Construction Law

Contractor Prevails on Differing Site Condition and Notice Issue in Colorado

By John P. Ahlers

Recently, the Court of Appeals upheld a differing site conditions clause, reversing a trial court that had concluded that the contractor was not entitled to recover for additional costs incurred due to an unforeseen subsurface conditions.  The trial court had ruled that the contractor had assumed the risk of the subsurface conditions by entering into a fixed price contract.  The Colorado Court of Appeals reversed the trial court, noting that where contract contains a differing site conditions clause, the contractor does not assume the risk of unknown and unforeseen subsurface conditions.  The court explained that the differing site conditions clause is a mechanism for shifting risk that is ordinarily borne by the contractor to the owner.  Such risk shifting makes good economic sense because it means that owners need to pay the additional costs of such unforeseen conditions only when they encountered, rather than paying an uncertainty premium on every contract into which they enter.  The court said that "contractors have a duty to review information that is explicitly mentioned and made available for inspection by the contract documents, they have no duty to conduct an independent investigation or review documents not mentioned in the contract."  The Court of Appeals also noted that "notice need not be in any particular form.  All that is necessary is that [the owner] be generally informed of the facts surrounding the claim.  The communication need not be accompanied by detailed documentary evidence."  The principle purpose of the notice requirement is to allow the owner to mitigate costs that might result from the differing site condition, and while the failure to provide timely notice may not necessarily doom a claim, it would be fool hearty for a contractor to fail to provide notice as soon as it is aware of a differing site condition, including notice of anticipated delays or extra costs to the extent practicable.  A refreshing contrast to our Washington Supreme Court's rulings in similar instances. 

Finally, in the Colorado case, the courts spelled out what is required to establish a differing site condition, a contractor, in order to recover, must prove "the conditions indicated in the contract differ materially from those actually encountered during the 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 the expected and unexpected conditions.  URS Group, Inc. v. Tetra Tech. F.W., Inc., Ct. of Appeals #06-CA-1243 and #06-CA-2220 (Feb. 7, 2008).   ___ P. 3d ___, 2008 WL 323767 (Colo. App.)

Full post as published by Construction Law Blog on May 08, 2008 (boomark / email).