{"id":892783,"date":"2017-08-23T12:22:11","date_gmt":"2017-08-23T18:22:11","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=892783"},"modified":"2017-08-23T12:22:11","modified_gmt":"2017-08-23T18:22:11","slug":"unforeseen-condition-differing-site-condition","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/unforeseen-condition-differing-site-condition\/","title":{"rendered":"When is an Unforeseen Condition a \u201cDiffering Site Condition\u201d?"},"content":{"rendered":"

Vernon Howerton | Texas Construction Law Blog<\/a> | August 16, 2017<\/p>\n

I was reviewing various articles I have written over the years and came across a prior version of this one about differing site conditions, written nearly twenty years ago.\u00a0\u00a0 I was curious \u2013 does this cup still hold water?\u00a0 It does.<\/p>\n

Many construction contracts contain some version of a \u201cdiffering site conditions\u201d clause.\u00a0\u00a0 It is found in the current version of AIA\u2019s A201 general conditions, as well as in the EJCDC equivalent.\u00a0\u00a0 It also appears in most state DOT specifications, as well as in federal government construction contracts.\u00a0\u00a0 Generally, it provides for a change order (subject to procedural compliance) when the contractor encounters (i) subsurface or other concealed conditions that differ materially from the conditions indicated by the contract documents or (ii) unknown physical conditions of an unusual nature differing materially from those ordinarily encountered and recognized as inherent to the work provided for in the contract documents.\u00a0\u00a0 But, as they say, \u201ctiming is everything.\u201d\u00a0\u00a0 This adage applies, too, to a differing site conditions claim.<\/p>\n

In\u00a0Olym\u00adpus Corp. v. United States<\/em>, 98 F.3d 1314 (Fed. Cir. 1996), the United States Federal Circuit Court of Appeals was confronted with the following ques\u00adtion:\u00a0Are delays caused by a govern\u00adment caused hazardous materi\u00adals spill compensable under the federal Differing Site Condi\u00adtions clause<\/em>?\u00a0 The court an\u00ad\u00ad\u00ad\u00ad\u00ads\u00adwered \u201cno\u201d based on its con\u00adclusion that to be con\u00adsidered a differing site con\u00addition, the condition must exist at the time the contract was formed.<\/p>\n

Olympus entered into a fixed price contract with the United States to pave the plant yards at the Stratford Army Engine Plant located in Strat\u00adford, Connecticut. As man\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00addated by the Federal Acquisition Regulation, 48 C.F.R. \u2018 52.236-3 (1995), the contract contained a standard Differing Site Conditions clause which provided, in part, for an equitable adjustment, upon notice, of\u00a0 \u201csubsurface or latent physical conditions at the site which differ materially from those indicated in [the] contract.\u201d<\/p>\n

The plant site was man\u00adaged under a separate contract be\u00ad\u00ad\u00adtween the United States and Tex\u00adtron Lycoming.\u00a0 Short\u00adly after the Notice to Pro\u00adceed, Tex\u00adtron cut open an oil pipe in the plant yard which caused a spill that contaminated soil in the yard and prevented Olympus from paving.\u00a0 Olympus was delayed by the clean up effort and sought additional compensation under the Differing Site Conditions clause.\u00a0 After rejecting the Contracting Officer\u2019s offer of additional compensation as inadequate (Olympus also had an additional claim for delay caused by a strike of Textron employees), Olympus filed suit in the U.S. Court of Federal Claims.\u00a0 That court found, in part, the Differing Site Conditions Clause only provided com\u00adpensation for delays caused by conditions which existed at the time the contract was formed.\u00a0 Olym\u00adpus ap\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00adpealed.<\/p>\n

The Court first dis\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00ad\u00adcussed the purpose of the Differing Site Conditions clause, pointing out it is historically used to shift to the government the risk of adverse subsurface or latent physical conditions, as such risk would be normally born by the contractor in a fixed price contract.\u00a0\u00a0 Through inclusion of the clause, the government encourages \u201cmore accurate bidding\u201d by discouraging contractors from including con\u00adtingencies in their bids to cover the risk of differing site conditions.\u00a0 However, according to the court, the clause only shifts those risks which are consistent with the policy of the clause \u2014 encouraging more accurate bidding.\u00a0 It does not shift the risk of all unanticipated conditions.\u00a0 As such, the court implied the clause did not operate to transfer the risk of nonexistent conditions since such conditions do not affect the accuracy of bidding.<\/p>\n

Next, the court established the fact its \u201cprecedent has long imposed a temporal limitation on the applicability of the Differing Site Conditions clause.\u201d\u00a0 Particularly, it cited\u00a0John McShain, Inc. v. United States<\/em>, 179 Ct. Cl. 632, 375 F.2d 829 (1967) and\u00a0Arundel Corp. v. United States<\/em>, 96 Ct. Cl. 77 (1942) for the prop\u00adosition that for \u201chalf a century,\u201d federal courts have interpreted the clause as not applying to conditions which \u201ccome into being only after the contract has been executed of the work commenced.\u201d<\/p>\n

Finally, the court dismissed Olympus\u2019 argument that there was no express provision in the differing site conditions clause which limited its operation to conditions existing at execution of the contract.\u00a0 Olym\u00adpus particularly argued that adoption of the government\u2019s interpretation inappropriately gave effect to the governments \u201csubjective intent\u201d over the clear terms of the contract.\u00a0 The court acknowl\u00adedged that it was obligated to interpret the contract according to its \u201cordi\u00adnary and commonly ac\u00ad\u00ad\u00adcepted meaning.\u201d\u00a0 However, it also stated it was obliged to inter\u00adpret the contract from the per\u00adspective of a \u201creasonable and prudent contractor\u201d and is bound by precedent.\u00a0 Based on precedent,\u00a0the court found a \u201creasonable and prudent con\u00ad\u00ad\u00ad\u00ad\u00adtractor\u2026would have been familiar with the long-stand\u00ading limitation on a Differing Site Conditions clause to con\u00additions existing when the con\u00adtract was executed.\u201d<\/strong>\u00a0\u00a0 Since the soil was not contaminated by the oil spill at the time of execution of the contract, the Court rejected Olympus\u2019s claim in its entirety.<\/p>\n

Comment<\/u><\/strong><\/h4>\n

Olympus\u00a0<\/em>is still good law.\u00a0\u00a0\u00a0See Extreme Coatings, Inc. v. United\u00a0<\/em>States, 109 Fed. Cl. 450 (2013).\u00a0 However,\u00a0Olympus\u00a0<\/em>only discussed com\u00adpensability under the fed\u00aderal Differing Site Conditions Clause.\u00a0 Other avenues may well have been available for recovery of the damages caus\u00aded by the spill, including change, breach of warranty, suspension of work, and breach of duty not to hinder or delay. The Court even implied as much.<\/p>\n

A case awarding compen\u00adsation to the Contractor under similar circumstances but using a different theory\u00a0is Shea v.\u00a0 City of Los Angeles,<\/em>\u00a06 Cal.\u00a0 App. 2d 534, 45 P.2d 221 (1935).\u00a0 It involved an action for costs of extra work created when a sewer leaked into a drain\u00adage excavation.\u00a0 The leak caused flooding of the excava\u00adtion and its collapse.\u00a0 The con\u00adtract purported to place the risk of \u201cany unforeseen obstruction or difficulties, either natural or artificial, which may be en\u00adcountered in the pro\u00adsecution of the work\u2026on the Contractor.\u201d\u00a0 The court found, however, that \u201cthe contract did not contem\u00adplate that [the Contractor] should bear the burden of the city\u2019s negligence in doing or permitting acts which would constitute an obstacle to the [Contractor\u2019s] fulfilling the obligations imposed by the Con\u00ad\u00adtract.\u201d\u00a0 Similar logic ap\u00adplies to the oil spill encoun\u00adtered by\u00a0 Olym\u00adpus.\u00a0 The gov\u00adernment should not have per\u00admitted activities which would jeopardize Olym\u00adpus\u2019 ability to perform the work.<\/p>\n

It is unclear why other the\u00adories were not before the\u00a0Olym\u00adpus<\/em>\u00a0court.\u00a0 The court hinted that it considered the actions of the plant manager, Textron, as the actions of a third party for whom the govern\u00adment was not responsible.\u00a0 Such an argument may have affected the trial court\u2019s ruling on the other listed possible theories, if such theories were before the court.<\/p>\n

More significantly, how\u00adever, the Appellate Court seemed to ignore the fact that Textron was acting in its ca\u00adpacity as a separate govern\u00adment contractor. As such, the government should have had some sort of duty to coordinate Tex\u00adtron and Olympus\u2019 work such that Textron did not inter\u00adfere with Olympus.\u00a0 Ob\u00adviously, the government could better control Textron and its perfor\u00admance than Olympus.\u00a0 As such, the government could more easily bear the risk of damages caused by Textron\u2019s actions.\u00a0 Many government contracts are indeed written to place risks on the shoulders of the party best able to control them.<\/p>\n

In order to fairly allocate risks, many state and local gov\u00adernment contracts, as well as private ones, now place the risk of unforeseen hazardous conditions on the government.\u00a0 We have seen this ac\u00adcomplished in a separate con\u00adtract clause or via modifica\u00adtions to standard differing site conditions clauses.\u00a0\u00a0Absent such a modification or reallo\u00adcation of risk, \u201creasonable and prudent contractors\u201d need be aware that while the govern\u00adment may shoulder the burden of hazardous conditions at a work site which exist prior to contract formation under the traditional Differing Site Con\u00additions clause, as interpreted by the Federal Circuit, that clause does not place the risk of unforeseen subsurface or la\u00adtent physical conditions created after contract formation.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Vernon Howerton | Texas Construction Law Blog | August 16, 2017 I was reviewing various articles I have written over the years and came across a prior version of this one about differing site conditions, written nearly twenty years ago.\u00a0\u00a0 I was curious \u2013 does this cup still hold water?\u00a0 It does. Many construction contracts… Continue reading When is an Unforeseen Condition a \u201cDiffering Site Condition\u201d?<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[14,9],"tags":[9895,72,8994],"class_list":["post-892783","post","type-post","status-publish","format-standard","hentry","category-construction-2","category-construction-contracts","tag-advise-consult","tag-construction-contracts-2","tag-differing-site-conditions","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nWhen is an Unforeseen Condition a \u201cDiffering Site Condition\u201d? 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