THE UNDERLYING PROBLEM:

NEGOTIATING THE
GROUND CONDITIONS ISSUE
A paper presented to the Society of
Construction Law at a meeting in London
on 6th November 2012

Ellis Baker and Michael Turrini

March 2013
181

www.scl.org.uk

THE UNDERLYING PROBLEM:

NEGOTIATING THE
GROUND CONDITIONS ISSUE
Ellis Baker and Michael Turrini

Introduction
The purposes of this paper are:
o

To consider the general position in law relating to unforeseen

ground conditions;

To review contractual provision for unforeseen ground conditions

in major standard forms of construction and engineering contracts;

To consider the nature of disputes over unforeseen ground

conditions.

It is not, of course, suggested that this is the first or only treatment of the
subject. The Society of Construction Law itself published a very worthwhile
paper by Julian Bailey, based on his 2006 Hudson Prize-winning essay, which
is referred to more than once below.1
This paper seeks to bring a different contribution in two main respects. First, a
major component deals with the main standard form contracts, particularly
those in use in international projects, and their allocation of risk as between
employer and main contractor. Second, there is a significant emphasis on how
the issue is dealt with in the Middle East. The authors practices have for
some years featured both project and disputes work in this region, as well as
others, and it was felt that this focus would be of additional interest to the
many Society members engaged in work connected with it.
The authors were pleased to have the opportunity to give earlier versions of
this presentation at the invitation of the Gulf Society of Construction Law in
Abu Dhabi2 and Doha3 and are grateful to Richard Harding QC, chairman of
the Gulf Society, both for agreeing to chair the London SCL event and for
helpful comments on the subject matter.

Background: the issue

Unsurprisingly, the major construction law texts all deal with the ground
conditions issue, to varying extents. A good starting point is the latest edition
of Hudson:

1
2
3

Julian Bailey, What Lies Beneath: Site Conditions and Contract Risk SCL Paper 137
(May 2007) <www.scl.org.uk>
Presentation to SCL Gulf in Abu Dhabi on 12th February 2012.
Presentation to SCL Gulf in Doha on 22nd April 2012.

It frequently occurs in practice, particularly in engineering contracts,

that unexpected difficulties are encountered during construction which
may not only necessitate a change from the expected method of
working, but in extreme cases may mean that the completion of the
work, at least in accordance with the original design, is impossible.4
Two of the main aspects of the issue under discussion are helpfully raised by
this passage. First, it refers to the need to make a change from the expected
method of working. To put it another way, the product under construction
itself is not changed, but the method of its production is.
Second, reference is made to extreme cases in which completion of the work
in accordance with the original design is no longer possible or, to put it
another way, the product under construction itself may have to be changed as a
result of the extreme difficulty unexpectedly encountered.
So, to summarise as briefly as possible: the two principal consequences of
unforeseen ground conditions are that the way of producing the product may
have to be changed; in extreme cases, the product itself may have to be
changed. Either of these consequences may result in the contractor incurring
more cost and being delayed.
This leads to the heart of this paper: the question as to who bears the
consequences of additional cost and delay.

Common law approach

In the common law jurisdictions, at the highest level of generality, the answer
to the question is that, in the absence of contractual provision to the contrary,
the cost and time risks are to be borne by the contractor. If the contractor
undertakes a project, the agreed price and completion date bind him. The
classic US authority for this is United States v Spearin, where the Supreme
Court held:
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.5
Although the English courts had discerned some prospect of relief for the
contractor in Bush v Whitehaven Trustees, where construction of a pipeline
during the harsh Cumberland winter attracted the award of a quantum meruit
on the basis that its laying was intended to be a summer project,6 the English
courts have largely supported the general position in Spearin. In Bottoms v
Corporation of York, the contractor had encountered poor ground quality in
4
5
6

Nicholas Dennys, Mark Raeside and Robert Clay (editors), Hudsons Building and
Engineering Contracts (12th edition, Sweet & Maxwell, 2010), page 451.
United States v Spearin 248 US 132 (1918) (SC), page 136.
Bush v Trustees of Port and Town of Whitehaven (1888) (QB and CA), The Hudson
Fourth Edition Volume 2 Table of Cases Reprint (Sweet & Maxwell, 2001), page 122.

constructing a drainage system but when he abandoned the work, he was held
entitled to no remedy for the client Corporations action in seizing his plant
and denying him payment.7 The Whitehaven case was strongly criticised in
later decisions, notably Davis Contractors v Fareham Urban District
Council,8 and hardly represents the general tone even of the early cases.9
A principal English authority from the modern era is Worksop Tarmacadam v
Hannaby, where the contractor claimed additional cost incurred as a result of
encountering hard rock which had not been foreseen. Counsel submitted that
the remeasurement clause read literally and in context was sufficiently wide
for the additional cost claim to be allowed. The Court of Appeal rejected this
argument, Russell LJ saying:
I disagree. Had the plaintiffs wished to make such a provision in the
event of unforeseen conditions being encountered, it would have been
the easiest thing in the world for them so to have provided in specific
terms. They did not do so.10
The courts emphasis on the absence of contractual provision to the contrary
and the consequent imposition of the risk of unforeseen ground conditions on
the contractor is clear enough to admit of no doubt.
As well as the distinction between changes in method of working and changes
necessitated to the design as a result of unforeseen ground conditions, a further
distinction should be made. This is the distinction between the obligation of
the contractor to achieve the result and to construct the product,
notwithstanding the unforeseen ground conditions, and the contractors claim
to be entitled to cost and time compensation for overcoming the unforeseen
conditions.
In the cases mentioned above, the contractor was not discharged by the
unforeseen ground conditions from its obligation to complete the works and
was required to bear the cost and time consequences of overcoming those
conditions.
The general common law position, absent contractual provision, is as has been
discussed. However, it must not be assumed that the same approach is taken
to ground conditions issues in all jurisdictions.

The Middle East and North Africa

Here, the laws of many countries are based on civil codes; in particular, they
are influenced by the Egyptian Code, itself with antecedents in French law.
This is true of the United Arab Emirates (UAE) and Qatar, where the authors
7
8
9

10

Bottoms v Lord Mayor etc of the Corporation of York (1892) (QB and CA), The Hudson
Fourth Edition Volume 2 Table of Cases Reprint (Sweet & Maxwell, 2001), page 208.
Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 (HL).
The authors are grateful to John Barber, Director of the Centre of Construction Law and
Dispute Resolution, Kings College London, for sending them his unpublished paper
The Foresight Saga which deals usefully with the early cases and other points of
interest.
Worksop Tarmacadam Co Ltd v Hannaby (1995) 66 Con LR 105 (CA), page 108.

have significant international construction experience. The codes of those

states, speaking generally, take a different approach to ground risk and
typically provide for joint and several liability of the architect and contractor
in respect of total or partial collapse of a building or fixed works for a period
of ten years, even if the collapse is due to a defect in the land itself.
Thus Article 711 of the Qatari Civil Code provides that the contractor and
engineer (designer) will be liable for any destruction or defect in buildings
they have constructed or fixed installations they have erected, even if such
destruction or defect is the result of a fault in the actual land or the employer
has approved defective buildings or installations. Liability lasts for ten years
following handover and covers defects appearing in buildings or installations
which threaten their stability or safety. Contracting out of the Article 711
provisions is prohibited.
A number of observations should be made about this provision, which is
typical of code provisions in other states in the region, and indeed elsewhere in
the civil law world. First, the liability is for a long period, namely ten years,
rather than the relatively short period of the typical contractual defects
liability period; the concept is normally referred to as decennial liability.
However, the scope of the liability is narrow, being limited to risks of total or
partial collapse. Most important of all from the perspective of negotiation, the
liability cannot be excluded or restricted by contract.
An example will illustrate the point: if a contract for the construction of a
high-rise building in Qatar were being negotiated on the basis of the FIDIC
Red Book,11 with Qatari law as the governing law, there would be no point in
the contractor seeking to have the operation of the liability provision excluded;
any particular condition to that effect would be unenforceable under Qatari
law. Nor would there be any benefit in this respect in changing the governing
law of the contract to, for example, English law, which, as is well known, has
no equivalent provision. The Qatari provisions are mandatory and apply on a
territorial basis, irrespective of contractual provision.
It is not suggested that these provisions are or should be a source of terror to
contractors. However, they are an essential part of the legal framework within
which construction work is carried out in the Middle East and therefore must
be included in the contractors evaluation for risk assessment and pricing
purposes.
The provisions of civil codes imposing decennial liability on the basis of soil
conditions do not, however, deal with the issues as between employer and
contractor of cost and time consequences of unforeseen ground conditions
during the construction period. These are almost always governed by express
contract provisions allocating risk. In Qatar, for example, some of the main
employers for construction work have their own standard contracts or
conditions, which are often developed from international forms of contract.
Generally, it can be said:
11

FIDIC, Conditions of Contract for Construction for Building and Engineering Works
Designed by the Employer (1st edition, 1999) (The Red Book).

The scope for negotiating the terms of these forms is usually limited,
but in larger projects and depending on the industry, modifications from
standard contract forms may be obtained by the contractor.12

Accuracy of ground conditions information

A crucial element in the allocation of risk for unforeseen ground conditions is
the question of who is responsible for the accuracy of information provided by
the employer to the contractor concerning the site.
From a practical point of view, it is generally the owner who provides
information about the site and ground conditions relating to it, which is logical
enough, since in most cases it will be the employers site. This need not be the
case inevitably. It would, at least in theory, be possible for the employer to
supply nothing, leaving the contractor to obtain its own information and to
take responsibility for its accuracy.
In practice, this would be unlikely to occur in normal situations. The
contractor would not usually be willing to spend money on geotechnical
investigations at its own risk prior to signing the contract. But it is not just the
view of the contractor which makes this scenario unlikely. The employers
desire for a competitive price requires certainty and if contractors feel obliged
to include large contingencies in their pricing to take account of ground
conditions of which they have no knowledge, the effect on tender prices is
entirely predictable.
Accordingly, and almost inevitably, it is the employer who provides the
contractor with information about the site upon which the contractor can then
base its tender.
Given that it is the employer who provides information, it will be crucial to
ascertain the degree of responsibility for it. Julian Bailey has provided a
useful analysis of the main possibilities.13
Julian Bailey proposes four scenarios:

12
13

1.

The employer gives a contractual warranty that information

provided to the contractor is accurate and complete;

2.

The employer provides information but gives no warranty that it is

accurate and complete, nor any disclaimer as to accuracy and
completeness;

3.

The employer provides

misrepresentation; or

4.

The employer gives a disclaimer denying liability for accuracy and

completeness of the information provided to the contractor.

information

which

contains

Marcus C Boeglin, Michael E Schneider, Fadi Sabsabi and Ramy Saleh, Qatar
Construction, Bloomberg Law: www.bloomberglaw.com.
Julian Bailey, note 1, page 12.

To understand the degree of responsibility as between the contractor and the

employer, it is necessary to turn to consider how the parties provide for
unforeseen ground conditions in their contract.

Contractual provisions for unforeseen ground conditions

Despite Lord Bridges warning in Mitsui Construction v Attorney-General of
Hong Kong that: ... comparison of one contract with another can seldom be a
useful aid to interpretation,14 it is in contract provisions and their application
in different jurisdictions that the law on unforeseen ground conditions
develops and is found. With all due respect to his Lordship, the reality of
practice for those engaged in negotiating and drafting contracts is that
comparison and bench-marking against the major standard forms is a routine
technique and part of the way in which an appropriate contract is produced.
Lord Bridge began his analysis in the Mitsui case (concerning tunnelling in
Hong Kong) with the finding that: It is obvious that this is a badly drafted
contract.15
Such a remark, calculated to arouse sympathy for those whose work is being
examined with the benefit of hindsight, particularly in the mind of a fellow
draughtsman, begs the question as to how a good contract is to be produced.
Of course, in theory, it is possible to start from the beginning with a blank
sheet of paper and a mind unhampered by what has gone before and to
produce a solution to the eternal problem of how to give effect to the parties
bargain. The reality, however, is otherwise. It is by considering what has
gone before, and what is current in the market place, that good practice and
effective provisions can be adopted and the repetition of errors avoided.
Comparison of contracts means nothing more, nor less, than a knowledge of
how other practitioners or institutions have confronted the problems one is
facing, and that is equally true of drafting the clauses and interpreting them.
Typically, the outcome of the contractual provision reflecting the parties
bargain will be a sharing of the risk, although it may be far from an equal
sharing. Normally, neither party would be prepared to accept 100% of the
risk. The contractor will not wish to be totally responsible in time, money and
result for an unforeseeable outcome. The employer will not wish to bear total
responsibility for the information and the condition of the site provided to the
contractor.
Lord Bridges debatable dictum in the Mitsui case is not the first time a
common law judge has raised questions about the familiarity of members of
the judiciary with the world of construction contract negotiation and drafting.
If anything, the evidence of judicial remoteness was even more striking in the
old Canadian case of Grace v Osler, where the contract was for the
construction of an office building which suffered severe subsidence during
construction due to unforeseen ground conditions. The contractors claim for

14
15

Mitsui Construction Co Ltd v Attorney-General of Hong Kong (1986) 33 BLR 1 (PC),

page 18.
Mitsui, note 14, page 14.

relief failed on a general application of the principles already considered

above. Cameron JA felt that:
Had it been in the minds of the parties to vary the general law, we
should surely have found somewhere in the contract a provision
whereby it would appear clearly and beyond peradventure that the
owners covenanted and agreed that the plans, prepared by the architects,
were absolutely sufficient for the purposes for which they purported to
be drawn.16
The learned judge concluded with the remarkable assertion that: To state the
effect of the plaintiffs contention in this way is to show its untenability. In
point of fact owners would not sign such a covenant.17 [emphasis added].

Owners would not sign such a covenant

The fallacy of this view, at least so far as is applicable to modern construction
contracts, can be demonstrated by reference to a few leading examples. The
current FIDIC Red Book contains this provision in part of Sub-Clause 4.12:
If and to the extent that the Contractor encounters physical conditions
which are Unforeseeable, gives such a notice [to the Engineer], and
suffers delay and/or incurs Cost due to those conditions, the Contractor
shall be entitled to:
(a)

an extension of time for any such delay, if completion is or will be

delayed, under Sub-Clause 8.4 [Extension of Time for
Completion] and

(b)

payment of any such Cost, which shall be included in the Contract

Price.18

The Red Book also provides that unforeseeable means not reasonably
foreseeable by an experienced contractor by the date for submission of the
Tender.19 It should be stated here, for reasons which will become apparent
below, that the FIDIC Yellow Book contains the same provisions.20
It is thus clear that owners could indeed, if disposed to use certain contracts,
sign a covenant to the effect that they took the risk of sufficiency of the
information they supplied to the contractor. These provisions of two of the
principal FIDIC forms can create a problem for owners. While favourably
disposed to the contract generally, they might decide (or be advised) that the
ground risk allocation was not acceptable. FIDICs strong aversion to ad hoc
amendment of its contracts compounds the problem; it may be observed that
this position is seen in the industry as wholly unrealistic, since FIDIC

16
17
18
19
20

Grace v Osler (1911) 21 Man R 641 (CA Manitoba), page 688.

Grace v Osler, note 16, page 688.
FIDIC Red Book: note 11.
FIDIC Red Book, note 11, Sub-Clause 1.1.6.8.
FIDIC, Conditions of Contract for Plant and Design-Build for Electrical and Mechanical
Plant and for Building and Engineering Works Designed by the Contractor (1st edition,
1999) (The Yellow Book).

contracts are in practice frequently amended, like other standard form

contracts.
It was against this background that the Abu Dhabi government decided to
review the FIDIC provisions for adoption as their standard form of contract for
public works. The results are highly illuminating, the Abu Dhabi version of
the Red Book containing the following provision:
4.12 Unforeseeable Physical Conditions
If and to the extent that the Contractor encounters physical conditions
which are Unforeseeable, gives such a notice [to the Engineer], and
suffers delay and/or incurs Cost due to these conditions, the Contractor
shall be entitled to:
(a)

an extension of time for any such delay, if completion is or will be

delayed, under Sub-Clause 8.4 [Extension of Time for
Completion] and

(b)

payment of any such Cost, which shall be included in the Contract

Price.

It is immediately apparent that the risk allocation has been left unamended
after review.
By contrast, the post-review provisions of the Abu Dhabi version of the
Yellow Book significantly alter the balance of risk allocation between the
parties:
4.12 Unforeseeable Physical Conditions
The Contractor has had an opportunity of inspecting the physical
conditions (including the sub-surface conditions) and other conditions,
of or affecting the Site and shall be deemed to have fully acquainted
himself with the same and to have obtained all necessary information as
to risks, contingencies and all other circumstances which may influence
or affect the execution of the Works or their design insofar as the
Contractor has responsibility for such design. No failure on the part of
the Contractor to discover or foresee any such condition, risk,
contingency or circumstance, whether the same ought reasonably to
have been discovered or foreseen or not shall entitle the Contractor to an
increase in the Contract Price or to an extension of time
The offering of covenants accepting ground conditions risk which owners
are supposed not to sign is not limited to FIDIC. At first sight, it may not be
surprising that in its latest contract the Engineering Advancement Association
of Japan (ENAA) has produced an allocation of risk of unforeseen site
conditions which could be unattractive to owners:
35.1 Unforeseen Conditions
If, during the execution of the Works, the Contractor shall encounter on
the Site any physical conditions (other than climatic conditions) or
artificial obstructions that could not have been reasonably foreseen at the
date of the Agreement by an experienced contractor on the basis of
8

reasonable examination of the data relating to the Works provided by the

Owner and of information the Contractor could have obtained from a
visual inspection of the Site or other data readily available to it
... if the Contractor determines that it will in consequence of such
conditions or obstructions incur additional cost and expense or require
additional time to perform its obligations the Contractor shall
promptly notify the Owner
35.2 Any additional cost and expense incurred by the Contractor to
overcome such physical conditions or artificial obstructions shall be
paid by the Owner to the Contractor as an addition to the Contract Price
35.3 If the Contractor shall be delayed or impeded in the performance
of the Contract due to any such physical conditions or artificial
obstructions the Time for Completion shall be extended 21
ENAA is, after all, principally a contractor organisation and its contracts are
generally viewed in the market, at least by owners and their advisors, as
contractor-friendly. However, it should be recalled that this form continues to
be recommended for use by the World Bank as its design and build form for
projects which it is funding.
The New Engineering Contract, a form increasingly used internationally, 22 is
another major example of a leading form of contract under which owners sign
up to a significant level of ground conditions risk. The compensation events
provisions of NEC3 contain the following:
60.1 The following are compensation events
(12) The Contractor encounters physical conditions which
o

are within the Site

are not weather conditions and

an experienced contractor would have judged at the Contract

Date to have such a small chance of occurring that it would
have been unreasonable for him to have allowed for them.

Only the difference between the physical conditions encountered

and those for which it would have been reasonable to have
allowed is taken into account in assessing a compensation event.
60.2 In judging the physical conditions for the purpose of assessing a
compensation event, the Contractor is assumed to have taken into
account:

21
22

the Site Information

publicly available information referred to in the Site

Information

Engineering Advancement Association of Japan, Model Form International Contract

for Process Plant Construction (Turnkey Lump Sum Basis) (3rd edition, 2010).
Engineering and Construction Contract (Institution of Civil Engineers, 3rd edition, June
2005) (NEC3). The authors are aware of usage in South Africa as well as on at least one
major PFI project in the Middle East.

information obtainable from a visual inspection of the Site

and

other information which an experienced contractor could

reasonably be expected to have or to obtain.

60.3 If there is an ambiguity or inconsistency within the Site

Information (including the information referred to in it), the
Contractor is assumed to have taken into account the physical
conditions more favourable to doing the work.23
All the forms referred to so far the FIDIC Red and Yellow Books, the
ENAA Process Plant edition and NEC3 give the contractor an entitlement to
time and money on account of unforeseen ground conditions. They treat it as
an employer risk. The idea in Grace v Osler that owners would not sign such
a covenant24 is simply not an accurate reflection of standard forms of contract
in use today, if indeed it was ever accurate.
However, it is not a mandatory risk allocation. Reference has already been
made to the revised version of the Yellow Book produced by the government
of Abu Dhabi. FIDIC itself also produces a principal form of contract which
takes a radically different view. The Silver Book contains the following
provisions relating to Unforeseeable Difficulties:
Except as otherwise stated in the Contract:
(a)

The Contractor shall be deemed to have obtained all necessary

information as to risks, contingencies and other circumstances
which may influence or affect the Works

(b)

By signing the Contract, the Contractor accepts total responsibility

for having foreseen all difficulties and costs of successfully
completing the Works and

(c)

The Contract Price shall not be adjusted to take account of any

unforeseen difficulties or costs.25

In addition to placing the main responsibility for obtaining information upon

the contractor, the Silver Book also seeks to deny the employers
responsibility for any information supplied to the contractor.26 The Site Data
provision contains the following:
The Employer shall have made available to the Contractor for his
information, prior to the Base Date, all relevant data in the Employers
possession on subsurface and hydrological conditions at the Site ...
The Employer shall have no responsibility for the accuracy, sufficiency
or completeness of such data ...

23
24
25
26

NEC3: note 22.

Grace v Osler: note 16.
FIDIC, Conditions of Contract for EPC/Turnkey Projects (1st edition, 1999) (The Silver
Book), Sub-Clause 4.12.
FIDIC Silver Book, note 25, Sub-Clause 4.10.

10

The General Design Obligations provision of the Silver Book basically

reinforces this position:
Any data or information received by the Contractor, from the Employer
or otherwise, shall not relieve the Contractor, from his responsibility for
the design and execution of the Works.27
Nevertheless, Sub-Clause 5.1 also contains an important element rebalancing
the risk, often ignored by the many critics of the Silver Books position on
ground conditions:
However, the Employer shall be responsible for the correctness of the
following portions of the Employers Requirements and of the following
data and information provided by (or on behalf of) the Employer:
(a)

Portions, data and information which are stated in the Contract as

being immutable or the responsibility of the Employer

(b)

Definitions of intended purposes of the Works or any parts thereof

(c)

Criteria for the testing and performance of the completed Works

and

(d)

Portions, data and information which cannot be verified by the

Contractor, except as otherwise stated in the Contract.

The FIDIC Silver Book is a deeply controversial form of contract from the
point of view of contractors and the allocation of ground risk is perceived as
one of the principal reasons for this. Contractors see these provisions as
departure betrayal might not be too strong a word from FIDICs selfproclaimed policy of producing fair contracts, meaning that risks are
allocated to the party best able to manage and bear them.
An allocation of ground risk to the contractor in the Silver Book was seen by
contractors as completely inconsistent with those in the Red and Yellow
Books:
the Silver Book seeks generally to allocate all the risks involved in
the successful completion of the Works to the Contractor. As a result,
the Contractor will, generally, bear the risk of encountering what would
otherwise be Unforeseeable physical conditions in the other Books.28
There is no doubt that the basic Silver Book allocation of ground conditions
risk is severe upon the contractor. To obtain a complete view of this, it is
necessary to view it in context. It has already been seen how the possibility of
a rebalancing, or at least a reduction in the burden of risk on the contractor,
can be found in the latter part of Sub-Clause 5.1.
It should also be remarked that this latter form of rely upon information
provision is often found in bespoke contracts in international projects: a
reminder that the Silver Book is not completely at odds with market practice.
27
28

FIDIC Silver Book, note 25, Sub-Clause 5.1.

Ellis Baker, Ben Mellors, Scott Chalmers and Anthony Lavers, FIDIC Contracts: Law
and Practice (Informa, 2009), para 3.169.

11

Further, however much FIDIC might deplore amendment of its forms, the Abu
Dhabi governments revision of the Yellow Book is a demonstration that not
all parties are equally happy with the traditional FIDIC ground conditions risk
allocation.
FIDIC has robustly defended its Silver Book risk allocation. Christopher
Wade, former chairman of the FIDIC Contracts Committee, led the defence.
He made the point that employers on some turnkey projects are willing to pay
more for certainty of price and completion date:
the contractor is often asked to cover such risks as the occurrence of
poor or unexpected ground conditions and that what is set out in the
requirement prepared by the employer actually will result in the desired
objective. If the contractor is to carry such risks, the employer
obviously must give him the time and opportunity to obtain and consider
all relevant information. The employer must also realise that asking
serious contractors to price such risks will increase the construction cost
and result in some contracts not being commercially viable.29
He also noted that employers in many countries had been altering the Red and
Yellow Books to transfer risks from employer to contractor (as, for example,
the Abu Dhabi governments revised version of the Yellow Book). He
concluded:
FIDIC has considered it better for all parties for this need to be
openly recognised and regularised. By providing a standard FIDIC form
of contract for use in such contracts, the Employers requirements for
more risk to be taken by the Contractor are clearly stated.30
He again emphasised:
clearly the contractor will rightly increase his tender price to account
for such extra risks.31
The view of contractors organisations was sharply different, in both substance
and tone. The European International Contractors view was expressed by
Frank Kennedy at the same time as the Christopher Wade defence, specifically
in relation to Sub-Clause 4.12:
The language used in this Sub-Clause is uncompromising in the
extreme and its scope and application are much more wide-ranging than
any previous clause covering unforeseen conditions It is difficult to
imagine a clause which would be more threatening to contractors and
which would leave them more open to unscrupulous employers
contractors should beware! 32

29
30
31
32

Christopher Wade, FIDICs Standard Forms of Contract Principles and Scope of the
four New Books [2000] ICLR 5, page 11.
Wade, note 29, page 11.
Wade, note 29, page 12.
Frank Kennedy, EIC Contractors Guide to the FIDIC Conditions of Contract for EPC
Turnkey Projects (The Silver Book) [2000] ICLR 504, page 513.

12

Agne Sandberg of Skanska also gave the view of major contractors of the
unforeseeable adverse physical conditions provisions in the Silver Book.
Some of the above risks are for matters within the control of the
employer and are therefore in contradiction with a fundamental principle
of a fair contract.
It is disappointing to realise that FIDIC is in the process of publishing a
set of conditions that will be more unbalanced in terms of risk than any
other design-build forms that I know of 33
Given that the FIDIC contracts are not drafted for use in any specific
jurisdiction, the question is not merely whether the allocation is fair, but
whether it is actually effective and enforceable. It has been suggested in at
least one major European jurisdiction that the Silver Book allocation of risk
could be ineffective. Kus, Marking and Steding have expressed strong
reservations about the position under German law:
According to sub-clause 4.12 the contractor bears risk for all
unforeseeable ground conditions it is perfectly in order that the
contractor, on the basis of this sub-clause, knows and has taken the risk,
if the employer has not given him any information on the ground
conditions, and problems suddenly arise later The reason why this
risk-shifting is nevertheless ineffective under the German Standard Form
Contracts Act is the fact that the contractor is also responsible [subclause 5.1] in a case where the employer has provided him with an
experts report on the ground conditions containing hidden errors which
are not provable within the short tendering period.34
If German law is applicable by the choice of the parties or the rules of
private international law if there is no (valid) choice in the opinion of
the present authors [eight Sub-Clauses of the Silver Book, including 4.12
and 5.1] are not effective under the German Standard Form Contracts
Act.35

Contractual effect of allocation under English law

Having considered the different mechanisms possible for different allocations
of risk, it is necessary to consider what their effect might be, given that this
will vary between jurisdictions, taking English law as a basis.
Using Julian Baileys classification,36 scenario 1 is of a warranty of
accuracy/completeness of site information by the employer. If express, this
would normally be enforced at common law. In English law, such a warranty
could even be implied in exceptional circumstances, as the Court of Appeal

33
34
35
36

Agne Sandberg , A Contractors View on FIDIC Conditions of Contract for EPC

Turnkey Projects [1999] ICLR 47, page 50.
Dr Alexander Kus, Dr Jochen Markus and Dr Ralf Steding, FIDICs New Silver Book
under the German Standard Form Contract Act [1999] ICLR 533, pages 538-539.
Kus, Markus and Steding, note 34, page 549.
See the main text to note13.

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held in Bacal Construction v Northampton Development Corporation.37 Such

a possibility may also exist in US law, although Doug Jones has doubted
whether such a warranty would ever be implied into an Australian standard
form contract.38
Scenario 2 is the neutral situation where the employer gives neither warranty
nor disclaimer. Under English law, in principle the risk of adverse site
conditions should remain with the contractor if there is no contractual
provision to disturb the position.
In scenario 3, there is a misrepresentation by the employer. A positive
misrepresentation in site information supplied by the employer could change
the risk allocation. The position is clearly stated by Keating:
A statement of fact by the employer as to the nature of the soil, or the
site or the like is often made in the tender documents and is at that stage
a representation. When the contract is signed, such statements are often
expressly incorporated into the contract the contractor may seek
damages for breach of contract [or, in English law, under the
Misrepresentation Act 1967].39
In scenario 4, there are express disclaimers of liability by the employer under
the contract. As has been seen, Sub-Clauses 4.10 and 5.1 of the FIDIC Silver
Book contain no reliance clauses, purporting to deny the contractor the
ability to rely on the information provided, or more specifically to exclude the
employers liability for such reliance. While English law has the Unfair
Contract Terms Act 1977 and other common law jurisdictions have similar
statutes, in principle such disclaimers should be effective to prevent contractor
claims. This may not be so in civil law jurisdictions, such as Germany, if the
provisions offend against statute.
In summary, it can be said that questions of allocation of risk for unforeseen
ground conditions will depend upon:
(a)

contractual provision; and

(b)

the general law of the jurisdiction.

The remaining part of this paper concerns situations where contract provisions
have been insufficient to prevent disputes arising as to the consequences of
unforeseen ground conditions. Its purpose is to offer some insight as to the
nature and characteristics of ground conditions disputes.

37
38
39

Bacal Construction (Midlands) Ltd v Northampton Development Corporation (1975) 8

BLR 88 (CA), pages 100-101 (Buckley LJ).
Doug Jones, Force Majeure in Australian Construction Law [1995] ICLR 296,
page 309.
Stephen Furst QC and the Hon Sir Vivian Ramsey, Keating on Construction Contracts
(9th edition, Sweet & Maxwell, 2012), para 6022.

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Ground conditions disputes: their nature and how they occur

From the earliest times, disputes have arisen about unforeseen ground
conditions. A recurring feature in the early cases is material supplied by the
employer on which the contractor has relied, or claims to have done so.
In Munro v Bognor Urban District Council the specification for a sewage
works contained the following words:
A borehole has been sunk upon the site, and it has been ascertained that
the top eighteen feet40 of the subsoil consists of somewhat wet very
loose sand and clay and below this depth the strata is of stiff clay.41
The contractors claim for fraudulent misrepresentation was based upon the
allegation that no such borehole had ever been sunk. In Trade Indemnity v
Workington Harbour and Dock Board, in a project for dock enlargement
works, the contract made the contractor wholly responsible for obtaining
ground conditions information.42 Despite warnings that their price for
excavation was too low, the contractors won the contract on the security of a
performance bond. The contractors alleged that they were misled by a
representative of the employer about trial hole results, which revealed the
presence of water, and the bond guarantors sought to rely on this to resist
payment. Lord Atkin pointed out that the contractor was not entitled to rely
upon any such representation, even if made.
Ground conditions cases have continued to occur into the modern era and in
all the major common law jurisdictions, at least. While ground conditions are
not the same everywhere, and the legal position in contract and at law may
vary, the basic ground conditions questions are similar.

Modern examples
A modern Australian case, Abigroup Contractors v Sydney Catchment
Authority, shows the recurrent theme of contractor complaints about employer
information on ground conditions; the outcome was attributable to Australian
statute. Work on a spillway at the Warragamba Dam encountered a significant
delay and difficulty, due to the rock level being substantially lower than
indicated in the Authoritys specifications. The Concept Design had shown
a high rock level and a small amount of excavation and replacement required
(24,300 cubic metres).
The rock level was in fact much lower than that indicated by the Concept
Design drawings and in the result 204,518 cubic metres had to be excavated
and replaced, an excess of over 180,000 cubic metres. The contractor
succeeded in obtaining a finding from the court that the Authority had been

40
41
42

A little less than six metres.

Munro v Bognor Urban District Council [1915] 3 KB 167 (CA), page 168.
Trade Indemnity Co v Workington Harbour and Dock Board [1937] AC 1 (HL), page 15.

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guilty of a misrepresentation and of misleading and deceptive conduct under

the Trade Practices Act, entitling the contractor to damages.43
In the Hong Kong case of Mitsui the client (the Hong Kong government) gave
limited geological information to Mitsui (the contractor) in relation to a water
supply works project; much of the information could not be obtained or
verified until excavation took place. In the end, the engineer exercised his
power to grant an extension of time of 784 days on a two-year contract to
compensate for the extra time required to cope with ground conditions in
executing the tunnel excavation and lining works.
The contractors action sought an adjustment of rates to cover the additional
sums expended. The bill of quantities had allowed 40 tons of steel for
supports, compared with a requirement as executed of 2943 tons and 275
metres of lining material, compared with a requirement as executed of 2448
metres.
The court held that the government estimates based on the geological
information had been wildly wrong and that the contractor would be entitled
to further financial relief under contractual provisions which the court
criticised for their imprecision.44

Ground conditions and other claims

It should, of course, be recalled that not all unforeseen ground conditions cases
concern contractors progress and cost claims.
In Mirant Asia-Pacific Construction (Hong Kong) v Ove Arup, the basis of the
dispute was allegations of designer negligence.45 The owners sued their
consultant engineers in respect of negligent foundation design in the
construction of a coal-fired power station at Sual in the Philippines, which
failed because of the strength and composition of the rock sub-soil. The court
held that the design would depend upon assumptions as to the ground
conditions and that the designers were under a duty to verify the geological
conditions on which these assumptions were based, which they had not done.
In Enertrag v Sea & Land Power and Energy, the Technology and
Construction Court held that the failure of the erection of a weather mast in the
North Sea as part of a wind farm project was due to the defendant contractors
inadequate advice on sub-sea soil conditions and consequent inappropriate
installation.46
In Co-operative Group v John Allen the employer brought an action against
consultants in relation to their design work, following attempts to treat a layer
of very soft clay by vibro compaction and stabilisation work. The outcome
was significant differential settlement and sloping floors. The test applied was
43
44
45
46

Abigroup Contractors Pty Ltd v Sydney Catchment Authority [2007] NSWSC 220.
Mitsui, note 14, page 8.
Mirant Asia-Pacific Construction (Hong Kong) Ltd v Ove Arup and Partners
International Ltd [2004] EWHC 1750 (TCC).
Enertrag (UK) Ltd v Sea & Land Power and Energy Ltd (2003) 100 Con LR 146 (TCC).

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the reasonable skill and care exercised by the designers and the action failed in
this respect.47

A case study
The authors have encountered the ground conditions issue frequently in their
Middle East and North Africa practice and the following case study is an
example of a dispute from that region.
The project was a large petro-chemical facility, including a main site with
dimensions of 20km by 17km. The area of the main site which was the
subject of the dispute was approximately 4km by 4km. A site survey had been
undertaken on behalf of the employer five years previously, involving five
cores on the dispute site and two just outside it. The survey was provided to
all tenderers.
The survey referred to Standard A as the standard used for the core samples:
on encountering of resistance greater than X, further weight added to assist
penetration of earth for core samples. The report concluded:
Core sampling undertaken to depth of Xm. On analysis, no hard rock
was present on site at depth of Xm. In our opinion, no heavy rock
equipment is necessary; backhoes and light excavators are sufficient for
any excavation.
The tenderers were allowed to inspect the site and prior to the final tender, the
contractor whose tender ultimately succeeded took eight further core samples
in the dispute site area.
The contract contained the following provisions:
o

All site investigation reports provided by the Owner are for

information only and can in no way be relied upon by the
Contractor;

The Contractor acknowledges that it has undertaken its own site

investigations to ascertain the relevant site conditions;

The Contractor is entitled to a Change Order where ground

conditions encountered are unforeseeable.

Within the first month of work, the contractor encountered hard rock on 90%
of the area needed for foundation excavation within the dispute part of the
main site. The equipment brought in by the contractor could not cope with the
conditions actually obtaining. The contractor submitted a claim for 14 months
of additional time for delay and in excess of $50 million of extra cost, which it
alleged resulted from the unforeseen ground conditions.
Initially, the contractor seemed to have a strong claim. However, as the claim
became a dispute and the full documentation was reviewed by the legal teams
and experts, a fuller and different picture began to emerge.
47

Co-operative Group Ltd v John Allen Associates Ltd [2010] EWHC 2300 (TCC).

17

In particular, two points proved to be of crucial significance. First, the initial

report (shown to all tenderers) and the contractors own report both contained
clear indications of the presence of hard rock, from the number of blows
required to penetrate the sub-surface. Second, it became apparent that the
contractors report had been based on the use of a standard of testing different
from that required in the invitation to tender.
The picture which emerged was that the failure to adhere to the testing
methodology and the failure to interpret the report information had been
crucial in the contractors assessment of the position. This significantly
weakened the contractors case in the dispute resolution process which it had
initiated.

Conclusions
At the time of preparing and negotiating the contract, the allocation of ground
risk needs to be considered in detail. It is not sufficient to accept standard
form provisions without reflection on their appropriateness to the project in
question. Specifically, the question must be addressed as to whether the
contractor is to be entitled to make a claim for unforeseen ground conditions,
along the lines of the FIDIC Red Book, or a version thereof. 48 Moreover, part
of this consideration will be identifying documents (if any) which the
contractor is expressly entitled to rely upon, with the result that the contractor
will be able to get time and/or money relief if the information is inaccurate or
incomplete.
Alternative models of risk allocation may need to be reviewed. The employer
may wish to transfer the majority of the ground risk to the contractor, as under
the FIDIC Silver Book.49 The question as to the appropriateness of this model
has a number of elements. The employer will need to be confident of finding
a contractor with the capability to execute the project successfully and who is
prepared to accept this risk burden. The employer will also need to be aware
of, and willing to accept, the implications in terms of time and (especially)
cost of such an allocation.
Ground conditions provisions, like all risk allocation, are a matter of contract
negotiation. However, the outcome will be determined not only by bargaining
strength, market conditions and the negotiating skills of the parties and their
presentations. Regard must also be had to the applicable law of the contract.
Under English law, in the absence of express provision, the risk is generally
borne by the contractor, but even in the common law jurisdictions it may be
possible to obtain relief through an implied warranty or a claim for
misrepresentation, if the facts will support it.
It cannot be assumed that all risk allocations will be effective in all
jurisdictions. In the civil law jurisdictions, statute may have an impact on
enforceability of wholesale risk transfer such as under the Silver Book, and at

48
49

FIDIC Red Book: note11.

FIDIC Silver Book: note25.

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the claim stage the possibility of a force majeure claim by the contractor must
be taken into account, which would be virtually unthinkable at common law.
Even the most successful negotiations and the drafting of appropriate
provisions cannot prevent all disputes. Disputes about cost, time, defects and
professional liability arise despite the existence of contracts covering the
ground conditions issue. If a dispute does arise, it needs to be managed proactively. The facts need to be analysed fully and early and recorded in
correspondence, relating closely to the contractual allocation of risk and the
general law.
All of these features can be said to apply to contractual provisions and
disputes concerning ground conditions in any jurisdiction. It is the authors
experience that the issue is particularly keenly negotiated and contested in the
Middle East and North Africa region.

Ellis Baker MA LLM, solicitor, is a partner and head of the Construction

and Engineering Practice Group at the London office of global law firm White
& Case; he is also lead author of FIDIC Contracts: Law and Practice.

Michael Turrini BA LLB, solicitor, is a partner in the Doha office of

White & Case.

Ellis Baker, Michael Turrini and Society of Construction Law 2013

The views expressed by the authors in this paper are theirs alone, and do not
necessarily represent the views of the Society of Construction Law or the editors.
Neither the authors, the Society, nor the editors can accept any liability in respect of
any use to which this paper or any information or views expressed in it may be put,
whether arising through negligence or otherwise.

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construction law amongst all those involved
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