Allocation of Risk Arising from Subsurface Conditions Richard H. Allen, Attorney & Shareholder, Capell & Howard P.C.

Traditional Rule Absent contract provisions allocating the risk differently, the traditional rule is that the contractor bears the risk for any unforeseen contingencies that made performance of its contract more difficult and expensive. See Commercial Contractors, Inc. v. Sumar Constructors, Inc., 302 So.2d 88, 91 (Ala. 1974); United States v. Spearin, 248 U.S. 132 (1918). To avoid increased cost to owners caused by contingency pricing, most construction contracts now allocate the risk for “changed conditions” or “differing site conditions” to the owner rather than the contractor, or at least shared risk. Always open to negotiation. Alabama Construction Law Summit – Dec. 5, 2017

Concealed or Unknown Conditions § 3.7.4 Concealed or Unknown Conditions. If the Contractor encounters conditions at the site that are (1) subsurface or otherwise concealed physical conditions that differ materially from those indicated in the Contract Documents or (2) unknown physical conditions of an unusual nature, that differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the Contract Documents, . . . if the Architect determines that they differ materially and cause an increase or decrease in the Contractor’s cost of, or time required for, performance of any part of the Work, will recommend an equitable adjustment in the Contract Sum or Contract Time, or both. This type of clause typically permits the contractor to recover for two types of differing site conditions: Type 1 conditions are those differing materially from the conditions indicated or referred to in the contract documents. Type 2 conditions are those differing from the conditions ordinarily expected in the kind of work required by the contract. Alabama Construction Law Summit – Dec. 5, 2017

Reliance on Geotechnical Reports § 7.2.9 Unless required by the Design-Build Documents to be provided by the Design-Builder, the Owner shall, upon request from the Design-Builder furnish the services of geotechnical engineers or other consultants for investigation of subsurface, air and water conditions when such services are reasonably necessary to properly carry out the design services furnished by the Design-Builder. In such event, the Design-Builder shall specify the services required. Such services may include, but are not limited to, test borings, test pits, determinations of soil bearing values, percolation tests, evaluations of hazardous materials, ground corrosion and resistivity tests, and necessary operations for anticipating subsoil conditions. The services of geotechnical engineer(s) or other consultants shall include preparation and submission of all appropriate reports and professional recommendations. Consider whether to include allowing, or disallowing, the contractor/design-builder from relying on “accuracy and completeness” of those reports. Alabama Construction Law Summit – Dec. 5, 2017

Site Investigation Clauses § 3.2.1 Execution of the Contract by the Contractor is a representation that the Contractor has visited the site, become generally familiar with local conditions under which the Work is to be performed and correlated personal observations with requirements of the Contract Documents. As a general rule, provisions of this nature only obligate the contractor to make a reasonable visual inspection of conditions on or above the site, and do not obligate the contractor to undertake any special investigation to discover hidden conditions above or below the surface. If intent is to put risk of subsurface conditions on contractor, this clause should be modified to require contractor to perform more than visual inspection. Alabama Construction Law Summit – Dec. 5, 2017

Richard H. Allen Attorney & Shareholder Capell & Howard P.C. (334) 241-8019 Richard.Allen@chlaw.com Richard Allen Alabama Construction Law Summit – Dec. 5, 2017