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Owner Shifted Subsurface Risk To Contractor Differing Site Conditions-subsurface; Disclaimers

Monday, May 09, 2005 02:51 pm

Owner Shifted Subsurface Risk To Contractor Differing Site Conditions-subsurface; Disclaimers

A federal appeals court applying Texas law has ruled that while a prime contractor could sponsor a claim on behalf of a subcontractor, the prime contract effectively placed the risk of differing subsurface conditions with the contractor.

The City of Dallas awarded a contract to Interstate Contracting Corp. (ICC) which included excavation of two storm water detention lakes and construction of a levee around a water treatment plant. A drawing note stated that "all material required" for construction of the levee "shall be excavated" from the retainage lake areas.

ICC subcontracted the excavation and levee construction to Mine Services, Inc. (MSI). The subcontract stated that MSI would be entitled to an increase in the subcontract price only if, and to the extent, ICC was able to recover additional compensation from the City for work performed by MSI.

Shortly after work began, MSI discovered that the material excavated from the retainage lake areas was unsuitable for construction of the levee. MSI was forced to manufacture suitable material by mixing sand and clay. This greatly increased the cost of performance for the subcontractor.

ICC filed suit against the City, on behalf of MSI, in federal district court. A jury found that the City had breached express and implied contractual warranties. Th [...]

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