Contractor claims for differing site conditions remain fairly common. There are two types of DSC claims. Under a Type I claim, a contractor can obtain additional time and compensation where the contractor encounters a subsurface or latent physical condition at the project site that differs materially from the conditions indicated in the parties’ contract.
For example, contractors have successfully asserted Type I claims where the contractor encountered a groundwater table that was higher than indicated in the contract documents while performing underground work.
With a Type II claim, a contractor may be entitled to additional time and compensation where there are unknown and unusual physical conditions at the project site that differ materially from those ordinarily encountered and generally recognized as inherent in work of the character provided for in the parties’ contract.
An example of a Type II condition may be where a contractor performing a job that requires soil work encounters tough soils that are more difficult to excavate than expected and no bidder, no matter how experienced, would have anticipated the conditions actually found.
If a contractor believes it is entitled to additional time and compensation on a project due to a DSC, the contractor should consider submitting a claim. There are four things a contractor should know about DSC claims:
- Timely notice is critical: Typically, the contract will require the contractor to notify the project owner when a DSC is encountered. The contractor may also be contractually required to submit a substantiated claim to the owner showing the DSC’s impact on the contractor’s work. Frequently, that will require the contractor to tell the owner how much additional time and/or compensation the contractor requires to be made whole by the unanticipated subsurface or other physical condition. Timely notice is critical because typically, if a contractor fails to provide timely notice to the owner, the owner will argue that the contractor has waived its right to any additional time or compensation due to the DSC. This could potentially lead to the contractor holding the bag for any impacts to the contractor’s work due to a DSC.
- The claim should be detailed: When the contractor submits its claim to the owner, it is tempting to provide limited information to the owner about the time and/or compensation to which the contractor believes it is entitled. This would be a mistake. The contractor should make an early investment in developing and supporting its DSC claim from the very beginning. This will give the owner a chance to consider the merits of the contractor’s claim and frequently, it will increase the chance of the claim being resolved short of litigation.
- Track additional costs: The contractor must do its best to track any additional costs it has incurred due to a DSC. For example, if a contractor has to perform excavation work and it is taking longer than expected due to the soils being more difficult to handle, then the contractor should document the additional labor and equipment costs due to the DSC.A contractor should avoid waiting until the end of the job to attempt to tally how much of the additional costs are related to the unanticipated subsurface condition. Instead, the contractor should track those costs as they are being incurred. Failure to do so may be fatal to the contractor’s claim.
- If possible, complete the work: After a DSC claim has been submitted while a job is ongoing, it is possible that the owner may reject the contractor’s claim. Many times, the contract will require the contractor to continue with the work, even though the contractor believes it is entitled to additional time and compensation. If the contractor refuses to complete the work, that may constitute a breach of contract requiring the contractor to pay the owner for the cost to hire a replacement contractor to complete the job. While the owner’s failure to timely pay for additional work may excuse the contractor from further performance, the contractor should keep in mind that if the contractor decides to stop work due to untimely payment, a judge or jury may later determine that the contractor’s decision was unjustified. This means that the contractor, if at all possible, should complete the job under a full reservation of rights, including the contractor’s right to pursue its claim after the job is done.
There are many potential pitfalls when making a DSC claim. But if a contractor keeps the above four points in mind, the contractor will increase its chances of obtaining additional compensation and time. With that said, a contractor that encounters a DSC will be best served to work with an experienced construction attorney early on to develop a claim and avoid potential issues down the road.
If you are a contractor that has encountered a DSC, please do not hesitate to send me an e-mail, and I will be happy to give you my thoughts.
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