Douglas J. Cefali | Gordon & Rees LLP | November 4, 2016
Some of the greatest risks construction projects encounter occurs during their underground phases. This is due to the difficulty in accurately determining what lies below the ground’s surface. For building contractors this work typically includes foundation excavations, shoring, drilled pier foundations, tiebacks, and pile driving. 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 building design purposes but are often provided to the contractor for bidding purposes as well, 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.
Types of Differeing Site Conditions. Differing site conditions are classified as two primary types; type I and type II. Type I differing site conditions are conditions unusual in nature and materially different from those generally recognized as inherent for the work of the character provided for in the contract. Type II differing site conditions are conditions that differ “materially” from those “indicated” in the contract. Materially as used here is not meant in the context of the nature of the underground soil material itself, it means soils that are significantly different in nature, or not immaterially different.
The distinction is this, Type I claims are for highly unusual and unforeseeable subsurface conditions, while Type II claims are for conditions that are materially different than those indicated in the contract. While an owner can protect itself against type II claims by providing the contractor with comprehensive geotechnical information, no such precautionary measures can be undertaken for type I claim because they are not based upon what is shown in the contract. 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 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 disclaimers, while disclaimers will generally not be enforced on public works contracts.
Contractor’s reasonable reliance. In addition to the site conditions being materially different, the contractor must have reasonably relied on the information it claims was indicated in the contract, and as a result of that reasonable reliance it incurred time or cost impacts therefrom. Thus, if the contractor did not or could not reasonably rely on the faulty information, he couldn’t have been damaged by it 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. Notice allows the owner to verify for itself the claimed differing condition and allows the owner to evaluate its options in response to the differing site conditions. While courts prefer to avoid forfeitures and settle disputes on their merits, a party’s failure to provide prompt notice of differing site conditions is commonly cited by courts decisions as a reason 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, the contractor. It’s up to the contractor to prove that the encountered site conditions are more likely than not materially different than reasonably expected. It is not the owners obligation to prove the conditions were not materially different. Nonetheless, the owner still needs to persuasively rebut the contractor’s claim in order to prevail.
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 site, was damaged by that reliance, promptly notified the other party of the differing site condition, and finally prove that more likely than not, the conditions encountered are in fact materially different than reasonably anticipated.
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.