By: Alexander A. Miuccio Published: March 2013

Contractor Denied Recovery For Unforseen Subsurface Conditions

A much litigated provision commonly included in government contracts is the requirement that the contractor bears the risk of encountering unexpected subsurface soil conditions. Despite this contract provision, a contractor is entitled to compensation for extra excavation work if it can establish that the owner or the governmental agency involved had information in its possession during the bidding process of the actual subsurface site conditions. The failure to disclose this information to bidders may demonstrate that the public owner acted in bad faith.

In the recent case of Continental Construction LLC v State of New York, the court determined whether a contractor should be reimbursed for extra work incurred where it encountered unforeseen subsurface conditions.

Background 

Continental entered into a contract with the State Office of Parks, Recreation and Historic Preservation to construct new sewer and water systems at Robert Moses State Park in Massena, St. Lawrence County. The contract specified that the work included all excavation required for the project. It contained no representations as to the subsurface conditions to be encountered, and provided that Continental assumed the risk of encountering subsurface conditions which could be reasonably anticipated based on documentary information provided by the state agency and an inspection of the site. The project site did not contain any rock outcroppings and, according to the contractor, the area "looked like a golf course". Continental did not review a publicly available USDA soil survey of the area. 

At a pre-construction meeting, when Continental was describing the means and methods he proposed to use, a New York Power Authority representative advised that the means and methods proposed by Continental would be inadequate because the "site was full of boulders". Upon being so informed, Continental performed test digs which indicated that the Power Authority's representative was correct. It was subsequently revealed that dredged materials from the 1950's construction of the St. Lawrence Seaway may have been dumped at the site, but there was no evidence to establish this conclusively.

At the direction of the State, Continental proceeded with the work and submitted its change orders at the end of the project for the excavation of a number of unexpected large rocks and boulders. Continental claimed that its bid had assumed that subsurface conditions would be sand and light gravel, and that there was no way, prior to the start of excavation, Continental could have anticipated the type of materials it would encounter at the site. Continental noted that there were no site borings available, no provisions in the Project specifications for rock removal, and no real opportunity to dig test pits because the site was open to the public during the summer season. Continental further pointed out that it was only after the commencement of work that it learned that the site had been built upon a dump for dredged rock and material excavated during the construction of the St. Lawrence Seaway. 

The state rejected the change orders, stating that Continental's assumption that the subsurface conditions would be sand and light gravel were not supported by the contract documents or other evidence. Continental sued, claiming that the State acted in bad faith because it had knowledge of the subsurface condition that should have been disclosed to bidders. 

Decision

After a trial, the court held that in order to prevail on a differing soil condition claim, the contractor must prove that: (1) the contract documents must have affirmatively indicated the subsurface conditions; (2) the contractor must have acted as a reasonably prudent contractor in interpreting the contract documents; (3) the contractor must have reasonably relied upon the indications of subsurface conditions in the contract; (4) the subsurface conditions actually encountered must have differed materially from those indicated in the contract; (5) the actual subsurface conditions encountered must have been reasonably unforeseeable; and (6) the contractor's claimed damages must have been solely attributable to such materially different subsurface conditions.

The court denied Continental's claim, finding that it failed to establish that the soil conditions were actually different from the contract documents where those contract documents made no affirmative statement as to the soil conditions. Based on this finding, the court necessarily determined that the State did not make any misrepresentation as to the subsurface conditions. Further, the court noted that Continental was familiar with New York State construction contracts and the exculpatory boilerplate provisions contained in those contracts which allocates to the contractor the risk of encountering unforeseen subsurface conditions. The court also held that the actual subsurface conditions encountered were not unreasonably foreseeable since the USDA soil survey was publicly available, and that the evidence of dumping St. Lawrence Seaway debris at the site was speculative. The contractor offered no evidence to show that the site was, in fact, a dump site for the Seaway construction.

Comment

The court held that where there is no misrepresentation of factual matters or withholding of material information, and the contractor has access to subsurface information, the contractor cannot argue in the face of an express contract disclaimer that he relied on the owner's representations. Where a contract provision relieves the owner from liability relating to subsurface conditions, the contractor would be well advised to make its own pre-bid site investigation of subsurface conditions. By doing so, the contractor can minimize the risk of having to bear the cost arising from unforeseen site conditions.

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