Differing Site Conditions in Commercial Construction Contracts

Encountering unforeseen site conditions is a commonly disputed area of commercial construction, with litigation ensuing to determine whether the project owner or the contractor who performed the work should be responsible for bearing those additional costs. Naturally, it is in the interest of all parties to decide this when negotiating the terms of the contract, and to conduct sufficient research prior to excavation to minimize the chance of encountering unforeseen conditions. This research is often done through Geotechnical Data Reports (GDR), which are compilations of data gathered during site investigations. 

However, sometimes even properly conducted boring samples provided to bidders by the project owner do not fully and accurately depict the true nature of the subsurface conditions. Along with this, project owners often will attempt to add in a disclaimer in the contract language that the boring samples are not necessarily representative of the conditions of the entire project. However, sometimes this can work against the project owner, with some courts choosing to rely on the data presented from the boring samples as being sufficient to establish reliance for a bidder. To avoid the mess of litigation in this area, or to at least simplify it should a contract dispute rise to that level, establishing a Geotechnical Baseline Report (GBR) should be a best practice implemented when bidding on any project involving subsurface excavation. 

A GBR is a statement representing the known ground conditions in a project site, and used to establish a baseline for bidding. It sets the range of adverse ground conditions that ought to be provided for and included in the contract price, and defines and allocates the risks associated with subsurface excavation. In theory, a GBR works in tandem with a Differing Site Condition (DSC) Clause in a contract to provide a mechanism for the contracting parties to identify any truly unanticipated conditions that may be encountered and pay the contractor a fair amount for costs incurred to complete the work. 

Generally, GBR’s are treated as contract documents which often times supersede individual GDR’s because the primary purpose of a GBR is to provide all bidders on a project with a single contractual interpretation that can be relied upon. Establishing a GBR also draws a proverbial “line in the sand” allocating the consequences of encountering any of the conditions within the baseline report to the contractor, and conditions not included in the report to the owner. 

To prevail on a differing site conditions claims, New York courts have established six elements that a plaintiff needs to prove:

  1. The contract documents must have affirmatively indicated the subsurface conditions,
  2. Plaintiff must have acted as a reasonably prudent contractor in interpreting the contract documents;
  3. Plaintiff must have reasonably relied on the indications of subsurface conditions in the contract;
  4. The subsurface conditions actually encountered must have differed materially from those indicated in the contract;
  5. The actual subsurface conditions encountered must have been reasonably unforeseeable and;
  6. Plaintiff’s claimed damages and excess costs associated with extra work and delays allegedly incurred as a result of the unforeseen condition must have been solely attributable to such materially different conditions. 

See Fruin-Colnon Corp., v. Niagara Frontier Transp. Authority, 180 A.D.2d 222, 226 (4th Dep’t 1992).

Applying a GBR to these standards, establishing a GBR would provide a solid baseline for all estimates and help eliminate the potential for disputes. While a contractor is required to place trust in the owner to assume that all of the data in the GBR can be relied upon to be reasonably accurate, they are not left without any remedy should they feel this is not the case. Attempts by an owner to intentionally exaggerate the adversity of subsurface conditions to protect themselves from DSC claims can be challenged in court if the statements contained in the GBR are significantly different than those shown in the GDR’s and other contract documents. While there seems to be little litigation to date where the focal point of the case is specifically the GBR contained in the contract, it seems clear that establishing a GBR for all parties involved in bidding of a project is a best practice to minimize disputes, and to stay out of the courtroom.