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8 Tips To Temper Your Risk With A Differing Site Condition Clause

Sunday, May 04, 2008 02:48 pm

8 Tips To Temper Your Risk With A Differing Site Condition Clause

As part of a government contract, a differing site condition (DSC) clause can do wonders for a contractor's wallet by ensuring that jobsite surprises don't amount to out-of-pocket costs. That's true even if you end up seeking recovery at trial, as judges are often on your side when it comes to a clear instance of a DSC.

Why? Courts regard the DSC clause -- designed to reduce contractor risk for site conditions that differ materially from those (Type I) described by the contract or (Type II) ordinarily encountered -- as encouraging more accurate bidding. As a result, courts are reluctant to undermine it. Read on to find out how you can prevail under a DSC clause even if you signed a fixed-price contract, included a bid contingency for site variations, or neglected to immediately report a subsurface surprise.

1. "Fixed" does not have to mean "risky"

A Colorado appeals court recently overturned the dismissal of subcontractor URS Group, Inc.'s (URS) claim under a DSC clause. The court found the previous ruling mistaken in part because the lower court ignored the clause's "fundamental risk-allocation function" when it stated that URS was not entitled to compensation because, in entering into a fixed-price contract, it had assumed the risk of unknown subsurface conditions. URS Group, Inc. v. Tetra Tech FW, Inc. and Foster Wheeler Environmental Corp., 06CA 1243 & 06CA2220 (2008).

In fact, a DSC clause within a fixed-price contract may entitle a contractor to equitable adjustment forcontract. Randa/Madison Joint Venture III v. Dahlberg, 239 F.3d 1264, 1274 (Fed. Cir. 2001) and P. T. & L. Construction, 531 A.2d at 1334.

Keep in mind: If there had been no DSC clause in URS's fixed-price contract, the subcontractor would not have been entitled to recovery under its breach of contract claim.

2. You can be familiar and still be surprised

The defendants in the Colorado case also argued that URS warranted in the contract its familiarity with the site and had therefore assumed subsurface condition risks (such as the unexpected concrete foundation footings and other structures encountered during demolition that allegedly cost an additional $9 million to remove). Specifically, the defendants pointed to URS's stated familiarity with "the physical and other conditions, including hazardous substances, materials, agents or vapors, both surface and subsurface, which may exist at the Jobsite ...."

The appeals court was not convinced, ruling that the ab [...]

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