Construction projects can present many unforeseen site conditions. Once site conditions that differ from those originally specified are encountered, a subcontractor could expect a substantial increase in costs. Accordingly, it is important that subcontractors know what risks they are undertaking, what risks they can be compensated for and what requirements exist for making claims related to unexpected site conditions.

Historically, when a contractor encountered differing site conditions, the contractor was not excused for the costs of the additional work. Over time, however, contracts have been drafted to apportion the risk associated with the added costs.

Contractor claims relating to unforeseen site conditions are typically characterized as either Type I or Type II claims. Type I claims arise when the contractor encounters subsurface conditions that differ materially from the conditions represented in the contract documents. For instance, if the contract documents specify the soil conditions are sand and the contractor encounters rock, the contractor may have a Type I claim.

A Type II claim arises when the contractor encounters a site condition that differs materially from conditions typically found in the geographic area. For instance, where a contractor encounters underground storage tanks or related foundations, he may have a Type II claim. Other instances could relate to unforeseen corrosive groundwater or other buried construction demolition materials.

With each of these claims, the subcontract documents likely will specify how to present the claim. This includes giving timely notice of the claim to the contractor or the owner. Failure to strictly comply with the contractual claim procedures could seriously jeopardize a subcontractor’s ability to recover on these claims.

A recent Federal Claims Court decision highlights the importance of adhering to the contractual claim procedures. In AAB Joint Venture v. United States, a federal contractor received a geotechnical report to prepare its bid and subsequent design. The contractor discovered, during construction, the actual subsurface conditions differed materially from those represented in the government’s geotechnical report. As a result, it adversely impacted the contractor’s plan in constructing the footings. The contractor sought an adjustment for the added costs related to the footings.

In filing its Type I claim, however, the contractor included a claim for the removal of unsuitable subsurface material. The government denied that part of the claim, arguing that the claim had not been properly presented to the contracting officer. The court agreed and determined that the certified footings claim did not include any mention of the replacement of unsuitable material under the structures nor any estimate of the amount of the associated costs. Accordingly, the court dismissed the claim.

Aside from notice procedures, contractors should also keep documentation of site conditions to assist in preserving such claims.

In Parker Excavating, a government contractor undertook certain underground drilling work at a fixed unit price based on site conditions disclosed by the government. After completion of the work, the contractor submitted a Type II claim for roughly $75,000 based on damage to its drilling equipment. The government denied the claim, concluding that the contractor had failed to sufficiently document its proper use of the drilling equipment.

In Parker Excavating, the Armed Services Board of Contract Appeals (ASBCA) determined the contractor sufficiently documented instances of problems with its drilling equipment. The ASBCA also concluded the contractor presented contemporaneous evidence that the damages caused to the drilling equipment arose out of unforeseen site conditions.

It is critical that subcontractors obtain all the necessary documents that comprise their subcontract to know who bears the responsibility for additional costs associated with differing site conditions and how to properly present such claims. In these situations, it always is advisable that subcontractors retain competent legal counsel to assist them. In today’s construction environment, subcontractors never can be too cautious.

This article is not intended to provide legal advice, but to raise issues on legal matters. You should consult with an attorney regarding your legal issues, as the advice you may receive will depend upon your facts and the laws of your jurisdiction.

HANSEN is an attorney with the Northern Virginia law firm of Hughes & Associates, P.L.L.C. He may be reached at brad@hughesnassociates.com or 703.671.8200.