When construction contractors encounter unexpected subsurface site conditions after starting a project, such as unanticipated rock formations or buried debris, the project can be disrupted, leading to increased construction costs, project schedule delays, and, in some cases, legal disputes. Contractors should be aware of their obligations in such situations, and seek to resolve the problem together with the owner as quickly as possible so they can recover any additional costs and avoid any significant delays.
Generally, a construction bid package contains plans, specifications, and, when needed, a geotechnical report. When preparing a bid, contractors tend to rely on the information in the bid package, but they may also be required under the provisions of the contract to conduct a reasonable site investigation, and to compare the conditions on the site to those described in the project plans, drawings, and specifications. The investigation may consist of a visual inspection of the project site, as well as a subsurface investigation when the contract or conditions require it. However, as contractors often have limited time and opportunity to investigate site conditions, they may assume that the site information outlined in the bid package is generally correct.
But after starting work, contractors may nonetheless encounter subsurface or other conditions at the site that differ from the information provided in the contract documents. To allow for this possibility, almost all standard construction contracts contain a provision for differing site conditions. In most cases, the provision will state what is meant by an unexpected or concealed condition, what actions the contractor is required to take when such a condition is discovered, and what process should be followed to achieve an equitable adjustment to the contract after the owner has confirmed the condition.
There are two types of differing site conditions that are generally addressed in a contract. Type I is a physical condition at the site that differs materially from what was indicated in the contract documents. For example, the contractor might find an unexpected physical object at the site, like an abandoned gas storage tank. Type II is an unusual or unknown physical condition at the site that differs materially from those ordinarily encountered and generally recognized as inherent in the work given the project’s location. The contractor might, for example, discover that the site’s soil unexpectedly lacks the required load-bearing capacity.
The purpose of a differing site condition provision is not to find fault, but to apportion the risk of encountering an unforeseen condition. By including such a provision in the contract, the owner assumes a portion of the risk of differing conditions. In return, it is expected that the contractor will not account for all unknown conditions by including contingencies in their bid. But because construction contracts typically include provisions that require the contractor to be fully aware of all conditions that might affect successful completion of the work, the adequacy of the contractor’s prebid site investigation will be scrutinized if a differing site condition is claimed.
Most differing site condition provisions require contractors to notify the owner within a certain number of days when they encounter a differing condition, and stipulate that the contractor should do nothing to further disturb the site until the owner can investigate and assess the potential impact on the project. When the extent of the impact of the differing condition has been confirmed, the contractor can request and negotiate an equitable adjustment in the form of a written change order for the increased costs associated with remediating the unforeseen site problem, and, if necessary, a schedule modification. If the owner refuses to issue a change order, the contractor should consult an attorney and prepare to make a legal claim by documenting all communication related to the negotiation and attempts to resolve the issue.