Hindsight About Unforeseen Site Conditions
Federal Court Decides Two Hot Issues
for Differing Site Conditions Cases
By: Doug Shevelow, P.E.
Reprinted from January 2007 Brickerconstructionlaw.com
At its heart, a recent opinion from the United States District Court for the Southern District of West Virginia is a straightforward differing site conditions case. But looking at it closely reveals several complex questions that should be of interest to readers of this column—whether an owner’s disclaimer of the boring logs is enforceable and whether a contractor may maintain an action against the owner’s design professional for purely economic loss. The U.S. District Court, applying West Virginia law, answered both questions in favor of a tunneling subcontractor.
The case, Affholder, Inc. v. North American Drillers, Inc., 2006 U.S. Dist. LEXIS 79977, arose out of the construction of a raw water line from a lake to a water treatment plant. The connection required a 128-foot-deep vertical shaft linked to a 540-foot horizontal shaft, both through solid rock. The engineer specified that the horizontal shaft be constructed by microtunneling and furnished bidders with boring logs and test data from rock cores. Unfortunately, the test data were faulty, significantly understating the compressive strength of the rock.
Construction means and methods had to be changed to accommodate the stronger and more abrasive bedrock. Because of the changed conditions, the drilling subcontractor performed approximately $500,000 of additional work for which it was not paid. It sued the general contractor, the general contractor’s surety on the project payment bond, the owner, and the owner’s engineer.
The central claim of the lawsuit was that because the characteristics of the bedrock as portrayed in the bid documents were fundamentally
different from what was actually encountered, the owner had violated the implied warranty of the accuracy of the plans, i.e., the Spearin doctrine (discussed most recently in the September 2006 edition of this column). The court’s opinion does not say why the drilling subcontractor took this tack instead of making a typical Type I differing site conditions claim, but as I have discussed in past columns, this strategy is not uncommon, and the courts generally accept it.
The questions that make this case novel are two:
First, whether the drilling subcontractor could maintain a negligence lawsuit against the engineer for purely economic loss (no injury to persons and no property damage). (This issue is also the topic of our lead article this month.)
Second, whether the owner’s disclaimer of the accuracy of the boring information was enforceable as a complete bar to the claim.
To answer the first question, the federal court looked to a West Virginia Supreme Court of Appeals decision,
Eastern Steel Constructors, Inc. v. City of Salem (2001), 209 W.Va. 392, to determine West Virginia law. That opinion clearly
showed that a prime contractor damaged by delays attributable to an engineer’s failure to disclose important subsurface information
could sue the engineer in tort for economic losses. The Eastern Steel opinion recognized that a “special relationship” exists
between a contractor and a design professional when the contractor relies upon the design professional’s work product to his detriment,
despite the absence of a contract between the two. (As discussed in this month's lead article, the law in Ohio is much different,
as the Ohio Supreme Court held in the well known Floor Craft case that, aside from certain narrow circumstances, a contractor
cannot sue the owner’s design professional in tort.)
The Affholder court had no problem extending this right to sue to the tunneling subcontractor because the sub was "so closely aligned with and involved with the project."
Next, the court easily disposed of the engineer’s defense that the bid documents disclaimed the accuracy of the boring data and
required all bidders to make a thorough site investigation. The court characterized the disclaimers as “only a general observation regarding
the relative positions of contractors and design professionals.” The court again looked to the Eastern Steel case, where the same defense,
relying on an even stronger disclaimer, also failed. The Affholder court’s ruling in favor of the tunneling subcontractor kept the engineer in the lawsuit.
So a federal trial court has answered two of the most important questions in differing site conditions cases today in favor of contractors and subcontractors, at least in West Virginia: the engineer is fair game (even to those who have no contract with the engineer) and an owner’s disclaimers regarding the accuracy of subsurface data do not mean much.
