Differing Site Condition Clause: Shifting Risk of the Unexpected

A differing site condition is a condition other than weather, climate, or other act of God, discovered on or affecting a construction site that differs in some material respect from what was reasonably anticipated.[i]  The conditions must be physical; changes in political or economic conditions, or labor issues are not differing site conditions.  It may surprise some contractors that in the absence of a contract clause providing otherwise, the risk of any cost or difficulty associated with unexpected subsurface conditions are generally borne by the construction contractor.

Many private construction contracts do not contain a differing site conditions clause shifting the risk to the owner.  For example the contract to build the IDX Tower in downtown Seattle (a private high-rise) did not contain a differing site conditions clause, and the risk of unforeseen conditions was entirely upon the general contractor.  Thus, when contaminated soil (a differing site condition) was encountered, the contractor bore the cost of remediation.

A mere unanticipated condition that renders the contract performance more difficult, burdensome, or expensive provides no excuse for the nonperformance and no basis for modification.[ii]  In Washington, the courts have made it very clear that if a contract does not contain a differing site conditions clause, the risk of unforeseen subsurface difficulties falls entirely on the contractor:

Where one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to additional compensation, because unforeseen difficulties are encountered.  Thus, one who undertakes to erect a structure upon a particular site, assumes ordinarily the risk of subsidence of the soil.[iii]

Thus, absent a differing site condition or changed conditions clause, contractors must increase the amount of their bids or proposals to cover the contingency of encountering unexpected difficulties, make their own subsurface investigation, bare the risk of unknown conditions without price contingencies, or choose not to bid it all.

Courts have recognized some exceptions to the general rule that puts the entire risk of loss on the contractor, if the contractor is able to prove (1) fraud or negligent misrepresentation of conditions;[iv] (2) breach of implied warranty of the sufficiency and adequacy of the plans and specification;[v] (3) constructive changes;[vi]  (4) failure to disclose superior information;[vii] (5) impossible ability or commercial impracticability;[viii] and (6) cardinal change.[ix]

Comment:  Virtually every public works contract contains a differing site conditions clause.  The AIA and ConsensusDocs contracts also contain differing site conditions provisions.  The logic of including a differing site conditions clause in a contract is that sophisticated owners long ago recognized that one of the greatest risks in fixed-price construction contracting was encountering unforeseen subsurface conditions during performance.  A prudent contractor will include a contingency in its bid to protect itself from the potential disasters.  When the contingencies do not eventuate, the owner incurs an unnecessary expense by paying more than actually necessary for contract work.  On the other hand, if the contingency is insufficient to cover the contractor’s cost, the construction project might be disrupted and delayed while the contractor seeks instructions, files claims, or suspends work for lack of funds.  To avoid these problems, the federal government, as well as a host of other owners, has developed a risk shifting clause that minimizes the contractor’s risk, relieving it from unexpected and unfavorable conditions that cannot be ascertained by a reasonable site investigation.

[i] Foster Const. C.A. & Williams Bros. Co. v. U. S., 435 F.2d 873 (Ct. Cl. 1970).

[ii] United States v. Spearin, 248 US 132, 136, 39 S. Ct. 59, 63 L. Ed. 166 (1918).

[iii] Dravo Corp. v. Municipality of Metropolitan Seattle, 79 Wn.2d 214, 218, 484 P.2d 399 (1971).

[iv] Douglas Nw., Inc. v. Bill O’Brien & Sons Const., Inc., 64 Wn. App. 661, 828 P.2d 565 (1992).

[v] Weston v. New Bethel Baptist Church, 23 Wn. App. 747, 753, 598 P.2d 411 (1978).

[vi] Emerson/Sack – Warner Corp., ASBCA 6004, 61-2 BCA § 3248, 16, 827 (1961).

[vii] Hardeman-Monier Hutcherson v. United States, 458 F.2d 1364 (Ct. Cl. 1972).

[viii] Valley Constr. v. Lakehill Sewer Dist., 67 Wn.2d 910, 410 P.2d 796 (1965).

[ix] Bignold v. King County, 65 Wn.2d 817, 399 P.2d 611 (1965).

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