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ARTICLES

Dangers Lurking Beneath:  The Risk of Subsurface Conditions

Ivan Holloway and Jared Wheeler, Holloway Thliveris LLP, Construction Lawyers

The success or failure of various types of civil earth works projects can depend on knowing with reasonable certainty what lies below the ground.  

Is it clay?  Is it rock?  Is it frozen? Is there too much or too little?    

If the contract says one thing but it turns out to be something else, who is responsible?  If the contract does not say anything but the contractor encounters something unexpected, who is responsible?

Failure to properly assess the risk and properly manage the consequences of unfavourable subsurface conditions can literally sink a contractor and potentially a whole project.  

To reduce the likelihood of that being you or your project, the most critical decision that needs to be made is the first one. Before determining a bid price or even whether to bid at all, a thorough assessment of the project’s physical risks, contractual risks and related risks needs to be undertaken.  

An assessment of the physical risks requires the contactor to carefully examine all available information to determine the likely nature of soil conditions.  Reviewing geotechnical reports disclosed in the tender documents is an obvious starting point.  But there are other potential considerations and questions to be asked.  Is a site inspection feasible?  Do you have experience working in the area?  Do you fully understand the geotechnical reports?  If not, have you considered seeking expert advice?  Do the reports contain qualifiers or limitations?  What does a worst-case scenario look like?  

The next step is to assess the contractual risk.  Where the contract shifts the responsibility for adverse site conditions onto the contractor and away from the owner, the risk to the contractor increases.  The following types of contract clauses shift risk from the owner to the contractor:

  • ‘The contractor has had an opportunity to inspect the site and is fully aware of the subsurface conditions’;

  • ‘Geotechnical reports are provided for information purposes only and the owner do not guarantee the accuracy of such information’;

  • ‘The owner shall not be liable for any damages or costs incurred by the contractor if actual subsurface conditions are different from expectation’;

  • ‘The contractor expressly waives any right to make a claim against the owner if actual subsurface conditions are different from what is represented in the contract documents’.

On the other hand, a contract clause that says something to the effect that ‘if site conditions are materially different from those represented in the contract documents, then the contractor may be entitled to an increase in price and/or time’ shifts risk from the contractor to the owner.  

Where the risk of adverse subsurface conditions materializes and the contract squarely places the burden of this risk on the contractor, the resulting consequences to the contractor can be worse than a simple increase in equipment, fuel and labour costs.  Resulting delay can push work into winter season, trigger liquidated damages clauses and cause extra mobilization/demobilization costs.  Subcontracts that are cost plus, time and material or that contain standby cost provisions can further squeeze a contractor.  

All of these risks need to be assessed and factored into the bid price.  Where the overall risk is unmanageable, it may be better to not bid at all.  

Where a contractor does encounter adverse subsurface conditions and the contract is slanted against it, depending on the nature and severity of the circumstance, the contractor needs to do and/or consider the following:

  • Record, document, track and photograph everything; 

  • Immediately raise the issue with the consultant and/or owner;

  • Look at the contract for technical notice and claim provisions;

  • Engage a construction consultant;

  • Seek a formal change order;

  • Consult an experienced construction lawyer;

  • Trigger interim dispute resolution either pursuant to contract or Builders’ Liens Act;

  • Proceed under written protest and expressly reserve rights;

  • Suspend the work; and/or

  • Terminate or abandon the contract.  

Even where the contract shifts the risk of adverse subsurface conditions to the contractor, the tender documents must disclose all reasonably relevant information regarding site conditions in the possession of the consultant/owner.  Where the tender documents contain representations as to site conditions, the contractor is entitled to rely upon such information.  Failure to provide complete and accurate information to the contractor can result in the owner and/or consultant being held liable.  

At the end of the day, projects whose success depends upon accurate subsurface information can be risky.  Contractors need to properly assess, price and manage the risks.  Where unexpected adverse subsurface conditions are encountered, contractors do have options but they need to be very proactive and they need to make the right decisions at the right times.  

 

 

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