In my last blog post, I promised to discuss issues surrounding differing site conditions as they related to the Forest City opinion handed down by the Colorado Court of Appeals. Since that post, another case out of California further eroded the concept of privity in the context of differing site conditions.
AIA contract documents generally include a differing site condition provision which provides that if the contractor encounters concealed physical conditions that differ materially from those indicated in the contract documents, or that differ materially from those ordinarily found to exist the contractor is entitled to some equitable adjustment in the contract.
Many presume that such a clause protects the contractor from liability because the parties can merely request a change order if differing conditions are encountered. However, as illustrated in Apex Directional Drilling LLC v. SHN Consulting Engineers & Geologists, Inc. change orders for differing site conditions may not be easy to come by – and the designer may not be able to assert lack of privity as a defense to claims of misrepresentation.
The city of Eureka, California solicited bids for the installation of a new wastewater pipeline. Bids relied on and engineer’s study based on the results of a single test bore, which was drilled outside the path of the planned pipeline. Immediately after beginning work, the contractor with the winning bid encountered severe adverse soil conditions. The contractor struggled to complete the project and brought claims against the project engineer for furnishing misleading information in the geotechnical study. Despite the fact that the contractor had no contractual relationship with the engineer the court allowed the lawsuit to proceed.
Design professionals and contractors alike should look at project site conditions before they enter into a contract. Utilize a contract with a well-drafted differing conditions clause to insulate yourself from the risk of assuming liability for unexpected conditions that may be encountered – and from third party claims for misrepresentation claims arising from conditions which you could not have been aware during the design phase. Some owners try to get the best of both worlds by including detailed site information yet disclaiming the reliability of such information in hopes of avoiding claims. Make your own assessment of the adequacy of information provided and fact check as you are able. Document the information that was made available to you, or the limitations of the information provided as the case may be.
If your design, as in Forest City, is developed to be used on a generic lot or in multiple locations, it would be prudent to include additional contractual provisions stating the limitations of the designer’s knowledge of site conditions.