s design team for design purposes but are often provided to the contractor for bidding purposes as well, and this is where the trouble begins. If the underground conditions are different than those indicated in the geotechnical investigation, the differing site conditions (DSC) may provide the contractor a basis of entitlement for additional time and money.

The following discussion is framed in the context of underground work; however, the doctrine itself applies to more than underground work. For example, courts have held the doctrine applied to as built drawings of existing structures where the purpose of the as built drawings was demolition of the structure for which the as builts were provided.

Types of Differing Site Conditions. As generally defined by the courts statutes, Differing Site Conditions are classified as two primary types; type I and type II.

Type I Differing Site Conditions are subsurface or latent physical conditions at the project’s site which differ materially from those indicated in the Contract Documents.

Type II Differing Site Conditions are unknown physical conditions at the project’s site, of an unusual nature, which differ materially from those ordinarily encountered and generally recognized as inhering for the work of the character provided for in the Contract Documents.

The distinction is this; Type I claims are for conditions encountered by the contractor that are materially different than those indicated in the Contract Documents while Type II claims are for unusual and unforeseeable subsurface conditions than those normally encountered for the type of work described by the Contract Documents. While an owner can protect itself against type I claims by providing contractors with accurate and comprehensive geotechnical information, no such precautionary measures can be undertaken for type II claims because they are not based upon the physical conditions indicated in the Contract Documents.

Unfortunately, there are no bright line rules that provide clear guidance to identify whether conditions are “materially different”. It is a subjective analysis, and counsel who possess in depth construction experience will be more skilled at creating arguments to support or defeat arguments supporting claims the conditions were materially different, or not.

Public versus private. In California, claims for differing site conditions are treated somewhat differently for public versus private works of improvements. The primary distinction is based on Public Contract Code section 7104 which requires public works owners to compensate their contractors for time and cost impacts for site conditions that differ materially from those indicated in the contract. The distinction arises from public policy which precludes a public agency from disclaiming information it provides the contractor in the contract. This is not to say private works owners are free to disclaim information provided to the contractor. It is simply to say intricate rules of contract construction and interpretation will apply to private works owners for their disclaimers, while disclaimers will generally not be enforced on public works contracts.

Contractor’s reasonable reliance. In addition to site conditions being materially different, the contractor must have reasonably relied upon the information it claims was indicated in the contract, and as a result of that reasonable reliance the contractor incurred time or cost damages therefrom. Thus, if the contractor did not or could not have reasonably relied upon the erroneous information indicated in the contract, the contractor could not have been damaged by the erroneous information and a claim for damages cannot be supported.

Prompt Notice. When a contractor encounters conditions it believes are materially different, it is essential the contractor provide immediate notice of the encountered conditions to the owner. Prompt notice allows the owner to verify and inspect the claimed differing condition and allows the owner to timely evaluate its options in response to the asserted differing site conditions. While courts prefer to avoid forfeitures and settle disputes on their merits, failure to provide prompt notice of differing site conditions is commonly cited in court’s decisions as justification for denying contractor’s claims.

Burden of Proof. Finally, the burden of proof to prove the site conditions are materially different falls on the party asserting the claim, generally the contractor performing the work. It’s up to the contractor to prove by a preponderance of the evidence the claimed site conditions are more likely than not materially different than reasonably expected. It is not the owner’s obligation to prove the conditions were not materially different. Nonetheless, the owner must still persuasively rebut the contractor’s claim to prevail against any such claims.

Summary. Differing site conditions are conditions that are unusual in nature and materially different from those generally recognized as inherent for the work of the character provided for in the contract, or are materially different than those conditions indicated in the contract. To recover time or money for the differing conditions, the contractor must have; reasonably relied on the faulty information which it claims failed to represent the true nature of the project, suffered damages as a result of its reasonable reliance, promptly notified the other party of the differing site condition, and finally the contractor must prove by a preponderance of the evidence the claimed site conditions are more likely than not materially different than reasonably expected or indicated in the contract, as the case may be.

Differing site conditions claims can be simultaneously difficult to prove and defend as a result of their subjective nature. Experienced counsel and specialized experts are needed to provide opinions to support or defeat arguments concerning the nature of the claimed conditions. Proceed accordingly.

Filed under Differing Site Conditions, Geotechnical Investigations

Contractors, think twice before you skip that schedule update.

By on May 9, 2016
Leave a comment

Updating schedules and preparing cost reports ranks near the bottom of contractors’ lists of eagerly awaited tasks. Both, however, are essential for contractor success.

When contractors experience delays, whether by non performing subcontractors, force majeure, or uncoordinated and incomplete project design, the contractor’s legal obligation to prove entitlement for an extension of time requires proving by a preponderance of the evidence; liability, causation and damages. Without a contemporaneously updated schedule, this may be impossible to do.

Not any schedule update will suffice. Courts recognize Time Impact Analyses (TIA) performed using the Critical Path Method (CPM) as the optimum proof of delay, with the single most important factor in determining the acceptability being contemporaneous updating reflecting the actual progress of the work. As one court held: “It is essential that…any time extensions due to the contractor be incorporated into progress [schedules] concurrently with the performance of the changes…”

It’s easy to get it right. The good news is there’s nothing special about a time impact analysis and many contractors perform them without even realizing it. It is nothing more than a schedule update performed immediately before and immediately after the delay. Chances are the Contract Documents require regular schedule updates anyway, and by simply doing what you’ve already promised to do, you’ve complied.

The slippery slope. Often, the very reason you should have updated your schedule is the reason you didn’t do it. Uncoordinated and incomplete drawings can create numerous RFI’s which often cause time and cost impacts to the contractor. It is not uncommon for subcontractors to submit RFI’s while they are performing the work the RFI relates to, and when they don’t have the information they need, the work is delayed. While the subcontractor is experiencing delay to its work, the contractor’s personnel are swamped with managing RFI’s and their cost impacts, and the contractor may not recognize the project was delayed because he put off that schedule update to manage RFI’s and their cost changes.

But I’m swamped! While putting off schedule updates because staffing was too thin might be a project manager’s excuse to his boss, the law offers little sympathy. Nearly all Contract Documents require contractors to provide regular schedule updates and failure to provide them is a breach of contract the contractor can be held accountable for. Not only does the failure to update the project schedule create serious obstacles to a contractors obligation to fulfill its burden of proof, it creates damages liability as well.

But if you prefer, a merciless attack awaits you. With no contemporaneously updated schedule, a contractor must fabricate an as built schedule from its records to fulfill its legal obligation to prove delay causation. While an as built schedule can be built if the project superintendent kept good records, if he didn’t, it is likely the contractor cannot fulfill its legal obligation to prove delay causation. Furthermore, because as built schedules are prepared for the sole purpose of litigation, they are viewed with skepticism and will be mercilessly attacked for accuracy to discredit them.

It’s no coincidence that projects whose schedules are contemporaneously updated are finished on time; regular updates allow contractors to timely identify delays to proactively resolve them, and they provide contractors the means to request timely grants of additional time when merited.

Lawyer repellent. An apple a day keeps the doctor away; timely updates keep the lawyers at bay.

Filed under Contractor