Differing Site Condition Clause Pays Off for Georgia Contractor
By Bart Gary


Differing site conditions (DSC), sometimes called changed site conditions, are latent conditions on, in, or under the construction site that were not anticipated by the parties in their contract or that were not shown on the plans, specifications, and other contract documents. In the absence of a contract term that allocates the risk of such conditions, the risk is born by the contractor and its subcontractors. The conditions may be asbestos or other hazardous materials in a structure to be renovated or expanded, but most often are subsurface conditions in the soil, which may include rock, ground water, toxic substances, or unsuitable soil. These unexpected substances make the work more difficult or even impossible.

Today there are (2) kinds or types of DSC derived from federal procurement regulations:

  • Subsurface or latent physical conditions at the site which differ materially from those indicated in the contract (“Type I”), and
  • Unknown physical conditions at the site, 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.  (“Type II”)

Current form contracts contain clauses that express recognize the two types and provide a method to address the risk allocation of DSC.  For example the AIA document A-201 General Conditions (2007 Ed.) provides:

If the Contractor encounters conditions at the site that are (1) subsurface or otherwise concealed physical conditions that differ materially from those indicated in the Contract Documents or (2) unknown physical  conditions of an unusual nature that differ materially from those ordinarily found to exist 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 the Architect before conditions are disturbed and in no event later than 21 days after first observance of the conditions.

The elements of a Type I DCS require that: [1] the conditions indicated in the contract differ materially from those actually encountered during performance; [2] the conditions actually encountered were reasonably unforeseeable based on all information available to the contractor at the time of the bidding; the contractor reasonably relied upon its interpretation of the contract and contract-related documents; and [3] the contractor was damaged as a result of the material variation between expected and encountered conditions.  A contractor is not eligible for an equitable adjustment for a Type I differing site condition, unless the contract indicated what that condition would be.  Thus, the critical inquiry for a Type I DSC is what the contract says about the condition. If it is silent then the question turns to whether the condition is a Type II variety.

Type II DCS are more difficult to prove because proof depends upon amorphous concepts such as “unknown physical conditions,” “unusual” or “what is “ordinarily encountered.” These are not contractual issues but depend on expert opinions and not necessarily of geotechnical engineers, but of those who have building experience in the locality or type of construction involved.

While the clauses are common in federal government contracts, they have received almost no treatment in the Georgia until recently when the court of appeals upheld a large verdict in favor of a parking deck contractor in City of Savannah v. Batson-Cook Company.  The engineer reports obtained by the city and by the contractor revealed the existence of soft clay in one corner of the proposed site of the deck.  Upon commencement of construction the subcontractor for the excavations support system reported additional soft clay. It notified Batson-Cook that it considered the additional clay to be a  materially differing site condition and sought additional compensation for redesigning and constructing the support system on account of the additional clay. Batson-Cook presented the claim to the City who denied the claim on account of the engineering reports that disclosed the existence of the clay. The jury awarded the subcontractor $2,766,330 and Batson-Cook $15,162,592 plus over $2 million in attorney’s fees and expenses.

The City did not challenge the finding of differing site conditions, but only that the contractor had not given notice of the conditions within 21 days after observing the differing conditions as required by the contract.  The court held that the contract did not require written notice and there was evidence that the city had timely notice form the executive administrator’s receipt of emails between the contractor, subcontractor, engineer and the city.

The case was tried to a jury in Troup County, Georgia, the contractor’s home county, rather than Chatham County, where Savannah is located, due to unique circumstances. The venue probably improved the contractor’s odds, but the case still stands for the advisability for making sure construction contract contain a clause that allow a remedy for differing site conditions.

For more information, contact Bart Gary at 770.818.1403 or at [email protected].

 



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