What You See is Not Always What You Get

A number of clients have come to me seeking to recover significantly increased project costs attributable to site conditions they did not reasonably anticipate when their project began. Whether you are a general contractor doing a hospital remodel, or a specialty paving contractor doing an ODOT highway project, you will encounter unforeseen site conditions. On rare occasions, unanticipated conditions may work to the contractor's advantage such as when they permit faster completion of the project or require fewer materials than expected.

More often than not, however, an unforeseen site condition slows progress on the project and increases project costs. In the case of the hospital remodel, unanticipated conditions could include such things as less interstitial space for piping, leaking utilities, or bad or outdated wiring. In the paving project, unforeseen conditions could include encountering unexpected rock, sand, or even water during excavation.

Generally speaking, there are two types of differing site conditions. In the first type, the subsurface or latent physical conditions encountered at the site differ materially from the conditions indicated in the contract document. The underlying issue on a Type 1 differing site condition is whether the contractor could reasonably have anticipated the conditions encountered from a knowledgeable interpretation of the contract documents, its site inspection, or its experience as a general contractor.

The second type of differing site condition is an unknown physical condition of an unusual nature differing materially from conditions ordinarily encountered and generally recognized as inherent in the work of or character called for in the contract. This type of differing condition is less frequently alleged, and more difficult to prove.

The proof requirements for either type of situation are essentially the same: To recover increased project costs, a contractor must show that: (1) the actual conditions encountered differed materially from those indicated in the contract document; (2) the actual condition could not reasonably have been anticipated from a site examination in view of the contract document; (3) the contractor relied upon its interpretation of the documents; and (4) the contractor was damaged as a result of the material variation.

Regardless of how radically different the site condition varies from the contract documents, or how unusual and unlikely the site conditions may have turned out to be, the contractor's claim will likely fail if an inspection would have revealed the condition. Most bidding instructions require the contractor to inspect the site, and the contract documents usually require that such an inspection be made.

So what can a contractor do to protect itself against unanticipated site conditions? First, take every opportunity to inspect the site. Don't assume that because you have inspected one section of a paving project, the other sections will have the same conditions. Second, carefully review the contractual provisions regarding differing site conditions and how they allocate risks between the contractor and the owner. There are numerous provisions that address differing site conditions that can be agreed to between the contractor and the owner. Some contracts contain language that allocates all costs to the contractor and others allocate risk between the contractor and owner. Carefully review the contractual provisions, and negotiate a clause that meets the risks associated with the project.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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