Owners, contractors and subcontractors all agree that site conditions are an important part of the cost of construction. Site conditions will include both the characteristics of pre-existing structures as well as subsurface soil conditions in the area where new construction is to be performed.
An owner’s goal is to make sure the project design is compatible with the existing site and that all the costs, site-related, are included in the project’s budget. As a normal course of events, geotechnical or environmental testing is done in advance with the resulting information provided to bidding contractors. This is usually furnished as a separate report or included in the project specifications.
When a contractor assembles his cost of construction, he will use this information and any that he can readily observe in a site visit. Increased construction costs and/or time occur, post contract award, when a contractor encounters unknown, unanticipated or concealed physical site restrictions.
The contractor will seek reimbursement for his increased construction costs to deal with these types of site restrictions. How or if an owner reimburses these costs is based on what’s been included in the contract language for differing site conditions.
Who Accepts Risk for Unknown Site Conditions?
Unless an owner has misrepresented or concealed any site restrictions, it is generally held that contractors accept and assume the risk of unanticipated physical conditions on the site. Because this is a traditional standard, contractors by default, include a contingency in their bid to cover this unknown expense.
If a contractor does not experience any differing site situations then the unused contingency, included as part of his cost of construction estimate, becomes additional profit for the contractor. Without the contingency, any contractor who assumes the risk of unanticipated conditions becomes vulnerable to potentially significant additional costs over the contract amount. This is when a contractor may make a claim against the owner to try to recover those costs.
An owner, understandably, only want to pay for work actually performed. Any contingency included in a contractor’s bid, which may end up not being used, is a cost owners should want to avoid.
Optional Contract Language to Minimize Claims
To minimize exposure to additional costs when encountering differing site conditions, an owner has the option to include some type of site inspection clause or site conditions disclaimer in the contract language.
In a site inspection clause, the contractor must validate that he has inspected the site for construction. In a site conditions disclaimer, an owner will include language to deny responsibility for the accuracy of the site information provided through geotechnical or environmental testing information.
Without contract language addressing either a site inspection clause or site conditions disclaimer, a contractor may come back to the owner with a claim for differing site conditions. They can state they reasonably relied on conditions indicated in the contract documents when they bid the work. They can further state that unusual or unknown conditions could not be reasonably determined on visual site inspection.
How either type of clause is enforced will depend on how specific the language is and whether or not provisions are made for the contractor to seek recovery.
Many times contract language will require a contractor to notify the owner promptly when any unusual or unknown conditions are observed before they begin any work to disturb that condition. A time frame for the owner to respond is assigned to that notification.
When this notice is provided to an owner, then the owner is charged with having that site condition investigated by a design professional or authorizing the contractor to process at potential additional cost and time to the project.
Differing site conditions clauses are usually required in federal contracts or public contracts that received federal funds. In private contracting this is optional for an owner.
Tagged with: construction contingency • construction contract language • construction site conditions • site inspections • unknown conditions
Filed under: Contracts
