- 1. Case Background
In this case, the Department of Interior’s Bureau of Land Management (“BLM”) contracted with Drennon Construction & Consulting, Inc. (“Drennon”) to widen a road to the Tangle Lakes Campground located in central Alaska.[i] The project required the contractor to excavate a hillside and build a gabion (retaining) wall along it. As Drennon excavated the roadway, the hillside slopes collapsed (the soils were “at or near [their] angle of repose, so every scoopful that is excavated from the slope causes a landslide of materials from above”).[ii] Both the government and the contractor agreed that the work should cease until a solution to the sloughing problem could be devised. Ultimately, the project was scaled back, the wall was not built, and the road was not widened.
Within two days after Drennon’s excavation of the hillside, the material sloughing was such that every scoop full of material that was excavated from the slope caused a landslide of materials from above, posing a significant safety and maintenance issue. Drennon stopped work, and eventually BLM scaled the project back. Drennon made a claim for the extra costs associated with the collapse of the hillside.
The issue then became why the hillside collapsed. Drennon asserted that the design of the project was defective, and the geotechnical information provided in the bid documents, upon which it relied to price the project, was flawed. Consequently, the contractor claimed it was entitled to recover costs incurred during the suspension of the work, as well as costs incurred to buy and assemble gabions, which were of no use due to the way in which the project was ultimately completed. In contrast, BLM maintained that the cause of the problems encountered was the contractor’s inappropriate approach to the project, which was not in accord with the recommendations of the engineers who prepared the geotechnical information. BLM contended that because contract documents required Drennon to design, as well as build, the gabion wall, that it was the contractor’s design that were faulty. BLM took the position that the contractor was not entitled to any recovery.
- 2. The Contract Documents
The geotechnical report for the project indicated that the hill, which the construction contractor would have to excavate to widen the road, was an “esker” (a “sinuous ridge of assorted, somewhat stratified sand and gravel believed to represent fillings of super glacial, englacial or subglacial stream channels.” ). The geotechnical report also indicated that the slopes of the esker ranged from 32° to 38° and that the esker soils were at their “angle of repose.”[iii]
Drennon, a small Alaskan contractor, read the bid documents and relied on the boring logs contained in the geotechnical report. Drennon understood from the logs that the soil would contain 5 to 10-percent fines and accepted the report’s projection that the hillside would stand in an over steepened condition as a reasonable projection. Drennon did not know the meaning of the term “esker” at the time of bid.
BLM’s expert, who testified at the hearing, emphasized that there were disclaimers in the geotechnical report. Specifically, because the soils were “eskers,” there would be no cohesion and that the soil should have been expected to “rabble back” to its angle of repose when cut at slopes greater than 38°. Thus, Drennon then should have expected the soils would not hold and should have anticipated using some sort of retaining wall (sheet piles or other soil retention techniques) in its bid. Drennon’s expert explained that “esker” is a geotechnical term, not a civil engineering term, and that it would have been reasonable for a contractor on a small project like this to rely on the geotechnical report rather than to pay for his own report and soil borings.
3. The Differing Site Conditions Clause
The contract, as with virtually all government contracts, contained a differing site conditions clause. See Shifting the Risk of Differing Site Conditions. A well-established purpose of the differing site conditions (DSC) clause is to exclude contingencies covering the possibility of encountering conditions more adverse than indicated and usual.[iv] Ideally, a corollary benefit to the owner occurs if the contractor does not inflate its bid price to accommodate for the possibility of encountering such unanticipated conditions. Thus, the DSC clause shifts the risk of differing site conditions from the contractor to the owner.
- 4. Disclaimers
Typically, in heavy construction contracts, subsurface data such as boring logs and geotechnical reports are made available with the bid solicitations in order to facilitate accurate bidding. Nevertheless, even when a DSC clause is incorporated into a contract, the owner may still attempt to reduce its own liability for any such anticipated conditions by inserting broad exculpatory language or other disclaimers about the subsurface data provided to the contractor. This was the situation at issue in the Drennon case.
- 5. Holding
The Court first established the four elements that a contractor must prove to prevail on a DSC claim:
- The contractor must prove that a reasonable contractor reading the contract documents as a whole would interpret them as making a representation as to the site conditions;
- The contractor must prove the actual site conditions were not reasonably foreseeable to the contractor, with the information available to the particular contractor outside the contract documents (that the contractor “reasonably relied” on the representations);
- The contractor must prove that the particular contractor in fact relied on the contract representations; and
- The contractor must prove that the conditions differ substantially from those represented and that the contractor suffered damages as a result.
In turn, the Court found that the geotechnical report clearly made representations as to the site conditions and that the boring data, when combined with a representation that similar soils would be in the hill, conveyed the engineers’ (designers’) expectations that small amounts of fine, grained matrix would be present, such that short sections of steep slopes would stand temporarily while the work was progressing. Further, the Court found exculpatory language in both the hedging in the report concerning the “esker” soils and the disclaimer contained in the contract documents that the slopes may initially stand steep, but could cave-in if subject to vibration. Therefore, BLM was not relieved from liability because prospective bidders would reasonably rely upon such representation and, more importantly, general disclaimers do not overcome the import of the more specific DSC provision. While geotechnical engineers may understand the meaning of “eskers,” it was not reasonable that a contractor would possess this knowledge or appreciate the geotechnical engineers’ hedging of how esker soils might behave. Accordingly, the Court held that the contractor prevailed, notwithstanding the disclaimer in the contract regarding the esker soils to the contrary.
Comment: While it is true that a contractor has a duty to consider all the specifications, the contractor has no duty to conduct its own investigation and is not bound to know that which only an expert could derive from the contract.[v] The view expressed in Drennon-that broad exculpatory clauses do not trump the differing site condition clause-is the predominant view in government contracts.[vi] To preserve the right to seek recovery for a differing site condition, prudent contractors, prior to submitting bids, should review all available subsurface data, including not only the documents that form part of the contract, but also any reports referenced in the contract made available for inspection. Failure to review these documents can derail an otherwise meritorious differing site conditions claim.
[i] Drennon Constr. & Consulting, Inc., 13-1 B.C.A. § 35213 (Jan. 4, 2013).
[ii] Id. at 6.
[iii] Id. at 2.
[iv] HSG Technischer Ser v. GMBH, 209 – 2 BCA § 34, 177 (June 16, 2013).
[v] Shank – Artukovich v. United States, 13 Cl. Ct. 346, 354 (1987) aff’d, 848 F.2d 1245 (Fed. Circ. 1988).
[vi] Owen S. Walker, “Different Site Conditions Claims: What is Below the Surface of Exculpatory Clauses or Other Disclaimers,” Procurement Lawyer, p. 24, Summer 2013 (This case came to our attention via this article, which contains a summary of the background of the case law pertinent to this issue).