Overview of Differing Site Conditions Claims on Construction Projects
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A differing site condition in the construction industry refers to a situation on a construction project where there is an unexpected or unknown physical condition at the construction site that differs materially from either the conditions as indicated in the contract documents, or from the conditions reasonably discoverable prior to contract. For example, previously unknown subsurface soil conditions, or the unexpected existence of hazardous materials, may be considered a differing site condition. When a differing site condition is encountered, it will often cause the contractor to experience delays and/or incur additional costs, and thereby give rise to a claim by the contractor for additional time and/or compensation.
A. Type I and Type II Differing Site Conditions
The law generally recognizes two types of differing site conditions, Type I and Type II. A Type I differing site condition occurs when actual physical condition differ materially from the condition indicated in the contract. Renda Marine, Inc. v. United States, 509 F.3d 1372, 1376 (Fed. Cir. 2007). The contract, or a document incorporated into the contract, such as a geotechnical report for example, must contain a representation as to the site conditions, and the condition encountered must differ materially from what was represented. For example, a Type I differing site condition would be if the contract documents represent soil with minimal rock and the contractor actually encounters substantial rock, making excavation more time consuming and expensive than if the soil had been as represented in the contract.
A Type II differing site condition is when there is a previously unknown physical condition of an unusual nature which differ materially from those ordinarily encountered and generally recognized as inhering in work of the character provided for in the contract. Id. Accordingly, Type II differing site conditions do not require a representation in the contract but do require that the condition differ materially from what would ordinarily be expected to be encountered at the type of site and the type of work being performed. An example of a Type II differing site condition could be if a contractor encountered unexpected hazardous materials at the site that could not be observed from a visual inspection and were not reasonably expected to be at the site.
B. Key Factors for Successful Differing Site Conditions Claims
Whether the contractor will be successful in asserting a differing site condition claim depends on a number of factors, including the terms of the contract, the contractor’s actions upon discovering the differing site condition, and the specific facts regarding the nature of the condition.
- Contract Terms
The terms of the contract can often be determinative of whether a differing site conditions claim will succeed or fail. For example, the contract may include specific provisions regarding differing site conditions and may exclude certain types of conditions from constituting a differing site condition or may include disclaimers of any reliance by the contractor on certain contract provisions related to the site. Contractors are well advised to try to negotiate out overly restrictive language and disclaimers from the differing site conditions provisions in their contracts on the front end before the project starts if possible.
The contract language is also particularly important for Type I claims, as the contractor has to be able to show that the contract contains a representation about the conditions at the site that is materially different from what was actually encountered. Courts often determine whether a site condition is “materially different” from what was in the contract by looking at the effect on the time and cost for the contractor’s work due to the condition versus what was planned. See McCormick Const. Co. v. United States, 18 Cl. Ct. 259, 263 (1989), aff’d, 907 F.2d 159 (Fed. Cir. 1990) (“Evidence as to a material difference most commonly illustrates that a larger amount of work than initially contemplated or that an alternative method of workmanship must be implemented in order to complete the contractual agreement.”).
Providing timely notice to the owner of the differing site condition is a critical factor to the success of a differing site condition claim. Most contracts contain a requirement that the contractor provide written notice of the differing site condition with a certain time period after the condition is discovered, and before the condition is disturbed, or the claim may be waived. The notice must be provided within the required time period, in the manner required by the contract, and include the information required by the contract. The failure to timely comply can potentially result in the contractor losing the ability to make a claim. See Hall Contracting Corp. v. Entergy Services, Inc., 309 F.3d 468 (8th Cir. 2002) (Denying differing site conditions claim due to lack of timely notice of claim.).
In order to maximize the chances for success, contractors need to timely and accurately document the condition and the effect it has on the contractor’s work, including additional costs and the effect on the schedule. Contractors should document the condition with photos and videos, and take any other necessary measures to document and be able prove the condition, and how it is materially different from what was in the contract or what was reasonably expected. Contractors also need to track and document the additional costs and schedule delays due to the condition, including using separate cost codes to segregate the expenses. This documentation will be critical to successfully establishing entitlement to a change order and the amount of additional time and costs caused by the differing site condition.
In order to have a successful differing site conditions claim, the contractor not only needs to establish and document the existence of the differing site condition, but also needs to be able to prove that the differing site condition is the primary cause of the increased costs and/or delays. In other words, if there are other factors, such as insufficient manpower or poor management by the contractor, that the owner can argue were the actual cause of the delay/additional costs rather than the differing site condition, this will significantly weaken the claim. Maintaining accurate and up to date schedules will assist the contractor in establishing the effect of the differing site condition on the contractor’s schedule for the work.
When a differing site condition is encountered on a construction project, it can have significant impacts on a contractor’s time and costs to complete the work. Contractors that are able to act quickly to recognize what may constitute a differing site condition and to provide the required contractual notice in a timely manner, and that understand how the claim must be documented in order to establish that the differing site condition impacted the contractor and the amount of the impact to time and costs, will have a greater chance at successfully obtaining relief on a differing site conditions claim.