Contractor’s differing site conditions and delay claims proceed as government’s motion to dismiss denied

In a recent court decision involving a contractor’s request for equitable adjustment and lawsuit regarding Type I and II differing site conditions and government-caused delays regarding adverse weather — Extreme Coatings, Inc. v. U.S. (February 26, 2013) — the U.S. Court of Federal Claims denied the government’s motion for partial dismissal, which was partially based on an alleged “act of God” defense.

An “equitable adjustment” is a creature of federal procurement statutes and the Federal Acquisition Regulations. Requests for equitable adjustments (REA) allow a contractor to seek reimbursement of its reasonable costs incurred, including a reasonable profit. REAs focus on the changed position in which the contractor finds itself, and include items such as added or deleted work, substituted materials, Type I and Type II differing site conditions (DSC) claims and delay claims regarding unusually severe weather.

Type I and Type II differing site conditions claims apply to site conditions that are sub-surface or otherwise concealed, physical, found at the site and differ materially from conditions reasonably anticipated. Type I claims address subsurface or latent physical conditions at the site which differ materially from those indicated in this contract. In contrast, Type II claims address site conditions that are unknown, unusual and materially different from comparable work.

The term “act of God” in government contracts is typically applied to unusually severe weather conditions such as abnormal heat, drought, high winds, excessive rains, flooding, etc. Acts of God provisions are significant because contracts often provide them as an acceptable excuse for delays or failure to complete a project, though they do not entitle a contractor to additional money. To receive a time extension, weather-related delays must be documented by showing the weather conditions were abnormal, unanticipated and adversely affected the schedule.

In Extreme Coatings, the contractor performed partial re-coating of radial spillway radial gates at the downstream side of a dam. The contractor ran into problems, including project delays and with the re-coating work itself. The contractor submitted a certified REA that was largely denied by the contracting officer (CO). Thereafter, the contractor sued the U.S. pursuant to the Contract Disputes Act (CDA), and the government moved for partial dismissal, in part relying on an “act of God” defense.

On June 3, 2009, plaintiff, Extreme Coatings, Inc. (ECI), was awarded a contract valued at $705,368.35 to perform “partial re-coating of the downstream side of the spillway radial gates at Yellowtail Dam [on Big Horn Lake], located approximately 45 miles southwest of Hardin, Mont.” The contracting agency was the U. S. Department of the Interior, Bureau of Reclamation. The project was to proceed in two phases. Phase I was to take place within 120 days from the issuance of the Notice to Proceed, which meant that ECI was to finish Phase I by October 10, 2009. Phase II was to take place during a 45-day window triggered by lower water levels, and was eventually scheduled for April 14, 2010 through May 29, 2010.

ECI’s complaint alleged that neither Phase I nor Phase II was performed within the contract schedule due to government-caused delays that damaged ECI, in addition to other allegations against the government. On May 23, 2011, ECI filed a certified claim with the CO for an REA.This claim was denied in large part, though an adjustment of $28,500 was provided to ECI.

On August 15, 2012, ECI filed its claims in the U.S. Court of Federal Claims, alleging Type I and II differing site conditions and government caused delays. The government filed a motion to dismiss the Type I and II claims, arguing that ECI’s failure to allege a time period when each DSC occurred was fatal to these claims. The government also argued it did not represent the water levels that would be encountered by ECI at the dam, and that the high water levels were an “act of God.”

The court denied the government’s motion to dismiss. The court found that with respect to the Type I and Type II claims, a time limitation is not a required element of these claims. Further, the court found that ECI’s complaint alleged plausible Type I and II claims even if a time limitation was required.

With respect to the alleged high water levels at the dam, ECI asserted the contract represented certain water levels at the dam, including statements in the solicitation and by the Bureau at a pre-bid site visit. ECI’s complaint alleged high water levels encountered in 2009 and 2010, and did not suggest they were caused by unusual weather. ECI argued the high water levels were subject to government control and could be attributed to government-caused delays that pushed the schedule into an unfavorable time of year. The court agreed with ECI that there were uncertain factual issues that related to ECI’s high water level DSC and delay claims. As a result, and construing the factual allegations in ECI’s favor, the court denied the government’s defense based on an “act of God,” and denied the motion to dismiss.

Brian Morrow

The Extreme Coatings matter illustrates the care that must be taken in bringing claims against the government. The contractor initially filed a certified REA, which itself is the subject of extensive work-up and documentation. After its REA was denied in large part, the contractor filed suit pursuant to the Contract Disputes Act. The government moved for partial dismissal, wherein the contractor was able to defend the (initial) viability of its claims based on legal doctrines. In short, Extreme Coatings highlights the procedural complexities and pitfalls that await a contractor that does not proceed carefully against the government. If ECI had alleged facts in its REA and/ or complaint in a different manner, the government might have prevailed.

About the author: Brian Morrow is a partner in Newmeyer & Dillion LLP, a California law firm. He is also a licensed California civil engineer, and specializes in construction law, including road and heavy construction. Contact at brian.morrow@ndlf.com.

A goal of public contracts is to procure goods and services at the best price possible while maintaining a level playing field for all bidders. This is accomplished through competitive bidding statutes. These statutes require that all bids must be “responsive” to the material requirements of the government’s solicitation for bids, or they must be rejected.

The government’s evaluation of bid responsiveness focuses on whether the contractor’s bid complies with the mandatory requirements of the invitation for bids (IFB) and applicable statutes. Minor deviations can be waived, but only where the deviations relate to form and not substance. Material deviations cannot be waived. The determination of whether a deviation is material hinges on whether it would give the bidder a competitive advantage over other bidders.

In Julian and JJID, Inc. v. Delaware Dept. of Transportation (Sept. 28, 2012), the Delaware Supreme Court upheld the Delaware Department of Transportation’s (Del DOT) rejection of a contractor’s bid as nonresponsive.

During the summer and fall of 2011, Del DOT requested bids for a joint project with Amtrak, including the “hazardous work of cleaning and painting the existing steel beams for the railroad bridge over Little Mill Creek.” Del DOT’s request for proposals (RFP) listed the requirements regarding paint certifications twice, including in the bid package and the Special Provisions under the heading “Special Notice to Contractors.”

The notice states the following:

The following documentation must be submitted with the bid. If this documentation is not submitted with the bid, the bid will be considered non-responsive.

Proof is required that the prime contractor, if he/she is performing the cleaning/painting operation, and any cleaning/painting Subcontractors are certified by the Steel Structures Painting Council (SSPC) Painting Contractor Certification Program (PCCP) QP–1 and QP–2.

On Aug. 31, 2011, Del DOT held a mandatory pre-bid meeting where it reminded all attendees, including representatives from JJID, Inc., that the existing steel beams supporting the Mill Creek railroad bridge were to be rehabilitated, cleaned and painted.

On Nov. 3, 2011, JJID submitted its bid. It was the low bidder at $6,697,790. However, JJID failed to include the required paint certifications with its bid.

Del DOT faxed a letter to JJID advising that its bid was irregular because it failed to submit the required paint certifications. JJID responded that it did not submit the paint certifications because it planned to replace the steel beams supporting the bridge, instead of refurbishing them. A few days later, JJID sent the paint certifications to Del DOT stating it would perform the work as required by the specifications without any change in price.

Del DOT notified JJID its bid was rejected because it was non-responsive to a material requirement of the RFP — submission of the paint certifications. JJID’s bid was also non-responsive because it proposed to submit new steel beams instead of repairing and repainting the existing steel beams. Del DOT said it would be contacting the second lowest bidder.

On November 23, 2011, Julian and JJID filed suit against Del DOT seeking a temporary restraining order preventing Del DOT from awarding the contract to a different bidder. The parties filed motions for summary judgment. The trial court granted Del DOT’s motion, finding JJID’s bid was non-responsive because it failed to submit the required paint certifications and it failed to bid on refurbishing the steel beams. JJID appealed.

The Supreme Court reviewed Delaware’s procurement statutes, and found they have two purposes: first, to allow the state to obtain the highest quality goods at the lowest price; and second, to assure fair and equitable treatment for all bidders, where the bidders must bid upon the same thing and on substantially the same terms. The court stated that a responsive bid is one that “conform[s] in all material respects to the requirements and criteria set forth in the contract plans and specifications.” Del DOT’s decision would only be overturned if it was arbitrary and capricious.

JJID argued its failure to include paint certifications did not provide any competitive advantage, and that it submitted the paint certifications within a couple days after bid opening. In addition, its bid was almost $700,000 lower than the next lowest bid. As a result, it argued that Del DOT should have waived its requirement that the paint certifications be submitted with its bid.

The court found some merit to JJID’s reasoning, stating that “[its] position would be stronger if the lack of paint certifications were the only non-responsive aspect of its bid.” However, the court also found that JJID’s bid was non-responsive in a material way because it did not comply with the plans. Del DOT required the steel beams supporting the railroad bridge be repainted and reused. Unknown to JJID, Del DOT had discussed with Amtrak possibly using new steel beams before soliciting bids. However the parties agreed to re-use the existing steel because new steel beams would need to conform to stricter loading requirements, which would result in a new track profile that would increase potential flooding problems with Mill Creek.

Brian Morrow

Although JJID’s bid was the lowest, it did not obtain approval for its proposed change from Del DOT. Instead, JJID knowingly submitted a bid that did not conform to the RFP requirements. As a result, the court found that Del DOT properly rejected JJID’s bid as non-responsive.

The Julian case highlights the importance of complying with all material requirements of a solicitation for bids. Although minor deviations from bid requirements may be waived, material deviations will result in rejection of the bid, even if it is substantially lower than other bids and provides an improvement over the government’s requirements. The rationale is one of the purposes behind competitive bidding statutes — to allow bidders to play on a level playing field where all bidders must bid upon the same thing and on substantially the same terms. As a result, contractors need to be careful to bid on exactly what is required. No more, no less. (For a downloadble PDF of this “In Court,” click here.)

About the author: Brian Morrow is a partner in Newmeyer & Dillion LLP, a law firm with offices in Newport Beach and Walnut Creek, California. Mr. Morrow possesses B.S. and M.S. degrees in civil engineering, is a licensed California Civil Engineer and attorney and specializes in the field of construction law, including road, transportation and heavy construction. He can be contacted via e-mail at brian.morrow@ndlf.com.

Rejection after failure to follow RFP requirements results in DOT rejection

(For a downloadble PDF of this “In Court,” click here.)

A goal of public contracts is to procure goods and services at the best price possible while maintaining a level playing field for all bidders. This is accomplished through competitive bidding statutes. These statutes require that all bids must be “responsive” to the material requirements of the government’s solicitation for bids, or they must be rejected.

Brian Morrow

The government’s evaluation of bid responsiveness focuses on whether the contractor’s bid complies with the mandatory requirements of the invitation for bids (IFB) and applicable statutes. Minor deviations can be waived, but only where the deviations relate to form and not substance. Material deviations cannot be waived. The determination of whether a deviation is material hinges on whether it would give the bidder a competitive advantage over other bidders.

In Julian and JJID, Inc. v. Delaware Dept. of Transportation (Sept. 28, 2012), the Delaware Supreme Court upheld the Delaware Department of Transportation’s (Del DOT) rejection of a contractor’s bid as nonresponsive.

During the summer and fall of 2011, Del DOT requested bids for a joint project with Amtrak, including the “hazardous work of cleaning and painting the existing steel beams for the railroad bridge over Little Mill Creek.” Del DOT’s request for proposals (RFP) listed the requirements regarding paint certifications twice, including in the bid package and the Special Provisions under the heading “Special Notice to Contractors.”

The notice states the following:

The following documentation must be submitted with the bid. If this documentation is not submitted with the bid, the bid will be considered non-responsive.

Proof is required that the prime contractor, if he/she is performing the cleaning/painting operation, and any cleaning/painting Subcontractors are certified by the Steel Structures Painting Council (SSPC) Painting Contractor Certification Program (PCCP) QP–1 and QP–2.

On Aug. 31, 2011, Del DOT held a mandatory pre-bid meeting where it reminded all attendees, including representatives from JJID, Inc., that the existing steel beams supporting the Mill Creek railroad bridge were to be rehabilitated, cleaned and painted.

On Nov. 3, 2011, JJID submitted its bid. It was the low bidder at $6,697,790. However, JJID failed to include the required paint certifications with its bid.

Del DOT faxed a letter to JJID advising that its bid was irregular because it failed to submit the required paint certifications. JJID responded that it did not submit the paint certifications because it planned to replace the steel beams supporting the bridge, instead of refurbishing them. A few days later, JJID sent the paint certifications to Del DOT stating it would perform the work as required by the specifications without any change in price.

Del DOT notified JJID its bid was rejected because it was non-responsive to a material requirement of the RFP — submission of the paint certifications. JJID’s bid was also non-responsive because it proposed to submit new steel beams instead of repairing and repainting the existing steel beams. Del DOT said it would be contacting the second lowest bidder.

On November 23, 2011, Julian and JJID filed suit against Del DOT seeking a temporary restraining order preventing Del DOT from awarding the contract to a different bidder. The parties filed motions for summary judgment. The trial court granted Del DOT’s motion, finding JJID’s bid was non-responsive because it failed to submit the required paint certifications and it failed to bid on refurbishing the steel beams. JJID appealed.

The Supreme Court reviewed Delaware’s procurement statutes, and found they have two purposes: first, to allow the state to obtain the highest quality goods at the lowest price; and second, to assure fair and equitable treatment for all bidders, where the bidders must bid upon the same thing and on substantially the same terms. The court stated that a responsive bid is one that “conform[s] in all material respects to the requirements and criteria set forth in the contract plans and specifications.” Del DOT’s decision would only be overturned if it was arbitrary and capricious.

JJID argued its failure to include paint certifications did not provide any competitive advantage, and that it submitted the paint certifications within a couple days after bid opening. In addition, its bid was almost $700,000 lower than the next lowest bid. As a result, it argued that Del DOT should have waived its requirement that the paint certifications be submitted with its bid.

The court found some merit to JJID’s reasoning, stating that “[its] position would be stronger if the lack of paint certifications were the only non-responsive aspect of its bid.” However, the court also found that JJID’s bid was non-responsive in a material way because it did not comply with the plans. Del DOT required the steel beams supporting the railroad bridge be repainted and reused. Unknown to JJID, Del DOT had discussed with Amtrak possibly using new steel beams before soliciting bids. However the parties agreed to re-use the existing steel because new steel beams would need to conform to stricter loading requirements, which would result in a new track profile that would increase potential flooding problems with Mill Creek.

Although JJID’s bid was the lowest, it did not obtain approval for its proposed change from Del DOT. Instead, JJID knowingly submitted a bid that did not conform to the RFP requirements. As a result, the court found that Del DOT properly rejected JJID’s bid as non-responsive.

The Julian case highlights the importance of complying with all material requirements of a solicitation for bids. Although minor deviations from bid requirements may be waived, material deviations will result in rejection of the bid, even if it is substantially lower than other bids and provides an improvement over the government’s requirements. The rationale is one of the purposes behind competitive bidding statutes — to allow bidders to play on a level playing field where all bidders must bid upon the same thing and on substantially the same terms. As a result, contractors need to be careful to bid on exactly what is required. No more, no less.

About the author: Brian Morrow is a partner in Newmeyer & Dillion LLP, a law firm with offices in Newport Beach and Walnut Creek, California. Mr. Morrow possesses B.S. and M.S. degrees in civil engineering, is a licensed California Civil Engineer and attorney and specializes in the field of construction law, including road, transportation and heavy construction. He can be contacted via e-mail at brian.morrow@ndlf.com.

Court makes an ‘equitable adjustment’ ruling despite a ‘no damages for delay’ provision.

By Brian Morrow

A general principle of contract interpretation is that contracts are to be read and interpreted as a whole, giving a reasonable meaning to all terms to the extent possible. This “whole agreement” mode of interpretation means that no words or terms should be rejected as meaningless if they can be given a meaning that is reasonable and consistent with the rest of the contract. This principle of contract interpretation sometimes runs up against contract provisions that appear to be in conflict.

Construction contracts often contain provisions that are unique to the construction industry, for example, “no damages for delay” and “equitable adjustment” clauses. A no damages for delay clause typically provides an express waiver of monetary relief for the other party’s breach of its implied duty of cooperation. In contrast, an “equitable adjustment” clause provides a mechanism to reimburse the contractor for its reasonable increased costs for extra work, including overhead and a reasonable profit. When these two clauses are found in the same contract, a judicial preference to avoid harsh forfeiture provisions — as found in a no damages for delay clause — can result in upholding an equitable adjustment clause, especially given the preference for interpreting contracts as a whole.

In its first ruling in 2011, the court of appeals overturned the trial court, finding that Paragraph 7 and Note 15 allocated different risks … The court found the plain language of Note 15 [equitable adjustment clause] allowed for an equitable adjustment, and the language of Paragraph 7 [no damages for delay clause] did not negate it.

In Southern Seeding, Inc. v. W. C. English, Inc. (Dec. 4, 2012), a North Carolina court of appeals awarded damages to a sub-subcontractor (Southern Seeding) based on an equitable adjustment clause, despite a no damages for delay clause also being in the contract. In a related ruling, the court found the equitable adjustment and no damages for delay clauses allocated two distinct risks. As a result, Southern was entitled to an equitable adjustment.

In mid-2003, the North Carolina Department of Transportation (NCDOT) accepted bids for a project in Greensboro relating to the widening of I-40. A contract was awarded to APAC Atlantic, Inc. APAC executed a payment bond with sureties Liberty Mutual and Travelers. APAC subcontracted the grading and grassing work to W. C. English, Inc. In turn, English subcontracted some of the grassing work to Southern Seeding Service, Inc.

Southern Seeding’s subcontract with English included a scheduled completion date of July 1, 2007. In addition, the subcontract contained an equitable adjustment provision at Note 15 and a no damages for delay clause at Paragraph 7. Through no fault of its own, Southern’s work on the project was delayed by English, including the failure of English to complete erosion work prior to Southern’s work. On March 24, 2008, Southern completed its seeding work more than 250 days past its scheduled completion date.

During its work, Southern sent English multiple correspondence regarding delays to its work and increased costs. Southern took the position it would not be responsible for any liquidated damages charged to English for the delays. Southern informed English that it was keeping detailed records of all items, quantities and costs incurred since July 1, 2007, and would seek an equitable adjustment in unit prices.

On September 23, 2009, Southern filed suit against English and the payment bond sureties, claiming $194,941.39 under the equitable adjustment clause for increased costs of materials, labor and equipment incurred after the scheduled completion date of July 1, 2007. After a bench trial, the trial court denied Southern’s requested relief, holding that English was not required to pay for an equitable adjustment since English lacked a remedy against APAC (to recover an adjustment in unit prices past the original completion date). Southern appealed.

In its first ruling in 2011, the court of appeals overturned the trial court, finding that Paragraph 7 and Note 15 allocated different risks. Specifically, the court held that relief under Paragraph 7 (no damages for delay clause) was limited to the extent English was compensated by APAC or NCDOT for project delays. In contrast, Note 15 (equitable adjustment clause) did not contain this limitation. The court found the plain language of Note 15 allowed for an equitable adjustment, and the language of Paragraph 7 did not negate it. Accordingly, and reading the contract as a whole, the appeals court allowed Southern an equitable adjustment for its increased costs.

On remand, the trial court found that Southern was entitled to an equitable adjustment for its increased actual costs after July 1, 2007, in the amount of $194,941.39 plus interest until paid (100 percent of the amount sought by Southern). The court based its award on Note 15, the actual production rate of Southern’s forces after July 1, 2007 (as opposed to Southern’s less-productive and more-costly work prior to July 1, 2007), and agreed-upon labor and equipment rates between Southern, English and NCDOT. English and the sureties appealed.

In its second ruling in 2012, the appellate court held there was competent evidence to support the award of $194,000 to Southern. The court found that Southern’s itemized damages, in spreadsheet format, was adequate to support its claimed damages. The spreadsheet included detailed lists of the amount of materials used, the unit cost of the materials, when the materials were expended, the amount and rate of man-hours utilized, and on which dates. As a result, the appeals court determined that Southern properly used July 1, 2007, its start date, the calculation represented its actual costs, and the calculation properly included only material, labor and costs.

The Southern Seeding case illustrates the importance of reading and understanding all contract provisions, including provisions that appear to conflict. Where possible, most courts will attempt to harmonize a contract to give meaning to all provisions. In addition, this case also shows the importance of thoroughly documenting increased costs. Here, Southern’s detailed documentation of its increased costs — in spreadsheet format — provided the seeds that resulted in an award of 100 percent of the amount sought by Southern.

Brian Morrow is a partner in Newmeyer & Dillion LLP, a California law firm. He is also a licensed California civil engineer, and specializes in construction law, including road and heavy construction. Contact at brian.morrow@ndlf.com

Documentation key to “equitable adjustment” ruling despite a “no damages for delay” provision

(For a downloadble PDF of this “In Court,” click here.)

A general principle of contract interpretation is that contracts are to be read and interpreted as a whole, giving a reasonable meaning to all terms to the extent possible. This “whole agreement” mode of interpretation means that no words or terms should be rejected as meaningless if they can be given a meaning that is reasonable and consistent with the rest of the contract. This principle of contract interpretation sometimes runs up against contract provisions that appear to be in conflict.

Brian Morrow

Construction contracts often contain provisions that are unique to the construction industry, for example “no damages for delay” and “equitable adjustment” clauses. A “no damages for delay” clause typically provides an express waiver of monetary relief for the other party’s breach of its implied duty of cooperation. In contrast, an “equitable adjustment” clause provides a mechanism to reimburse the contractor for its reasonable increased costs for extra work, including overhead and a reasonable profit. When these two clauses are found in the same contract, a judicial preference to avoid harsh forfeiture provisions — as found in a “no damages for delay” clause — can result in upholding an “equitable adjustment” clause, especially given the preference for interpreting contracts as a whole.

In Southern Seeding, Inc. v. W. C. English, Inc. (Dec. 4, 2012), a North Carolina court of appeals awarded damages to a sub-subcontractor (Southern Seeding) based on an equitable adjustment clause, despite a “no damages for delay” clause also in the contract. In a related ruling, the court found the “equitable adjustment” and “no damages for delay” clauses allocated two distinct risks. As a result, Southern was entitled to an equitable adjustment.

In mid-2003, the North Carolina Department of Transportation (NCDOT) accepted bids for a project in Greensboro relating to the widening of I-40. A contract was awarded to APAC Atlantic, Inc. APAC executed a payment bond with sureties Liberty Mutual and Travelers. APAC subcontracted the grading and grassing work to W. C. English, Inc. In turn, English subcontracted some of the grassing work to Southern Seeding Service, Inc.

Southern Seeding’s subcontract with English included a scheduled completion date of July 1, 2007. In addition, the subcontract contained an “equitable adjustment” provision at Note 15 and a “no damages for delay” clause at Paragraph 7. Through no fault of its own, Southern’s work on the project was delayed by English, including the failure of English to complete erosion work prior to Southern’s work. On March 24, 2008, Southern completed its seeding work more than 250 days past its scheduled completion date.

During its work, Southern sent English multiple correspondence regarding delays to its work and increased costs. Southern took the position it would not be responsible for any liquidated damages charged to English for the delays. Southern informed English that it was keeping detailed records of all items, quantities and costs incurred since July 1, 2007 and would seek an equitable adjustment in unit prices.

On September 23, 2009, Southern filed suit against English and the payment bond sureties, claiming $194,941.39 under the equitable adjustment clause for increased costs of materials, labor, and equipment incurred after the scheduled completion date of July 1, 2007. After a bench trial, the trial court denied Southern’s requested relief, holding that English was not required to pay for an equitable adjustment since English lacked a remedy against APAC (to recover an adjustment in unit prices past the original completion date). Southern appealed.

In its first ruling in 2011, the court of appeals overturned the trial court, finding that Paragraph 7 and Note 15 allocated different risks. Specifically, the court held that relief under Paragraph 7 (no damages for delay clause) was limited to the extent English was compensated by APAC or NCDOT for project delays. In contrast, Note 15 (equitable adjustment clause) did not contain this limitation. The court found the plain language of Note 15 allowed for an equitable adjustment, and the language of Paragraph 7 did not negate it. Accordingly, and reading the contract as a whole, the appeals court allowed Southern an equitable adjustment for its increased costs.

On remand, the trial court found that Southern was entitled to an equitable adjustment for its increased actual costs after July 1, 2007 in the amount of $194,941.39 plus interest until paid (100% of the amount sought by Southern). The court based its award on Note 15, the actual production rate of Southern’s forces after July 1, 2007 (as opposed to Southern’s less productive and more costly work prior to July 1, 2007), and agreed-upon labor and equipment rates between Southern, English and NCDOT. English and the sureties appealed.

In its second ruling in 2012, the appellate court held there was competent evidence to support the award of $194,000 to Southern. The court found that Southern’s itemized damages, in spreadsheet format, was adequate to support its claimed damages. The spreadsheet included detailed lists of the amount of materials used, the unit cost of the materials, when the materials were expended, the amount and rate of man-hours utilized, and on which dates. As a result, the appeals court determined that Southern properly used July 1, 2007 as its start date, the calculation represented its actual costs, and the calculation properly included only material, labor and costs.

The Southern Seeding case illustrates the importance of reading and understanding all contract provisions, including provisions that appear to conflict. Where possible, most courts will attempt to harmonize a contract to give meaning to all provisions. In addition, this case also shows the importance of thoroughly documenting increased costs. Here, Southern’s detailed documentation of its increased costs — in spreadsheet format — provided the seeds that resulted in an award of 100% of the amount sought by Southern.

About the author: Brian Morrow is a partner in Newmeyer & Dillion LLP, a California law firm He possesses B.S. and M.S. degrees in civil engineering, is a licensed California Civil Engineer and attorney and specializes in the field of construction law, including road, transportation and heavy construction. Contact:brian.morrow@ndlf.com.

(For a downloadable PDF of this “In Court,” click here.)

The uncertainty that contractors face regarding unknown subsurface conditions is the contractor’s greatest risk. This type of risk is inherent on most road and heavy construction projects, and is based on the fact that testing of subsurface conditions is expensive and limited. This results in conclusions being drawn from limited data. In addition, this risk is further highlighted by the fact that geotechnical engineering is uncertain and often described as part science and part art.

Brian Morrow

In light of this risk, most major standard form construction contracts contain a differing site conditions clause. These clauses typically allocate the risk of unknown site conditions to the owner that the contractor could not have reasonably anticipated based on the contract documents and/or site investigation. Differing site conditions clauses typically offer two separate bases for relief: Type I” clauses are based on site conditions that differ materially from the conditions indicated in the contract documents, while “Type II” clauses are based on site conditions that differ materially from those ordinarily encountered and recognized as inherent in the work.

In the recent case, Appeal of NDG Constructors (August 21, 2012), the Armed Services Board of Contract Appeals (ASBCA or Board) denied the claim of NDG for a Type I differing site condition. NDG contracted with the Army Corps of Engineers for $959,300 to tunnel a waterline underneath I-90 near Rapid City, South Dakota to serve Ellsworth Air Force Base. NDG’s work included constructing a 16 inch waterline under I-90 by tunneling and jacking approximately 560 linear feet of 54 inch steel casing. NDG subcontracted the tunneling portion to BT Construction, Inc. (BTC), a pipeline excavation contractor, for $706,000.

The contract documents incorporated two geotechnical reports from American Engineering Testing, Inc., including a total of seven borings, soil samples obtained in accord with ASTM procedures, and lab tests of the soil samples. During the work, NDG and BTC encountered difficult soil conditions that slowed their planned rate of progress, including due to shale rock, fat clays, and wet soils. NDG submitted a claim of $146,278.94 and 9 calendar days based on alleged Type I differing site conditions. The contracting officer denied NDG’s claim, and NDG appealed to the ASBCA.

In reviewing this matter, the ASBCA noted that Federal Acquisition Regulation 52.236-2(a)(1) provides that Type I differing site conditions consist of “subsurface or latent physical conditions at the site which differ materially from those indicated in th[e] contract.” In order to prove entitlement to a Type I differing site condition, NDG had to establish that:

[T]he conditions indicated in the contract differ materially from those actually encountered during performance; the conditions actually encountered were reasonably unforeseeable based on all information available to the contractor at the time of bidding; the contractor reasonably relied upon its interpretation of the contract and contract-related documents; and the contractor was damaged as a result of the material variation between expected and encountered conditions.

In light of the foregoing, the Board analyzed the three different aspects of NDG’s claim.

First, NDG claimed that the soil profile was a differing site condition because the soil transitioned from clay to shale quicker than expected. NDG’s expert testified that he anticipated shale would be encountered approximately 202 feet from Boring B-3, though it was encountered approximately 100 feet from Boring B-3. NDG’s expert reached this conclusion by drawing a straight line between Boring B-2 (where shale was indicated) and Boring B-3 (where fine alluvium soil was indicated). The Board found this analysis faulty, including because the soils reports and boring logs did not indicate where the transition to shale would occur. In addition, in preparing its estimate, BTC recognized the transition to shale would take place “at some point” as opposed to any specific point. As a result, the Board denied this aspect of NDG’s claim.

Second, NDG argued that “[a] reasonable contractor would have anticipated encountering mostly lean clay, with some “fat to lean clay” or “lean to fat clay.” …instead, NDG and BTC actually encountered mostly fat clay.” However, the Board found the boring logs indicated that Boring B-3 encountered a “mixture of lean to fat clay,” while Boring B-2 encountered “fat to lean clay.” Since the material that was encountered — “mostly fat clay” — did not materially differ from the possible range indicated in the boring logs (“fat to lean clay” and “lean to fat clay,”), the Board concluded that NDG failed to prove a Type I condition in this respect.

Third, NDG contended the moisture content of the soils was much higher than indicated or anticipated, and thus, was a differing site condition. NDG stated that it encountered soils described as “very wet” or “extremely wet,” while the soils reports described the soils as “moist to very moist,” and as “soft wet soils, along with groundwater . . . that should be anticipated.” The Board did not see a difference between the wet conditions claimed by NDG and the soils described in the reports. In addition, the Board found NDG’s expert’s sampling of soils unconventional and contaminated by Bentonite slurry. Because the soil moisture encountered by NDG was what the soils reports indicated “should be anticipated,” and the soil samples relied upon by NDG were not reliable, the Board found that NDG failed to prove a Type I differing site condition in this instance.

In summary, the NDG case illustrates the difficulties that can be encountered in trying to prove a Type I differing site condition claim. In order to prevail on such a claim, the contractor needs to scrutinize the contract documents and show how and why the actual conditions encountered were different from those indicated. This includes an analysis of contract language and technical documents incorporated into the contract such as soils reports. Without such a showing, even a valid claim can be denied. In this matter, NDG’s contentions regarding a Type I claim were found inadequate, as the Board determined the soils reports actually forecast the exact conditions encountered.

About the author: Brian Morrow is a partner in Newmeyer & Dillion LLP, a law firm with offices in Newport Beach and Walnut Creek, California. Mr. Morrow possesses B.S. and M.S. degrees in civil engineering, is a licensed California Civil Engineer and attorney and specializes in the field of construction law, including road, transportation and heavy construction. He can be contacted via e-mail at brian.morrow@ndlf.com.