LEGALLY SPEAKING: Differing Site Conditions: Court Affirms Contractor’s Reliance on Owner-Provided Geotech Information
Posted: August 24, 2016 | Legal
By Matthew DeVries and Zach Jones
A recent opinion from the United States Court of Appeals for the Federal Circuit adds further support for contractors' reliance on owner-provided geotechnical data. The decision dealt, in part, with the Differing Site Conditions clause in the federal contract. Since many other standard contracts employ similar language in their Differing Site Condition clause, the decision may have some impact beyond federal contracts.
In Metcalf Construction Company v. United States, Metcalf was the successful bidder on a contract to design and build 188 housing units at Marine Corp Base Hawaii. The Government provided Metcalf and the other bidders with preliminary soils information before the contract was let. The bidders were instructed to conduct their own independent investigation of the site. One wise bidder submitted a pre-bid question asking: This requires an independent investigation after award. . . . Should we infer from this that any unforeseen soil conditions or variances from the Government's soils report will be dealt with by change order? To which the Government responded: Yes, if there's a major disparity from the Government's soil reconnaissance report.
After Metcalf began construction, it encountered soils significantly different than the government's soil report indicated. Specifically, the soils encountered by Metcalf were more expansive and susceptible to swelling than indicated in the Government provided preliminary report. In fact, Metcalf's geotechnical engineer informed Metcalf that based on the actual conditions present the slab would likely fail unless additional measures were implemented. Accordingly, Metcalf submitted a request to the Contracting Officer seeking compensation for the additional work that had to be done due to the soils that actually existed at the site; work that would not have had to be done if the soils were as the Government's preliminary report indicated. The Contracting Officer denied Metcalf�s request and Metcalf was forced to file suit against the Government.
Metcalf lost at trial. The trial court read the contract requirement that Metcalf conduct its own independent investigation as, effectively, placing the risk of unforeseen site conditions on Metcalf. It also found that the pre-bid question and answer where the Government acknowledged differing site conditions would entitle the contractor to a change order was nullified after the contract was executed because of Metcalf's obligation to investigate the site. Metcalf appealed the trial court's decision.
The appellate court reversed, stating that the trial court had misinterpreted the Differing Site Condition clause: The natural meaning of the representations was that, while Metcalf would investigate conditions once the work began, it did not bear the risk of significant errors in the pre-contract assertions by the government about the subsurface site conditions. The appellate court reminded the Government of prior decisions noting that the Differing Site Conditions clause exists to take the gamble out of bidding on projects when subsurface conditions are not fully known. It acknowledged that absent some contractual provision allowing contractors to receive an equitable adjustment if adverse soils are encountered, contractors would be forced to include large contingencies in their bids' contingencies that may not be needed and that would result in potential windfalls for contractors. Further, the court pointed out the commonsense notion that there is something fundamentally distasteful about the government providing information to bidders, only to then tell the bidder they can't rely on that information.
The Metcalf decision does not necessarily establish new law regarding the Differing Site Condition clause. Several prior decisions establish the courts general disfavor of geotechnical disclaimers. Despite this, many recent decisions have tended to focus on contractors' obligations to conduct reasonable site investigations. Some decisions even hold that an owner's disclaimer of geotechnical data is enforceable notwithstanding that the contract contains a Differing Site Condition clause. To that end, Metcalf is important because it reinforces that, at least on federal contracts, contractors may rely on geotechnical data provided by the government, even in the face of a disclaimer.
Of course, the Metcalf decision has its limits. In Metcalf the disclaimer was a little ambiguous. Although there was a pre-bid site inspection report, the Government warned that the report for preliminary information only. (We wonder if the decision would have been different if the contract said, “For Information Purposes Only.”) Contractors should still be concerned if they encounter disclaimers that are less ambiguous. Further, Metcalf was a federal contract subject to the Federal Acquisition Regulations. Contracts with other states, municipalities, or private owners may be subject to different laws.
Contractors would be wise to develop a checklist before bidding on any project. That checklist should inquire whether the request for proposal or invitation to bid, specifications, and contract contain:
- Geotechnical/soils data?
- A geotechnical/soils data disclaimer?
- A Differing Site Condition clause?
- Any reason to suspect adverse subsurface conditions?
- The opportunity for a reasonable pre-bid site investigation?
Thinking about these things before bidding on a project, like the wise bidder in Metcalf, may go a long way to ensuring you aren't left holding more risk than you bargained for if adverse subsurface conditions are encountered after you get the job.
About the Authors: Matt and Zach are members of the Construction Service Group of Stites & Harbison, PLLC. Matt lives in Nashville and is the founder of www.bestpracticesconstructionlaw.com. Zach lives in Louisville and frequently writes on construction law issues. You can reach the authors at [email protected] and [email protected].