Unforeseen site conditions can entirely disrupt an ongoing project or prevent it from it getting off the ground in the first place. Apart from the time impacts unforeseen site conditions can wreak on a project, they also can wind up costing owners and contractors substantial amounts of money. 

Much of Texas’s case law interpreting unforeseen site condition provisions derive from the seminal Texas Supreme Court case of Lonergan v. San Antonio Loan and Trust Company. In Lonergan, the contractor constructed a building according to plans and specifications developed by an owner-retained architect. Just as the project was nearing completion, the building collapsed. The contractor refused to reconstruct the building and abandoned the work. When the owner sued the contractor, the contractor argued that the owner impliedly guaranteed the sufficiency of the architect’s plans and specifications.

The Texas Supreme Court dismissed the contractor’s argument. Instead, the Court held that the contractor should bear the risk of loss of defective plans and specifications in the absence of language to the contrary. In other words, unless there is contractual language expressly obligating the owner to warrant the sufficiency of the plans and specifications, the contractor bears the risk of loss. 

In applying Lonergan to unforeseen site conditions, most Texas courts have concluded that, absent contractual language to the contrary, the contractor bears the risk of loss associated with differing site conditions. The reasoning behind this is that the contractor, not the owner, is better suited to determine the sufficiency of the surveys, soil reports, and overall condition of the subsurface conditions prior to starting work on the project. 

In determining whether and how and unforeseen site conditions may impact your project, there are 4 things you should consider.

1.    Is There an Unforeseen Site Conditions Clause?

It seems obvious, but one the first questions you should ask is whether the contract contains provisions dealing with unforeseen site conditions.  Most standard form agreements contain such clauses, but not all do.  And for contracts that contain unforeseen site conditions provisions, they can be highly negotiated, meaning some are more specific or onerous than others.

An unforeseen site conditions clause may actually be a set of clauses sprinkled throughout the contract.  Unforeseen site conditions, differing site conditions, and the like are typically addressed in different parts of a single contract.  And not all differing site conditions are titled as such, making piecing together the contractor’s obligations time-consuming and burdensome. 

Even if the contract does not contain an unforeseen site conditions clause, the determination of who takes on the risk for such conditions should not end there.  The risk for unknown soil conditions may be shifted elsewhere in the contract documents.  For instance, earthwork specifications may characterize existing soils in such a manner as to shift the risk for unknown or unclassified soils to the contractor.  In addition, the geotechnical report may be made part of the contract documents.   As those reports are usually littered with disclaimers and warnings about actual soil conditions, it may serve to shift risk even if the contract is silent on the issue.   

2.    How Specific is the Provision?

If the contract contains some form or unforeseen site conditions clause, the next question should be, how specific is the clause.  Many owners will want to make unforeseen site condition provisions as specific as possible, forcing contractors to admit that they have reviewed and investigated every inch of a project-site prior to the contract start-date.  This may create overly onerous obligations on the contractor, setting it up for failure even before mobilization begins.  

As owner-supplied geotechnical investigations are usually limited in scope, relying on a limited number of borings and laboratory tests, they provide only a glimpse of what lurks beneath.  Reviewing existing property records may also provide inaccurate information, as not all pipes or other improvements are accurately or timely reflected in publicly filed or available records.

The specificity of the clause can have a tremendous impact on how much additional investigations the contractor should have performed and how much risk it agreed to absorb.

3.   Does the Contract Waive Additional Cost or Time?

As you may have already noticed, not all unforeseen site conditions clauses are created equal.  Some clauses require the contractor waives its right to request additional time or money for unforeseen site conditions. If terrible site conditions are experienced—a swamp filled with old refrigerators, cars and barrels of unknown green substance—then the contractor may not only have to absorb the additional cost of remediating the site, but may also not be able to obtain an extension of the contract time.  This increases the probability that the owner may threaten to or actually withhold liquidated or delay damages from interim pay application, further impeding the contractor’s ability to complete the work.  

On occasion, contracts are written in the negative, releasing the owner from any responsibility for additional contract time or cost.  Defining the contractor’s obligations through negative space has the same ultimate effect—the contractor takes responsibility for unforeseen site conditions on its own dime.  

4.   Follow Procedure

Unforeseen site condition provisions will likely include a procedure to follow when such site conditions are encountered. Whether it be stringent notice requirements or references to separate sections of the contract for processing claims or change order proposals, the procedure should be rigorously followed to avoid an argument that contractual rights have been waived.

As with all issues involving the interpretation of legal rights and remedies, consulting qualified legal counsel is always recommended.  The attorneys in our Austin and Dallas offices are available to answer any questions you may have.  You may contact us at info@gstexlaw.com with any questions you may have.

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