So, you have won the bid and you sent your workers to the job site when all of a sudden you get a call from your foreman, who says, “This situation out here looks a lot different than what we expected…” What should you do when the work site conditions are materially different from those ordinarily encountered during construction and/or from the conditions described in the contract during the bidding process. Here are the Top 3 things to consider:
1. Go Back In Time And Better Investigate The Conditions Of The Site Prior to Working
By the time you are reading this post, time travel may or may not be a viable option. However, in most cases, contractors are required to conduct a site investigation during the bidding process. Some subcontracts even include language that by signing, the contractor is representing that they have visited the site and are familiar with the site conditions.
Investigation does not mean a scientific expert study of the site conditions, but instead requires reasonable due diligence. In one North Carolina example, Handex of Carolinas, Inc. v. Cnty. Of Haywood, 168 N.C. App. 1, 607 S.E.2d 25 (2005), the contractor’s change order was denied when they requesting additional time and funds after they encountered more excavation and berm construction than depicted in the bid and contract. However, the Court specifically found that the contractor failed to exercise due diligence during the bidding process by analyzing the extent of the excavation as was required by the contract.
On the other hand, in some cases, even prebid investigation may not disclose unusual site conditions and the contractor could still bear the risk. In the case of Ruby-Collins, Inc. v City of Charlotte, 740 F. Supp. 1159 (W.D.N.C. 1990) aff’d, 930 F.2d 23 (4th Cir. 1991), a contractor signed a public contract for the construction of a city water main that did not include any provisions regarding changes of site conditions that would have provided for increased pay to the contractor for unexpected site conditions. The contractor, Ruby-Collins, Inc., later had the unexpected additional cost of providing more backfill than expected to fill in a trench due to moisture problems. However, the Court determined that the Contractor was not entitled to adjustment for the unexpected costs.
In the Ruby-Collins, Inc. case, the contractor actually did some prebid investigation of soil, and reasonably assumed that the soil under paved street was similar to soil tested during prebid investigation. Ruby-Collins looked at the soil report prepared for the City and also conducted a visual inspection with sample borings along the pipeline route. The Court still held that by “bidding on city water main project for a specified sum of money, the contractor assumed risk that it would be able to perform the contract for that amount, and, thus, even though cost of performance and complying with contract's specifications exceeded anticipated costs, the contractor must bear burden of additional cost.”
As you can see, even when a contractor has reasonably investigated the site conditions, there are still times when the conditions may differ from what was expected. When this situation occurs, your next step is to check the contract for your remedies.
2. Check for DSC (Differing Site Conditions) provisions of the Contract
In the Ruby-Collins, Inc. case, one important factors: There was no “DSC clause,” “extra work clause” or “changed condition clause” in the contract to allow for extra payment of unusual or changed conditions. This provision might also sometimes be called the “Unanticipated Site Conditions” clause. These clauses typically set the expectation that contractors should perform work under typical construction conditions or conditions envisioned by the contract and project documents.
As an example, the AIA General Contract Conditions (2007) includes the following language:
Concealed or Unknown Conditions. If the Contractor encounters conditions at the site that are (1) subsurface or otherwise concealed physical conditions which differ materially from those indicated in the Contract Documents or (2) unknown physical conditions of an unusual nature, which differ materially from those ordinarily encountered and generally recognized as inherent in construction activities of the character provided for in the Contract Documents, the Contractor shall promptly provide notice to the Owner and Architect before conditions are disturbed and in no event no later than 21 days after first occurrence of the conditions. The Architect will investigate…[and] will recommend an equitable adjustment in the Contract Sum or Contract Time, or both….
As you can see, in the above AIA standard language, if the contractor follows the reporting requirements, there is at least and opportunity for an equitable adjustment in the Contract Sum and/or Time.
Some contracts may require the contractor to ascertain that the Contract Documents are in conformity with the site conditions prior to raising the problem; however, even if it is not a contract provision, it is good practice to refer to the bid and contract to determine if the conditions on the actual work site are materially different than what was either represented in the bidding process and/or what is expected under typical construction conditions.
Each contract may have specific reporting requirements in this provision, which will need to be followed strictly.
3. STOP! HALT!
Most importantly, when you encounter unexpected conditions: Stop and Report the Problem. Even where there is no DSC provision, before you perform any more work on site where the conditions are materially different than what was expected, STOP! As you can see from the standard AIA language, any report of a concealed or unknown condition has to be made before conditions are disturbed.
We learned this lesson also from the above case of Handex of Carolinas, Inc. v. Cnty. Of Haywood, 168 N.C. App. 1, 607 S.E.2d 25 (2005), in which the N.C. Court of Appeals held that the county could deny the contractor’s change order for more money and time for increased excavation and berm construction in the field that the Contractor encountered. The conditions were indeed more than what was depicted in the bid and contract; However, the Court held in addition to failing to perform due diligence in the bidding process (as previously mention) that the Contractor failed to halt excavation after it determined the site materially different from that represented in the bid and contract.
The lesson from this case is that you cannot assume you will get paid for the extra work you perform simply because the site conditions were in fact different from the bid and contract. Stop at once, and then report the condition to the General Contractor, Owner and/or Architect ASAP. In the AIA Contract Documents, the provision makes clear that there is also a time limit on reports of such conditions to the Owner and Architect. Depending on the contract terms, a contractor may not any have a time limit for reporting the problem; However, obviously the quicker he or she reports the condition, the quicker the Architect and Owner can make adjustments and potentially agree to pay the contractor more money and/or give the contractor more time to do the work.
As an important exception to DSC clauses, please be aware that these clauses typically apply only to physical conditions. They do not apply to the actions of third-parties that deny the contractor access to the site (such as other subcontractors, protestors, etc.).
Before you bid, investigate the work site and carefully read the DSC clause. If you do encounter a different condition at the work site, either due to unanticipated or different conditions, or if conditions arise that are outside the typical expectations of the scope of work, stop immediately. Report the condition and then work out a solution with the Owner and Architect regarding contract price and time before completion of the work.