Hindsight About Unforeseen Site Conditions
Defining a Reasonable Site Investigation

By: Doug Shevelow, P.E.

Reprinted from September 2005 ohioconstructionlaw.com

How can a contract provision requiring a bidder to make a reasonable site investigation help to defeat a Contractor’s differing site conditions claim? That was the topic of the October 2003 column, and it came up again recently in a case from the Federal Court of Claims. But first, some background . . . .

Generally, a Contractor is expected to make a reasonable investigation of the project site to determine if subsurface or unforeseen conditions may pose a problem. This general duty is almost always bolstered by a contract clause requiring the Contractor to make a “thorough site investigation” or “pre-bid site inspection.” The construction contract often includes an admission by the Contractor that it has made a thorough site investigation and is familiar with all site conditions.

Contractors who fail in their duty to inspect the site are generally denied additional compensation to manage conditions that could have “reasonably” been inferred from a thorough site investigation. But determining what is “reasonable” can be difficult.

Prior Case Law

Most courts do not find an implied duty for the Contractor to conduct an invasive investigation. For example, see, I.A. Construction Corp. v. PennDOT, (Pa. Commw. 1991), 591 A.2d 1146. But for a case where the Contractor should have at least “scratched the surface” because of the boring logs’ indication of the potential for a peat bog, see Appeal of Parkland Design & Development Corp., IBCA No. 1442-3-81 (1982).

However, the contract may require bidders to make their own subsurface investigation. The courts are generally split on whether this is an enforceable provision, some ruling it is not because of the impracticality and cost of multiple bidders’ performing disruptive activities, especially when the Owner has made no provisions to facilitate the investigations. Department of Transportation v. P. Dimarco & Co., Inc. (Pa. Commw. 1998) 711 A.2d 1088, is a case in point.

Sometimes, though, Contractors are relieved from making a thorough site investigation when the Owner does not make sufficient provisions and allowances for the Contractor to do so. Two cases holding this are Clark Brothers Contractors v. State of Montana (Mont. 1985), 710 P.2d 41, and Appeal of Dayton Construction Co., HUD BCA No. 82-746-C34 (1983) (bid periods were too short to allow bidders to confirm elevations).

Regarding facility conditions, Contractors have been held responsible for observing that an existing catwalk would conflict with proposed ductwork (Appeal of American Construction & Energy, Inc., ASBCA No. 52032 (2000)), and that certain pipes and valves did not really exist (Appeal of Swepco Corp., ASBCA No. 25118 (1981)).

On the other hand, Contractors have been deemed not responsible for discovering conditions that would have required destruction of the Owner’s property. For example, see Appeal of Southern California Roofing Co., PSBCA No. 1737 (1988) (extra layer of roofing not discoverable without cutting through top layer of roof).

Contractors are also generally excused from having to use extreme measures to investigate. A Contractor was not required to use a high pressure hose to determine the true extent of rotten wood in Appeal of Midwest Industrial Painting of Florida, Inc., ASBCA No. 35194 (1990).

The Latest Case: Conner Brothers

These cases help to establish rules and reference points for determining the “reasonableness” of a prebid site investigation. A U.S. Court of Federal Claims case from this summer elaborates on this “reasonableness” concept and gives us a new rule.

In Conner Brothers Const. Co. v. U.S. (June 10, 2005), 65 Fed. Cl. 657, a mechanical subcontractor and General Contractor lost a differing site conditions claim for nearly $250,000. The claim was based on extra costs in reconnecting ductwork as part of an approximately $7 million renovation of a V.A. hospital.

The contract documents required that the existing ceilings be demolished and replaced (while the hospital remained in service). The ceiling demolition required that new HVAC diffusers be installed and connected to the existing HVAC duct system. Here is where the problem occurred. Both Contractors assumed that the existing diffusers were connected to the ductwork by flexible connectors, meaning that the new diffusers could be connected the same way. Unfortunately, the old diffusers were connected directly to the duct system. There was not enough clearance to accommodate flexible connectors. This problem was exacerbated by the fact that the locations of the new diffusers were different from the old locations.

The contract included a standard site investigations clause (Federal Acquisition Rule 52.236-27) requiring the Contractor to acknowledge “that it has taken steps reasonably necessary to ascertain the nature and location of the work . . . [and] satisfied itself as to the . . . obstacles to be encountered insofar as this information is reasonably ascertainable from an inspection of the site . . . .”

It also included a standard differing site conditions clause (Federal Acquisition Rule 52.236-3) providing relief for either a Type I condition (different from what is represented in the contract documents) or Type 2 condition (conditions of an unusual nature).

The Contractors did investigate conditions above the ceilings - where they could. Access above plaster ceilings was especially difficult, available only through a few access panels. Here the Contractors were unable “to see past a jumble of wires or pipes and ducts.”

This is where the Contractors lost the sympathy of the court. It held with regard to the obscured view: “that fact alone should have alerted a reasonable, experienced contractor both of the need to inquire with the government as well as the likelihood that there might well be a space problem with the void area above the ceiling.” So the sin here was not the failure to inspect above the ceiling, but a failure to inquire further when the inspection was hindered.

And thus a new rule is added to the law of differing site conditions: Bidders must inquire further whenever their site investigations are hampered by site conditions. (Smart bidders will carefully document this inquiry as well as any response.)