Differing Site Conditions: How Contractors Can Ensure They Are Protected
By: Jennifer R. Budd and Matthew L. Erlanger
It is a common scenario in the pile driving industry: piles are being driven deep into the ground and there is something unexpected beneath the surface. The pile may not be reaching refusal at the anticipated depth. It could be hitting hard rock that makes driving more difficult. It could even be hitting an artificial obstruction from the mundane, such as a large concrete block, or the extreme, such as debris from a wrecked airplane.
When any of these unexpected or differing site conditions are encountered, additional costs to the pile driving contractor are inevitable. Then, there is a dispute as to whether the contractor is entitled to additional payment from the owner or the upstream general contractor (GC). As with most disputes in the construction world, the contract controls. Fortunately, there are steps that can be taken before signing a contract to protect a contractor from the unknown beneath the surface.
Things to think about before signing a contract
Most often, a pile driving contractor’s involvement on a project begins when a GC requests a proposal while preparing its bid to submit to the owner. In preparing a proposal, a pile driving contractor should request to see all the contract documents and review the relevant provisions pertaining to differing site conditions. Most relevant are the geotechnical report, boring logs and contractual provisions addressing under what circumstances the GC is entitled to a change order for differing site conditions. Standard form contract documents used on most construction projects, such as those published by the American Institute of Architects, the National Society of Professional Engineers and ConsensusDocs, all have provisions that allow for change orders where the subsurface conditions are materially different from those indicated in the contract documents (referred to as Type 1), or are of an unusual nature and are materially different from those ordinarily encountered in performing the work (referred to as Type 2). Pile driving contractors must review any supplementary conditions or special provisions to ensure they do not adversely modify the general conditions.
While standard form contracts commonly contain provisions for Type 1 and Type 2 differing site conditions (DSC clause), some owners do not use form contracts on their projects. Further, when an owner uses its own form of contract, the entitlement to change orders for differing site conditions can vary from more restrictive to nonexistent. Some owners will limit liability for differing site conditions to subsurface conditions that cannot be reasonably discovered through a site investigation. Other owners may attempt to extricate themselves from any liability by providing that the subsurface conditions are unclassified, shifting the cost burden to the GC for any unexpected subsurface conditions. As a result of the variety of language that may be contained within the prime contract documents, it is important to review those documents closely and ensure the terms are understood.
However, beyond looking to the terms of the prime contract documents (including any geotechnical reports and boring logs) and visiting the site, pile driving contractors can also control risk for differing site conditions by including specific language in the proposal to the GC to identify what is included and what is excluded from the proposal. For maximum protection, a contractor will want to exclude any subsurface obstruction removal costs, as well as any costs incurred as a result of obstructions, including damaged equipment and downtime.
Following the proposal submission and assuming the owner awards the contract to the GC to whom the proposal was submitted, the next step is for the contractor to enter into a subcontract. In doing so, they will want to include an order of precedence provision to ensure that the proposal with the exclusions for subsurface obstructions takes top priority in case of any conflicting provisions in the contract, including the prime contract between the GC and the owner. This will ensure that the contractor is entitled to payment regardless of whether the GC is entitled to payment from the owner. At the minimum, if the GC is not agreeable to the proposal taking top priority, the contractor will want language that allows them to pursue a Type 1 or Type 2 DSC claim against the GC, regardless of any conflicting language in the prime contract documents.
Tips to employ during a project
After the contractor has negotiated terms that allow for recovery for differing site conditions either under the terms of the proposal or the subcontract, they should prepare for what to do if a differing site condition is encountered.
Upon identifying a condition believed to be a differing site condition, notice must be promptly provided to the GC and/or owner. Unless the condition threatens personal safety or the work, failing to give upstream parties an opportunity to investigate could prove costly. First, most contracts require notice as a condition precedent to any recovery under a DSC clause. Second, under doctrines related to the destruction of evidence, a party on a construction project cannot cover up or deal with a condition upon which it seeks to base a claim if the other parties have not been provided an opportunity to investigate and inspect the condition.
It is also imperative that the contractor’s team takes many pictures and videos throughout the project. When taking a picture of a condition, such as a boulder, be sure to measure the boulder and show the measurement in the photo. Pictures of rocks with no perspective are challenging for the viewer to understand the size. The images should also be organized by subject or location. For videos, it helps to have someone narrate what is being shot and include the narrator’s identification, location, time and date. Months or years later, detailed narration such as, “This is John Smith, the superintendent for ABC Company, it is January 3, 2023, at 3 p.m., and I am standing on the northeast corner of the site filming at Pier 2,” will be invaluable. Likewise, clear and legible drilling logs are crucial to prove the actual conditions encountered.
To the extent a condition will delay work, a time extension should be submitted promptly, even if it will be denied. The failure of an owner or GC to grant a time extension could serve as the basis to recover overtime or premium time spent to meet a project deadline under the theory that the contractor was “constructively accelerated.” However, this is only possible if an extension is requested and denied.
While the only thing certain about working underground is that there is uncertainty, carefully reviewing contracts and planning for tough jobs can go a long way to help navigate the uncertainty.
