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An especially perplexing problem in the drafting and interpretation of construction contracts is the
handling of unexpected conditions at the building site. The terms differing site conditionsand
changed conditionsare both used to refer to this situation. Rubin et al. (1999) remind us that
... in fact, the site does not change. The terms refer to situations in which
construction conditions turn out to be different from those represented in the
contract documents or from what the parties to the contract could reasonably have
expected from the information available.
While the majority of unforeseen and differing conditions are found in subsurface work such as
tunnelling and foundation construction, such situations can also arise in rehabilitation and
restoration work, retrofitting to meet revised seismic codes and projects that improve energy
efficiency. These latter cases often involve a lack of as-built drawings or any plans and
specifications from the original work.
Whether the contractor is entitled to any sort of relief in these situations is often dependent
on whether the owner or owner’s representative was given proper notice of the discovery of the
condition. For many of its projects, the US government uses the following changed conditions
clause (quoted in Rubin et al., 1999):
(a)The Contractor shall promptly, and before the conditions are disturbed, give a
written notice to the Contracting Officer of (1) subsurface or latent physical
conditions at the site which differ materially from those indicated in this contract,
or (2) unknown physical conditions at the site, of an unusual nature, which differ
materially from those ordinarily encountered and generally recognized as
inhering in work of the character provided for in the contract.
(b)The Contracting Officer shall investigate the site conditions promptly after
receiving the notice. If the conditions do materially so differ and cause an
increase or decrease in the Contractor’s cost of, or the time required for,
performing any part of the work under this contract, whether or not changed as
a result of the conditions, an equitable adjustment shall be made under this
clause and the contract modified in writing accordingly.
(c)No request by the Contractor for an equitable adjustment to the contract under
this clause shall be allowed, unless the Contractor has given the written notice
required: provided, that the time prescribed in (a) above for giving written notice
may be extended by the Contracting Officer.
(d)No request by the Contractor for an equitable adjustment to the contract for
differing site conditions shall be allowed if made after final payment under this
Project operations phase271
The importance of timely notice and the availability of an ‘equitable adjustment’ to the contract
are important aspects of the clause cited above. In addition, at paragraph (a), the clause
distinguishes between two types of conditions for which relief may be granted. These types have
come to be known as Categories I and II, in which Category I is ‘a condition encountered at the
work site that is different from that represented in the contract documents’ (Bennett, 1996).
Simon (1989) refers to this category as ‘the administrative equivalent to a breach of contract’,
because the owner essentially failed to provide what it promised when entering into the contract.
Category II is ‘a condition that is materially different from what a contractor would reasonably
expect to encounter on the project. In this case, relief is predicated on having a clause in the
contract that spells out how such relief is to be provided’ (Bennett, 1996).
The literature contains numerous interesting case examples. In one Category I type case, the
plans indicated a buried, solid pipe used for carrying water to a trench. The contractor began its
excavation for structural foundations and encountered water flowing from the pipe; in fact, the
pipe was perforated to allow water to be absorbed by the soil. Additional payment was granted
to the contractor because the investigation discovered ‘an implicit representation of a changed
pipe condition because the pipe was depicted as solid-walled pipe rather than a perforated pipe,
... a condition materially different from that which was indicated in the contract’ (Loulakis and
The contractor is expected to conduct a reasonable site inspection prior to submitting its
tender. In one case, the contractor’s claim for an adjustment in the contract price was denied
when the court found that a thorough site inspection would have allowed the contractor to
ascertain with reasonable certainty the quantity of rock to be removed (Simon, 1989).
Unusual hydrostatic pressure or subterranean water conditions may be designated Category II
changed conditions; they often result in the need for more costly and time-consuming
construction methods. A contractor encountered an underground water quantity and flow rate
substantially greater than anticipated. Although the contract documents advised of the need for
dewatering, they were silent as to the potential magnitude of the problem. Simon (1989)
describes more details as follows:
More importantly, at a nearby site a prior contractor incurred a similar problem
which was litigated and eventually ruled against that contractor. The problem facing
the board [of contract appeals] was whether, under a changed conditions clause,
the government had a responsibility to advise the adjacent contractor of the
experience the first contractor had. In ruling in favor of the contractor, the board
held that the government did have that responsibility. A key element of the board’s
reasoning was that, although the adjacent contractor was on notice of the need to
dewater, it would have had to hire an expert to determine the extent of the problem.
The board held that, under these circumstances, the contractor’s duty to inquire
was overcome by the government’s failure to alert it to the first contractor’s
This author represented the owner in the investigation and defence of a Category II type claim
by a plaintiff contractor who cited ‘unexpected’ permanently frozen ground (‘permafrost’)
underneath a rock and gravel material source as the basis for a request for additional money and
time. The case outcome favoured the owner, because the owner argued successfully that the
presence of permafrost in the area of interior Alaska where the project was located is common
knowledge to reasonably experienced contractors working on those types of projects in that
272The Management of Construction
Among other cases, a contractor was allowed recompense when it encountered unexpected
difficulties in removing existing windows that were embedded in mortar; it was shown that this
condition was not normal, the contract drawings did not reveal the condition and a ‘reasonable
visual examination of the windows could not have revealed the condition’. In another case, a dry
lake bed was no longer dry when the contractor arrived to commence work, but it was ruled not
to be a changed condition, while a contractor required to work in a ‘quagmire condition caused
by an inadequate site drainage system’ provided by the owner was allowed relief under the
changed condition theory, because conditions were materially different from what could be
reasonably expected (examples from Simon, 1989).
Some leniency was granted a contractor who seemingly did not abide by the timely notice
requirement. After the site had been backfilled and the structure built, the contractor submitted
a request for additional payment because of a sizeable increase in the volume of rock excavated.
The quantity of rock could be estimated from an independent survey that was introduced as
evidence and it was further shown that the owner’s representative was on site and was aware of
the changed condition (Rubin et al., 1999).
Finally, always read the contract documents carefully! One set of such documents contained
the disclaimer that the owner takes on no responsibility ‘for the accuracy or completeness of
information on the drawings concerning existing conditions and the work required’ (Contractor
Cannot Recover Costs for Changed Condition in the Face of Disclaimers, 1989). The citation
makes clear the outcome of that case!
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