Recovering for Unforeseen Site Conditions on Your Construction Project

construction projectSeveral of my clients lately have run into issues with differing site conditions.  How you as a contractor or owner deal with these issues depends largely on the language in your contract. There are several things you must consider when evaluating a potential changed site condition on your project:

1. What is a changed site condition?

Determining what actually is a changed site condition depends largely on what information was provided by the owner to the contractor at the time the project was negotiated or bid. If the initial information provided by the owner included geotechnical investigations or other site investigations, you need to review those to determine what initial information was provided to the contractor. You then can compare that information to what is actually encountered at the site.

For example, if a geotechnical report indicates loose, sandy soil throughout the construction depth and the contractor encounters a large boulder three (3) feet below the surface, this is obviously a changed condition.

However, it is more difficult to determine if a changed condition includes a difference in “loose, sandy soil” and “sandy soil with gravel.” In those situations, one of the main factors which determine whether this was a changed condition is whether that change significantly affected the construction procedures or means and methods of construction. For example, if the foundation system had to be changed from a spread footing to a deep foundation because of the change in soil conditions, this could be viewed as a changed site condition.

2. What does your contract say about changed site conditions?

Construction contracts contain widely varying allocations of risk for subsurface site conditions. This largely depends on the type of project delivery method used by the owner and contractor (i.e., design–bid–build, design-build, fast track, or other project delivery system). Before construction starts, you need to understand what risk allocation is being allocated to you in order to properly prepare.

A recent decision in federal court denied recovery to a contractor on a federal project in Hawaii. See Metcalf Construction Co., Inc. v. United States, 102 Fed. CL 334 (2011). In Metcalf, the contractor had a contract to construct 188 housing units.  It was a design-build contract. The geotechnical report provided by the government indicated that the surface soils had a “slight expansion potential.” As it turns out, the soils on the site were highly expandable and different foundation systems were required to properly construct the housing units.

Metcalf made a claim to the government for these additional costs which were over $4 million.  The government denied the request and Metcalf appealed to the federal claims court. The claims court ultimately held that Metcalf had no right to the additional cost because the soils report was for informational purposes only and the contractor had an obligation to perform its own geotechnical investigation after the project was awarded.

There are important lessons owners and contractors can learn from this case. The primary lesson is to ensure you know exactly what subsurface information is being provided prior to construction.  In Metcalf, the contractor essentially relied solely on the government’s information in preparing its bid. The government’s position was that those reports were not binding. The contractor likely could have performed some additional minimal investigations on the project to determine the actual soil conditions before submitting its bid and signing the contract. Thus, the lesson is before a contractor commits to a project, be sure you know exactly what information is being provided to you and determine whether you need to perform any additional investigation before giving your final price.

Another issue that many contractors overlook is the absolute essential element of providing timely notice of unforeseen subsurface conditions. Standard AIA documents allow twenty-one (21) days to report differing site conditions.  Many construction contracts require immediate notice of any differing conditions.  The purpose of these notice provisions is to allow the parties to come together to reach a joint decision regarding how to proceed. If a contractor does not provide that notice, there is no opportunity for the owner to decide what direction to take.

Unforeseen site conditions can cause major problems on your construction site. However, if you take the proper steps to mitigate your risks beforehand and promptly give notice of any conditions you can avoid, many of the costs and expenses associated with the necessary changes to deal with those subsurface conditions.