Contractor Denied Recovery for Unforseen Site Conditions
Claims by contractors for extra work arising from unanticipated subsurface or other physical conditions at the work site continue to be a major source of litigation. A differing site condition is usually discovered during excavation or demolition, or is an otherwise concealed condition which is different from the conditions reflected in the contract documents.
Many claims for unanticipated conditions are based on natural subsurface conditions, such as the presence of rock or the unusual characteristics of the soil, which are not shown on the site plans. Claims for differing site conditions may also be based on the existence of artificial conditions, such as the existence of unknown underground utilities.
In the case of CATCO v. State of New York, several of the claims brought by a contractor sought recovery for extra work arising from differing site conditions not contemplated by the contract documents.
Concrete Applied Technologies Corporation d/b/a CATCO entered into an agreement in August of 2000 with the State of New York for the reconstruction of 3.6 kilometers of highway, together with the replacement of two bridges. The contract price was $14,882,586. The project was competed and accepted by the Commissioner of Transportation in February of 2003, at which time there remained twenty-one unresolved claims by the contractor for additional compensation. Three of the claims were for differing site conditions.
The contractor argued that it unexpectedly encountered subsurface rock formations while excavating for the installation of the project’s waterlines and drainage structure, which resulted in differing site conditions not contemplated by the contract documents. According to the contractor, it was entitled to an additional $18,787 on account of the differing site conditions. In denying the contractor’s request for additional compensation, the State argued that the parties’ agreement clearly placed responsibility for determining subsurface conditions upon the contractor, that the parties’ agreement did not affirmatively indicate the subsurface conditions in the disputed areas, and that to the extent subsurface conditions were set forth in the bid documents, they were identified as estimates only. When the State refused to pay, the contractor sued.
A trial was held and the court ruled in favor of the State. According to the court, in order to prevail on a differing site condition claim, the contractor must prove six elements: (1) the contract documents affirmatively indicated the subsurface conditions; (2) the contractor acted reasonably in interpreting the contract documents; (3) the contractor reasonably relied on the indications of subsurface conditions in the contract; (4) the actual subsurface conditions encountered must have been reasonably unforeseeable; (5) the subsurface conditions must be materially different than indicated on the contract documents and, (6) the contractor’s claimed damages must be solely attributable to the different subsurface conditions.
Here, the contractor’s claim failed to satisfy the first element. The contract documents did not affirmatively indicate the subsurface conditions in the disputed areas. Accordingly, the court held that the contractor failed to prove the elements of its claim, necessitating judgment in favor of the State.
The court also noted that if the State were proven to have withheld relevant information concerning site conditions, or furnished inadequate or misleading information to bidders which did not fairly represent the conditions at the site, then the State could be held liable for breach of contract. However, in this case, the court determined that the State did not conduct test borings to determine subsurface conditions, and did not make any affirmative representations as to those subsurface conditions. Accordingly, the proof did not show that the State acted in bad faith, or provide any basis not to enforce the broad exculpatory disclaimer provisions of the contract.
This case follows well settled law which upholds disclaimer provisions where the owner makes all existing data available to bidders but warns them not to rely on the data furnished. Faced with such express cautionary language, the contractor would be well-advised before bidding to analyze carefully all site conditions and information furnished by the owner, and to undertake an adequate pre-bid site inspection to ascertain the actual site conditions. By doing so, the contractor can minimize the risk of having to bear the cost of unforeseen site conditions.
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April 19, 2021
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