Differing site conditions generally fall into two categories, often referred to as Type 1 and Type 2. A Type 1 condition occurs when the contract plans or specifications are different from what is actually present on site. A design error would be a good example. A Type 2 condition occurs when the site conditions are substantially different from what ordinarily occurs in the geographic location of the project. Discovering limestone bedrock in farm country might be an example.
Regardless of the type of differing condition, management of the risk starts with a careful review of the contract documents, because the first consideration is whether to bid on the project at all.
If the contract does not contain a differing site conditions clause, then you might not want to bid the project, because it could be determined that you have accepted the risk that the conditions would be different. Similarly, if the contract uses an “exculpatory clause” to disclaim the information provided to bidders, then it means that the owner will later attempt to use this language to deny a claim for additional compensation.
If the contract requires the contractor to perform a site investigation, careful consideration needs to be given to what is reasonable under the circumstances, because that is the standard the contractor will be held to. Keeping records of what was done at the pre-bid site investigation is important because it can be used to establish the reasonableness of the investigation.
Likewise, if the contract requires a review of the contract documents, then the contractor needs to be certain to obtain and review all of them. Many contracts incorporate documents by reference that may be overlooked during the bidding. An owner may argue against the differing site condition if the information was available but the contractor didn’t obtain it.
When a differing condition is discovered, providing proper notice is essential. Most contracts will require notice to the engineer of record and the owner before proceeding with the work. Failure to do so may be considered a waiver of the claim.
Providing the claim for damages also requires careful record keeping. Efforts should be made to segregate the costs associated with the changed site conditions from the other contract work. If the changed conditions impacts the project time, it will also be important to keep good records associated with the project time. Maintaining daily project logs and updating the project schedule as a work progresses is a must.
Differing site conditions on a project can be very costly for a construction company. Proper management of the risk requires an awareness of the possibility and diligence upon discovery.
Jason M. Smiley
Jason Smiley is a partner of Gunderson Palmer Nelson Ashmore, LLP in Rapid City, SD. He is a member of the firm’s Executive Committee. He practices in Construction Law, Real Estate, Personal Injury, Civil Litigation, and Insurance Defense. Jason understands that each client’s concerns and objectives are unique.