Differing Site Conditions

Recently on the blog, I covered one of the major risks encountered by construction contractors – subsurface or unexpected physical conditions discovered after the work begins (commonly known as  Differing Site Conditions under Federal Acquisition Regulation (FAR) 52.236-2).

In that post, I explained that a government contractor that uncovers a Differing Site Condition on a federal project must take three basic steps:

(1) Properly document the condition

(2) Notify the government, and

(3) Preserve the right to bring a Request for Equitable Adjustment or Certified Claim.

Today, I’d like to drill down on the second requirement – providing proper notice to the government – by examining a recent decision from U.S. Court of Federal Claims (COFC).

The case concerned a contractor seeking additional compensation in connection with its performance of a construction contract with the International Boundary and Water Commission (for the widening and rehabilitation of the top surface of the Urban Presidio Level in Presidio, Texas).  The contractor was required to test the embankment soil to ensure compliance with certain performance specifications, including moisture content and compaction.

The contractor struggled to achieve the required soil conditions and, accordingly, experienced project delays.  The contractor sought to shift responsibility for the delays to the government, arguing that it was required to place the embankment material over an “unacceptable, non-constructible subgrade.” Specifically, the contractor alleged that the contract documents misrepresented the site’s subgrade conditions, resulting in a differing site condition under FAR 52.236-2.

The government sought summary judgment on the contractor’s claim based on an allegedly unreasonable contract interpretation.  That is, the government argued that no reasonable contractor would have interpreted the contract documents as indicating that the project’s subgrade would meet the embankment specifications.  Additionally, the government claimed that – even if there was a differing site condition – the contractor failed to provide adequate notice.

On the latter point, the contractor did not dispute that it failed to provide formal notice, but nevertheless argued that the government was “constructively” on notice of the subgrade condition.  The COFC disagreed, finding that “constructive notice” may only take the place of actual notice where there is no prejudice to the government.  Simply stated, the contractor must communicate with the contracting officer when or if it discovers a condition that does not meet its expectations.

In this case, the contractor did not provide such notice and, moreover, waited for more than a year to raise the issue through a request for equitable adjustment.

The takeaway for contractors is an easy one – communicate, communicate, communicate.  Regular updates to the government are probably part of your contract anyway, but regardless, should be part of your firm’s best practices.  If a differing site condition is encountered, providing notice to the government pivots from a best practice to an absolute necessity.

 

One of the primary risks facing construction contractors is subsurface or unexpected physical conditions discovered after the work begins (commonly known as a Differing Site Condition).  When such conditions are encountered on a federal government project, contractors need to: (1) properly document the condition, (2) notify the government, and (3) preserve the right to bring a Request for Equitable Adjustment or Certified Claim.

Typically, any Differing Site Condition inquiry begins at Federal Acquisition Regulation 52.236-2.  The regulation defines a Type I differing site condition as a subsurface or latent physical condition at the site that differs materially from those indicated in the contract.  A Type II condition is defined as an unknown condition, unusual in nature, that differs materially from the conditions ordinarily encountered or typically expected of the work provided in the contract.

These definitions seem straightforward – either the conditions encountered align with the contract, or they do not.  However, contractors should not take documenting or proving Differing Site Conditions lightly.  There is still much room for disagreement.

One area where contractors and the government commonly diverge is whether the disputed site conditions were “reasonably foreseeable.”  That is, should the contractor have anticipated the conditions based on all of the information available to the contractor when it bid the project.

This particular issue was recently litigated before the Armed Services Board of Contract Appeals (ASBCA) in a dispute over an Army Aviation Support Facility construction contract.  In a nutshell, the contractor and the government disagreed about whether the soft, saturated soils encountered during excavation for the project constituted a Type I Differing Site Condition.

In discussing the issue of reasonable foreseeability, the Board specifically considered the government’s claim that the contractor had access to the site (during a pre-bid site visit) and, therefore, the ability to discover the condition.  The Board disagreed.  The site visit included a visual inspection only – no invasive investigation was permitted.  While Type I Differing Site Conditions do not literally need to be below ground, that made a difference in this case.

The ASBCA concluded that the contractor proved – by a preponderance of the evidence – that the soil conditions at the site were unsuitable for construction.  As a result, it awarded the contractor damages associated with the unexpected soil remediation costs.

Thinking specifically about Type I Differing Site Conditions, contractors should keep the following elements in mind:

  • Is the condition encountered materially different from that indicated in the contract?
  • Is the condition encountered reasonably unforeseeable based on the information provided by the government at the time of bidding
  • Did your firm reasonably interpret the contract and the related documents provided by the government? and
  • Did your firm incur actual damages due to the difference between the expected condition and the condition actually encountered?

If you can answer all of these questions in the affirmative, then your firm is likely entitled to an upward contract adjustment from the government.

Today, we have a question for our federal construction readers — If your project is operating within an anticipated budget, are you still entitled to the additional costs associated with a differing site condition?  Recently, the Civilian Board of Contract Appeals (CBCA) answered our question with a resounding yes.

This point is particularly important in the context of requests for equitable adjustments or claims asserted against the government.  You may think (or the government may try to convince you) that there is no entitlement when the project is below budget.  That is simply not the case.  The CBCA decision makes the point that damages are based upon the actual cost of performance — your bid should not be used against you.  In short, extra costs due to differing site conditions should always be tracked and documented — even if you are meeting or below a projected budget.

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The case in question involved construction contractor Tucci and Sons Inc., which filed a claim seeking more than $80,000 on a DOT Federal Highway Administration contract for the reconstruction of a 9.7 mile stretch of highway in Mount Rainier National Park.  Tucci claimed that it experienced extra costs based on the unexpected need to work around a number of larger boulders impeding the work.

The government filed a motion to dismiss, arguing that Tucci could not have been damaged because its alleged costs of performance – including the alleged increased costs associated with the boulders – were still lower than the anticipated costs bid at the beginning of the job.

The Board disagreed with the government, holding that it applied the wrong standard for calculating damages – and that the contractor’s anticipated costs were wholly irrelevant to damages based on a differing site condition.  Instead, the Board focused only on the additional costs incurred by the contractor – in other words, the difference between what the work would have cost if the unforeseen condition had not been encountered.

One note of warning – the Board did indicate the possibility of less than clear sailing for Tucci moving forward.  Specifically, it expressed a certain amount of uncertainty over Tucci’s ability to prove its claimed damages.  In this context, it is always worth a reminder to contractors that extra costs must be verified and backed by sufficient supporting documentation in order to prevail on a claim.