In September 2012, we reported on the case of Metcalf Construction Co., Inc. v. United States,[1] in which the U.S. Court of Federal Claims held Metcalf Construction Co., Inc. (“Metcalf”), a design-build contractor, to a very high standard of proof to demonstrate a differing site condition. Read our blog article about the Federal Claims Court’s decision here. In that decision, the court took the position Metcalf had assumed the risk of subsurface conditions because it was a design builder and thus, was obligated to prepare a design that would accommodate conditions that differed significantly from the soils that were described in the government’s RFP report. The court relied heavily on the disclaimers in the RFP soils report, which stated they were for “preliminary information only.”
Thanks to a recent decision by the Court of Appeals for the Federal Circuit,[2] the protections afforded by the differing site conditions clause have been reaffirmed for design builders. On February 11, 2014, the Court of Appeals reversed the trial court and reinforced that differing site conditions clauses are included in federal contracts:
…to “take at least some of the gamble on subsurface conditions out of bidding”: instead of requiring high prices that must insure against the risks inherent in unavoidably limited prebid knowledge, the [differing site conditions] provision allows the parties to deal with actual subsurface conditions once when work begins, “more accurate” information about them can be reasonably uncovered.
The Court of Appeals held that the duty to make an inspection of the site does not negate the changed conditions clause by putting the contractor at peril to discover hidden subsurface conditions are those beyond the limits of an inspection appropriate to the time available.
The court also based its holdings on the long-standing background presumption against finding broad disclaimers of “liability for changed conditions.” It is not uncommon for government agencies to attempt to write the differing site conditions clause out of the contract by discouraging contractors from relying upon representations of underground conditions in the Requests for Proposals (“RFPs”). Some RFPs advise the contractors that the borings are not to be interpreted as representations of subsurface conditions beyond the individual boreholes, that bidders should make their own determinations of site conditions, and/or that the information in the RFP is for “informational purposes only.” What these public and private owners overlook is that the purpose of the differing site conditions clause is to allow all contractors to compete on the same basis without the need to put contingencies in their bids.
Comment: This case was also important to establish that federal government agencies must, as all parties to contracts, demonstrate good faith and fair dealing in the administration of the contract. Since this was a case of paramount importance to design builders, there were some interesting amicus curiae (friend of the court) briefs filed. Robynne Parkinson of Thaxton Parkinson PLLC in Mercer Island, an active member in the Design Build Institute of America, filed a friend of the court brief: Well done Robynne. Ralph C Nash, a celebrated author of public contract articles and journals, also filed an amicus brief on behalf of the contractor, urging no distinction between design-build and design-bid-build contracts when differing site conditions are encountered. This case is great news for federal construction contractors who, prior to this decision, may have been misled into believing that the risk of differing site conditions had shifted to contractors.[3]
[1] 107 Fed. Cl. 786 (2012).
[2] Metcalf Construction Company, Inc. v. United States, 742 F.3d 984 (2014).
[3] Thanks to Michael H Payne, Differing Site Conditions Clause is Alive and Well, Federal Construction Contracting Blog (February 20, 2014).