Commentary: Contracts Should Contain Differing Site Conditions Clauses
Construction costs are bound to increase substantially when contractors or subcontractors are faced with unexpected conditions at the jobsite. Knowledgeable members of the construction industry seek to address this problem through “differing site conditions” or “concealed conditions” clauses in their contracts.
The current AIA General Conditions have a “concealed or unknown conditions” clause that says: “If the Contractor encounters conditions at the site that are (1) subsurface or otherwise concealed physical conditions that differ materially than those indicated in the Contract Documents, or (2) unknown physical conditions of an unusual nature that differ materially from those ordinarily found to exist or generally recognized as inherent in construction activities. . . .” (AIA Document A201-2007, art. 3.7.4).
Substantially, the same provisions are found in federal government, state and local contracts and in the ConsensusDOCS contract forms (ConsensusDOCS 200, art. 3.16.2).
Note that there are two types of differing site conditions. The first (identified in federal government contracting as “Type I”) deals with site conditions that differ materially from those indicated in the contract documents. A typical example of this type of differing site conditions may be found in instances where soils tests made part of the contract documents show no groundwater near the building foundation elevations. If a contractor encounters groundwater during excavation for the foundations, a differing site conditions claim may be made for the additional dewatering and soils treatment costs that may be incurred.
The second type of differing site conditions (Type II) is for unknown physical conditions of unusual nature that differ from those usually found. Years ago, this author had a case involving construction of a new building on the site that formerly housed the Denver City jail. While excavating the site, huge stone foundations from the old jail surprisingly appeared. The arbitrator awarded the contractor additional compensation for removal of the foundations under the differing site conditions provision of the parties’ contract.
Concealed conditions and differing site conditions clauses are critical to contractors and subcontractors. That’s because if the clauses are not included in contracts, bidders or contract negotiators will need to provide cost estimates for unknown contingencies in their bids or negotiations. That may result in inflated bids that include monies for unknown conditions that the contractor may never encounter. With concealed conditions or differing site conditions clauses, the risk of those conditions is appropriately imposed on the property owner, who would have to pay extra only if those conditions are encountered.
Most “concealed conditions” or “differing site conditions” contract provisions require the contractor to give prompt notice when encountering unexpected conditions. A knowledgeable contractor must give proper notice and also maintain careful records of the additional costs incurred and any delays experienced because of the differing site conditions.
Note to contractors and subcontractors: Make sure that the contracts submitted for your signature have either “unknown conditions” or “differing site conditions” clauses. If not, be sure to demand their addition or account for those possibilities in your price. If you do encounter something unexpected, give the owner (or if you are a subcontractor, your general contractor) timely notice and keep track of your costs.
Albert B. Wolf is a principal in the Denver law firm of Wolf Slatkin & Madison P.C. This column was written with the intent of providing general legal information intended to be reasonably accurate although not comprehensive. Readers are therefore urged to consult their attorneys for any specific legal advice they may desire concerning the subject matter of this column.