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)
