By Attorney Patrick Noaker
Every construction contractor has a dozen stories of projects that appeared quite straightforward and turned into an entirely different project because there was some unexpected condition. Asbestos, lead paint, mold. Excessive rock formations, unanticipated ground water, buried tires. Beer cans, live ammunition, ladies underwear (what??).[i] Unexpected conditions can become a major problem for a contractor/remodeler. It doesn’t matter if the project is being handled through a bid process or time and materials, it is never fun to have to break it to an owner that the project is going to be more expensive than initially thought.
Most construction industry contracts have a contract provision for unexpected conditions.[ii] Generally, this provision will include a description of what is meant by an unexpected or concealed condition, what the contractor should do when such a condition is encountered and the process to be followed once the condition is confirmed by the owner.
Unexpected conditions on a construction site are often called a “differing site condition.” There are two types of differing site conditions – Type I and Type II. A Type-I differing site condition is a physical condition at the site that differs materially from that indicated in the contract documents.[iii] In order to prevail on a Type-1 differing site condition claim, a contractor must show that the contractor reasonably relied upon contract documents that represented the condition of the construction site, the conditions on the construction site were materially different from the contract documents and those conditions were unforeseeable.[iv]
On the other hand, a Type-II differing site condition claim is an unusual or unknown condition at the site that differs materially from those ordinarily encountered and reasonably anticipated, given the nature of the work and the locale. To succeed on a Type-II claim, a contractor must show that it did not know about the physical condition; it could not have anticipated the condition from inspection or general experience; and the condition varied from the norm in similar contracting work.[v]
When a differing site condition is claimed, the extent of the contractor’s pre-bid site investigation will be scrutinized. Almost every construction contract contains provisions that require the contractor to be fully aware of all conditions that might affect successful completion of the work. Those same provisions also require the contractor to conduct a site investigation and compare the site to the project plans and specifications. The term site investigation is generally interpreted to mean a visual investigation and does not extend to making a subsurface investigation.[vi] The adequacy of the site investigation is measured by what a reasonable, intelligent contractor, experienced in the particular field of work involved, could be expected to discover – not what a highly trained expert in the field might be able to find.[vii]
Another major issue in a differing site condition claim is notice. Most differing site condition provisions require the contractor to notify the owner when the contractor encounters a differing condition. The notice provision will also require that the contractor not further disturb the differing condition so that the owner can inspect and evaluate the potential impact of the differing condition. Even though there are cases where courts have excused notice of a differing condition, a contractor is taking a major risk if it continues working before the owner has had an opportunity to inspect the condition.[viii]
Here are some steps that a contractor can take to prevent problems from a differing site condition. Initially, a contractor/remodeler should make sure that there is a contract provision that covers unexpected conditions. In addition, every contractor should make and document a thorough site investigation. Further, if a differing condition is encountered, stop work, and notify the owner of the differing condition. Document the fact that you notified the owner, the substance of the notification and the date of the notification. After the differing condition is inspected by the owner, negotiate a written change order for the increased cost and modified schedule.
If the owner refuses to issue a change order, begin preparing for litigation/arbitration. Carefully document the differing condition with documents, a written journal and photographs. Closely track the increased costs and required schedule modifications associated with work required as a result of the differing conditions. Pay close attention to any schedule compression, work acceleration, disruptions in job flow and the related increase in costs. Engage legal counsel early so that the job documentation meets all of the requirements of a Type I or Type II differing site condition claim. This way, you have support for your claim when you initiate litigation or arbitration.
About the Writer:
Patrick Noaker is an attorney with the Noaker Law Firm LLC who aggressively represents construction contractors in the courtroom and arbitration. Patrick can be reached at his office: 601 Carlson Pkwy, #1050, Minnetonka, MN 55305, (612) 839-1080, firstname.lastname@example.org
[i] See Cmty. Power Suction Furnace Cleaning Co. ASBCA No. 13803, 69-2 BCA par. 7963 differing site condition claim approved where the contractor encountered beer cans, live ammunition, and ladies underwear when cleaning a duct system in military barracks.
[ii] Federal Government Contracts FAR § 52.236-2; ConsensusDOCS 200 ¶¶ 3.16, 4.3; AIA A201 (2007) ¶¶ 3.7.4, 15.1.2; EJCDC C-700 (2007) ¶ GC-4.02.
[iii] City of Morton v. Minnesota Pollution Control Agency, 437 N.W.2d 741, 743 (Minn. Ct. App. 1989); Frontier Pipeline LLC v. Metropolitan Council, Unpublished A10-1437 (Minn. Ct. App. 2011).
[iv] Rice Lake Contracting Corp. v. Rust Env’t & Infrastructure, Inc., 616 N.W.2d 288, 293 (Minn. Ct. App. 2000).
[v] Fru-Con Const. Corp. v. United States, 44 Fed. Cl. 298, 311 (1999).
[vi] Martin K. Eby Constr. Co. v. Jacksonville Transp. Auth., 436 F.Supp.2d 1276 (M.D. Fla. 2005); Sherman R Smoot Co. v. Ohio Dept. of Adm. Serv., 736 N.E.2d 69 (Ohio Ct. App. 2000).
[vii] Stock & Grove, Inc. v. United States, 493 F.2d 629, 631 (Ct. Cl. 1974).
[viii]Gratech Co. Ltd. v. N.D. DOT, 676 N.W.2d 781 (N.D. 2004).