Differing Site Conditions: What to Expect from the Court When You Encounter the Unexpected

[1]Seattle Tunnel Partners (“STP”), a joint venture of Dragados USA and Tutor Perini, entered into a $1.4 billion contract with the Washington State Department of Transportation (“WSDOT”) to replace the Highway 99 viaduct. In December 2013, a tunnel boring machine (“TBM”) bearing the moniker “Bertha,” then the largest TBM ever built, measuring 425 feet long and 57 feet in diameter, struck an underground pipe. Shortly after the impact, Bertha overheated and eventually could no longer make forward progress. A massive repair effort ensued causing a 2.5-year delay in reaching substantial completion.

WSDOT sued STP for the delay, seeking liquidated damages of $57 million. In response, STP argued its delay was excusable because it was caused by Bertha’s impact with the pipe, and the steel well casing was a Differing Site Condition (DSC) undisclosed in the contract documents. STP asserted counterclaims against WSDOT, alleging breach of contract and seeking $300 million in damages. Ultimately, a jury found that the steel well casing on the pipe was not a DSC, foreclosing STP’s excusable delay defense and counterclaims, and resulting in a $57 million verdict, plus interest, in favor of WSDOT.

STP appealed the jury’s decision before Division Two of the Washington Court of Appeals. Wash. State Dep’t of Transp. v. Seattle Tunnel Partners, No. 54425-3-II (Wash. Ct. App. June 14, 2022) (slip op.) https://www.courts.wa.gov/opinions/pdf/D2%2054425-3-II%20Unpublished%20Opinion.pdf. Among other alleged errors, STP argued that the trial court should have limited its jury instruction on the elements necessary to prove a DSC to the definition of a DSC in the contract. The contract defined a DSC as “actual subsurface or latent physical conditions at the Site that are substantially or materially different from the conditions identified.” Slip Op. at 4-5.

In contrast, relying on King County v. Vinci Construction Grands Projects, the trial court instructed the jury that it must find four elements to prove a DSC:

  • That the steel casing of TW-2 was an actual subsurface or latent physical condition;
  • That such condition is substantially or materially different from the conditions that were indicated in the Contract Documents;
  • That STP reasonably relied on the conditions in the Contract Documents in making its bid; and
  • That the materially different condition was not foreseeable to STP at bid time.

STP argued that elements (3) and (4), regarding reasonable reliance and foreseeability, respectively, should not have been included in the jury instruction because they were not part of the contractual definition of a DSC. STP contended that these “tort-like” elements, derived from common law, are inapplicable where the parties have allocated risk by defining DSC in their contract.

The Court of Appeals was unpersuaded. It held that “the four element test identified in Vinci is a broadly applicable legal standard that guides the analysis of whether a given condition satisfies the requirements of a DSC claim.” Slip Op. at 16. The Court noted that in Vinci, the definition of a DSC was almost identical to the DSC definition in STP and WSDOT’s contract, i.e., both were silent on reasonableness or foreseeability. Id. Therein lies the critical issue. The fact that the contract defined DSC without incorporating each common-law element for proving a DSC claim did not preclude those extra-contractual elements from applying. Slip op at 18. It stands to reason that if the contract made an objective, written manifestation showing that those elements were intentionally excluded, the Court of Appeals may have reached a different result.

The Court of Appeals affirmed the trial court as to each of STP’s claimed errors. STP has petitioned for review before the Washington Supreme Court, though it remains to be seen whether the Court will accept review.

Commentary: Contractors should be aware that if their contract defines a DSC in a manner similar to that in the contract between STP and WSDOT, the court may also require the contractor to prove that it reasonably relied on the contract documents and that the condition was not foreseeable at bid time.

[1] The photograph comes from the following article: Meet Big Bertha, The World’s Largest Tunnel Boring Machine (TBM), Tunnel Insider, Oct. 3, 2018.

Update: On July 13, 2022, Seattle Tunnel Partners petitioned the Washington Supreme Court for review of two issues relating to (1) whether Division II of the Court of Appeals’ differing site condition analysis conflicted with Bignold v. King County,  65 Wn.2d 817, 399 P.2d 611 (1965), a seminal Supreme Court decision on DSCs, and (2) whether the Court of Appeals decision on the evidence spoliation issue conflicted with Cook v. Tarbert Logging, Inc., 190 Wn. App. 448, 360 P.3d 855 (2015), a decision from Division III of the Court of Appeals. On October 11, 2022, the Supreme Court denied Seattle Tunnel Partners’ petition, terminating further review of the issues described above.

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