Michael E. Wagner, Jr. | The Construction Seyt
In heavy-civil, excavation, and infrastructure work, the risk of encountering differing, unknown, or concealed conditions is significant, as it is nearly impossible to document or predict everything that the contractor will encounter below the surface when performing its operations. Although standard pre-bid site surveys, including soil and geotechnical reports, are good resources to evaluate potential concerns, they will almost never be all encompassing as to what a contractor will face when its work is in progress. Given these unique, complicated, and costly risks, some project owners will seek to pass liability for such risk onto the those performing the work. Indeed, owners may seek to transfer these unknown risks, including unforeseen conditions, to contractors making the financial burden significant for those bidding the work. Accordingly, it is imperative that the contractor balance the desire to submit a competitive price to win the work with the need to ensure that it has some type of remedy or recovery should it encounter such concealed or differing conditions. Faced with this balancing act, contractors performing excavation and foundation work should be intimately familiar with the site disclaimer, exculpatory, and risk-transferring clauses present in their agreements and the effect that such provisions may have on their ability to recover additional costs and time should they encounter differing conditions.
What type of site disclaimer clauses are used on public and private construction projects?
Site disclaimers are a form of exculpatory clause, which seek to limit a party’s liability for its actions or inactions and resulting damages and/or shift risk to the other contracting party. In the construction context, a disclaimer or exculpatory clause seeks to limit the owner’s liability in situations that might otherwise entitle the contractor to additional costs or time, such as differing site conditions. In the United States, courts and boards will usually enforce exculpatory clauses even though the result may be unfair to the contractor.[1] However, to be enforceable, site disclaimer clauses must generally be clear, specific, and unambiguous, must not conflict with another contract provision intending to allocate risks for site conditions (i.e., the differing site condition clause),[2] and the contractor must have knowingly accepted the risk. Although the enforceability of such provisions will vary from jurisdiction to jurisdiction, State and Federal Courts, as well as Boards of Contract Appeals, are less likely to enforce broad form site disclaimers.
Typically, site disclaimers will be found in the request for proposal or solicitation, the general conditions to the contract, or on the plans or drawings. But disclaimers could also be found in any of the contract documents, and therefore the contractor should carefully review all documents, including notes on the drawings, to discern the scope and application of the disclaimer. Most construction contracts, however, will include four primary site disclaimer provisions: (i) the physical data clause; (ii) the omissions clause; (iii) the verification clause; and (iv) the site investigation clause.
The Physical Data Clause seeks to disclaim liability for data and other information provided by the owner to the contractor such as soil conditions, hydrographic data, test borings, and weather conditions. In essence, the owner includes a provision that states the contractor is not entitled to rely on the information provided by the owner regarding subsurface conditions, and that this data is for “information purposes only.” An example of a physical data clause in federal government construction projects is found at Federal Acquisition Regulation (“FAR”) §52.236-4:
“Data and information furnished or referred to below is for the contractor’s information. The Government [Owner] shall not be responsible for any interpretation of or conclusion drawn from the data or information by the Contractor.”
And a common example on private projects is as follows:
“Information, data, and representations contained in the contract documents pertaining to the conditions at the site, including subsurface conditions, are for information only and are not warranted or represented in any manner to accurately show the conditions at the site of the work.”
Through these clauses, the owner is seeking to transfer the risk of unknown subsurface conditions to the contractor, while also attempting to disclaim liability for any data provided to the contractor in the contract documents. If confronted with a physical data clause, contractors should, to the extent possible, independently verify the information provided by the owner.
The Omissions Clause seeks to shift the risk to the contractor for information that was omitted from the contract, or inaccurately described, to ensure that the contractor does not recover additional costs for work that would be reasonably necessary or inferable to complete its work. Generally, these types of clauses provide that if a work item is omitted from the contract documents, then it is the contractor’s responsibility to perform the work even though it was omitted. Like the physical data clause, omissions clauses are also meant to caution prospective bidders that data included in the contract documents may not accurately depict actual site conditions. Two examples are below:
Defense Federal Acquisition Regulation (“DFAR”) §252.236-7001:
“Omissions from the drawings or specifications or the misdescription of details of work which are manifestly necessary to carry out the intent of the drawings and specifications, or which are customarily performed, shall not relieve the contractor from performing such omitted or misdescribed details of work, but they shall be performed as if fully and correctly set forth and described in the drawings and specifications.” (italics and emphasis added).
American Institute of Architects (“AIA”) A-201 General Conditions of the Contract for Construction (2017) §1.2.1:
“The intent of the Contract Documents is to include all items necessary for the proper execution and completion of the Work by the Contractor. The Contract Documents are complementary, and what is required by one shall be as binding as if required by all; performance by the Contractor shall be required only to the extent consistent with the Contract Documents and reasonably inferable from them as being necessary to produce the indicated results.” (italics and emphasis added).
While these clauses include broad language, certain courts and boards have found that the omissions clause is simply a partial disclaimer of liability applicable to missing details that are obvious and apparent.[3] If an omissions clause is present in a contractor’s agreement, it should make good-faith attempts to determine if there are any missing details, whether these details would be considered obvious and necessary to perform the work, and promptly report all such omissions to the owner.
Verification and Site Investigation Clauses, another form of a site disclaimer, require the contractor to “verify” dimensions, distances, spaces, and other measurements at the project site. Such clauses seek to protect the owner from liability for defective drawings or specifications by transferring the risk of verification of details to the contractor. Examples of common verification clauses include: (a) DFARS §252.236-7001(b), which requires the contractor to check all drawings immediately upon receipt, compare the drawings and verify figures before commencing the work, and promptly notify the government of any discrepancies; and, for example (b) the following clause:
“The grades, elevations, dimensions, locations and field measurements or any drawings or specifications issued by the Architect or Owner, are not guaranteed by the Owner. The Contractor shall take field measurements and shall be responsible for verifying the accuracy of all grades, elevations, dimensions, locations, and field measurements. Any errors due to Contractor’s failure to verify all such grades, elevations, dimensions, locations or field measurements shall be promptly rectified by the Contractor without additional costs to the Owner or extension of the Contract Time.” (italics and emphasis added).
Verification clauses are generally found to be enforceable provided that they are specific, do not require a broad verification of all work items, and such verification requirements can actually be performed by the contractor.
Finally, the Site Investigation Clause, which is probably the most well-known of the site disclaimer clauses and quite similar to the verification clause, imposes an express obligation on the contractor/prospective bidder to visit the site, review the site conditions, and familiarize itself with the work and existing conditions before submitting a bid or starting work. Owners will utilize site disclaimer clauses to transfer the risk of differing conditions to the contractor. Site investigation clauses are typically included in the RFP or solicitation, and then again in the general conditions to the contract. In the federal government construction context, the site investigation clause is found at FAR §52.236-3 and requires the contractor to take “steps reasonably necessary to ascertain the nature and location of the work, and…investigate and satisfy itself as to the general and local conditions which can affect the work or its cost…” (italics and emphasis added). Similarly, Section 3.2.1 of the AIA A-201 General Conditions requires that the contractor “take field measurements of any existing conditions related to that portion of the Work and shall observe any conditions at the site affecting it.” (italics and emphasis added).
If a site inspection is available, the contractor should take advantage of the inspection, document existing conditions, and promptly report any potential issues to the owner. Moreover, contractors should understand that most contracts (and applicable law) will not impose a duty to discover every conflict, inconsistency or concealed condition; rather, the adequacy of a site inspection is measured by what a reasonable, prudent and busy bidder experienced in the particular construction work would be expected to discover. But contractors should nonetheless take note that site investigation clauses do impose a duty to review the site, and if necessary, report patent discrepancies to the owner and seek clarification. A failure to conduct a reasonable inspection could result in a loss of rights.
What contract and risk management practices can a contractor employ to minimize the risk associated with site disclaimer clauses?
When encountering a site disclaimer clause in a contract, there are certain actions that a contractor can take to maximize its ability to recover for differing, concealed, or unknown conditions.[4] First, the contractor can attempt to negotiate the scope of the disclaimer clause with the owner, and limit the contractor’s responsibility for site inspections or verifications. Second, the contractor can conduct a reasonable site inspection to satisfy its verification requirements. Third, the contractor can submit pre-bid inquiries and Requests For Information (“RFI”) regarding the work covered by the owner’s disclaimers, and request clarification on drawings and other data or additional information regarding subsurface conditions. The contractor’s goal should always be to obtain as much information about the project as possible. Fourth, the contractor should carefully check its contract to ensure there are other clauses available to recover the additional costs and obtain the additional time associated with differing or concealed conditions. If other clauses exist, it is important for the contractor to strictly follow the requirements of the clause when a differing or changed condition is experienced.
In sum, site disclaimer clauses seek to limit a contractor’s recovery for differing site conditions and transfer the risk of inaccuracies in the contract documents or unknown information to the contractor. Contractors should carefully consider all site disclaimers in the bid and contract documents, and if necessary, consult counsel for an interpretation of the relevant provisions. The failure to understand and be familiar with site disclaimer clauses can result in significant obligations and risks being imposed on the contractor.
[1] See e.g., Rixon Elecs. Inc. v. United States, 536 F. 2d 1345 (Ct. Cl. 1976)(enforcing a specific disclaimer clause in a contract for the manufacture of radio communication devices, where the disclaimer provided that the drawings provided by the government were not complete and accurate and free from omissions, errors, inconsistencies or other defect).
[2] The application of the Differing Site Condition Clause was discussed in detail by my colleague Anthony J. LaPlaca in his article What Lies Beneath (And Who Pays for It?): Common Issues Arising Under the Differing Site Conditions Clause originally published in Issue 1, Volume 17 of PileDriver Magazine’s Spring 2020 edition.
[3] See e.g., Ez Const. Co., ASBCA No. 25441, 83-1 B.C.A. (CCH) ¶ 16468 (Apr. 13, 1983) (where the board enforced an omissions clause and denied a contractor’s claim for additional costs finding that the contractor was required to install tile around the valve handle in dormitory showers even though the tile details were not shown on the contract documents because such work would be reasonably expected and necessary to carry out the intent of the contract.
[4] This article does not provide an exhaustive list of all risk management practices available for site disclaimer clauses.