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Differing Site Conditions: To Be or Not to Be

Written by Mark Nagata and Neil Mutschler

Encountering unanticipated subsurface conditions while driving piles or excavating is a common occurrence in construction.  If a contractor encounters a differing site condition, the path to recovery of added costs is through the contract.  As a contractor, what information should be included in your differing site condition request to demonstrate entitlement to additional contract time and compensation for the differing site condition?  Conversely, as an owner, how should the request be evaluated to determine whether the contractor actually encountered a differing site condition?  While all projects are unique, there are some conditions that have to be met to prove entitlement to compensation and time extension for a differing site condition.  However, before identifying those conditions we must first identify what, in fact, constitutes a differing site condition.

The Two Types of Differing Site Conditions

Generally, there are two types of differing site conditions. The first type (Type 1) is usually defined as instances when the contractor encounters subsurface or latent physical conditions that differ materially from those indicated in the contract.

An example of a Type 1 differing site condition may be when a contractor is driving piles and does not reach refusal at the elevations identified in the plans and specifications.

The second type (Type 2) of a differing site condition is usually defined as instances when the contractor encounters unknown physical conditions of an unusual nature that differ materially from those ordinarily encountered and generally recognized as inherent in the work at the project’s location.

An example of a Type 2 differing site condition is when the contract does not provide any subsurface information and the contractor encounters subsurface conditions that it reasonably did not and could not have expected.  The Type 2 differing site condition is usually more difficult to demonstrate, because the contractor has to identify the assumptions it made regarding the subsurface conditions it anticipated to encounter and, then, show that the conditions differed materially from those that the contractor should have encountered or expected at the project’s location.

Establishing Entitlement to an Alleged Type 1 Differing Site Condition

When evaluating a contractor’s request regarding a Type 1 differing site condition, the owner should verify that the contractor met all of the requirements of the contract and the applicable law to establish entitlement to additional compensation and a time extension for a differing site condition.  A example of the kinds of things that should be verified are described by the Maryland State Board of Contract Appeals in its decision regarding Richard F. Kline, Inc., MSBCA 2092, 5 MSBCA ¶479 (2000) at pp. 10-11, citing Weeks Dredging & Construction, Inc. v. United States, 13 Ct. Cl. 193, 218-219 (1987).

The decision lists six conditions the contractor’s request must meet in order to establish the contractor’s entitlement to an equitable adjustment for a Type 1 Differing Site Condition.  They are:

(1)   the solicitation affirmatively indicated or represented the subsurface conditions to be encountered;

(2)   it acted as a reasonable, prudent contractor in interpreting the solicitation;

(3)   it reasonably relied upon the indications of subsurface conditions contained in the solicitation;

(4)   the subsurface conditions actually encountered differed materially from those indicated in the solicitation;

(5)   the actual subsurface conditions must have been reasonably unforeseeable; and

(6)   its claims for excess costs must be shown to be solely attributable to the materially different subsurface conditions.

In addition to fulfilling these conditions, we would recommend that both the contractor and owner also address the following questions.

Question One: Was Timely Notice of the Differing Site Condition Provided? 

Typically, the first and possibly the most important requirement that a contractor must demonstrate is that it notified the owner of the differing site condition it encountered in a timely manner.  Differing site condition provisions usually require the contractor to stop work and immediately provide notice of the differing site condition to the owner the instant it believes it encountered a differing site condition.

One may ask: Why work has to stop upon discovery of the alleged differing condition?  There are at least three reasons.  Owners want and are often entitled to an opportunity to investigate the differing site condition before the conditions are disturbed.  The purpose of this investigation is to provide the owner with an opportunity to verify the existence of the differing site condition and to consider alternatives that might mitigate the effects of the problem. Once a fix is worked out, the owner also wants an opportunity to document the added costs incurred.

 Question Two: Did the Contractor Perform a Reasonable Site Inspection?

 If required as part of the bidding requirements, the contractor should perform an inspection of the site before submitting its bid.  However, note that the failure on the part of the contractor to perform a pre-award inspection of the site does not in and of itself result in instantaneous rejection of the alleged differing site condition; rather the contractor must demonstrate that the alleged differing site condition would not have been discovered by a reasonable site inspection.

Question Three: Did the DSC Request Meet All of the Contract’s Submission Requirements?

The owner and the contractor should thoroughly review the contract documents to establish the information that is to be submitted to substantiate a request for a differing site condition.  Some construction contracts identify documentation that should be submitted to support the request (using special forms, breaking the costs down in a certain manner, etc).

Note that the contractor’s request should not be ignored solely because the request did not exactly meet the submission requirements.

Establishing Entitlement to an Alleged Type 2 Differing Site Condition?

The existence of a Type 2 differing site condition is often more challenging to establish than a Type 1 differing site condition.  While a Type 1 differing site condition relies on a comparison of the subsurface information in the contract and subsurface conditions that were actually encountered, a Type 2 differing site condition relies on a comparison between the contractor’s reasonable pre-award expectation of the subsurface conditions, which is often difficult to identify or substantiate, and the actual conditions encountered.  Using the Maryland case and other items discussed as a foundation, to demonstrate entitlement to a Type 2 differing site condition, it’s reasonable to presume that contractor has to meet the following conditions:

(1)   it acted as a reasonable, prudent contractor in identifying subsurface conditions that would ordinarily be encountered at the project site;

(2)   it reasonably relied upon the subsurface conditions that would be ordinarily encountered in its bid;

(3)   the subsurface conditions actually encountered differed materially from those it reasonably anticipated encountering;

(4)   the actual subsurface conditions must have been reasonably unforeseeable; and

(5)   its claims for excess costs must be shown to be solely attributable to the materially different subsurface conditions;

(6)   the DSC request met the notice requirements of the contract;

(7)   the alleged DSC would not have been discovered in a reasonable site inspection;

(8)   The DSC request met all of the submission requirements.

If the contractor is able to establish that it encountered a differing site condition and that the differing site condition is considered a change to the contract for which it is entitled to recover additional compensation, then the next questions that have to be answered are: (1) Did the change result in a critical delay to the project and (2) What additional costs is the contractor entitled to recover.

 

 

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