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March 12, 2024 Feature

How Can Differing Site Conditions Clauses Impact Contracts?

Christian C. Trevino and Robert J. MacPherson


Much like casinos, construction projects are all about risk vs. reward. What is a party’s risk tolerance and how will it allocate that tolerance to maximize its profit? From bidding projects to finalizing contract negotiations, a significant portion of a party’s risk portfolio is determined before breaking ground on a project. From there, owners, general contractors, and subcontractors alike live in a world of constant adjustments to comply with contractual obligations and complete the project within a certain time and budget. But what happens once ground is broken? What happens when you find that the ground beneath you isn’t really what you thought it was? Who pays for it? Why?

Allocating for unexpected conditions continues to be a hot point in construction contracts despite major strides in the industry—whether it be site conditions, force majeure, or the currently pressing material price escalations. In a constant battle to shift the risk, legislatures and courts have created safeguards to keep business moving forward.

Today, there are generally four dynamics for risk allocation with respect to unexpected physical conditions at a job site:

1. Contractor bears all the risk;

2. Owner produces a geotechnical report of the conditions with disclaimer(s);

3. Owner produces a geotechnical report of the conditions without disclaimer(s); or

4. There exists a differing site conditions clause and/or change order relief.

The developments of scenario 2–4 have been relatively recent in nature as contractors were traditionally expected to shoulder the burden of unexpected risk.

Differing site condition (DSC) claims are always interesting—factually and legally—and tend to involve relatively large dollars. A DSC claim is a unique window into the world of construction law. DSC claims involve contract interpretation, issues as to whether the plans and specifications are complete and accurate, scope of work issues, claim and notice issues, damage calculation issues, and more.

Most importantly, DSCs are perhaps the best example of how risk allocation in a construction contract should work. The basic principle is that risk should always be allocated to the party best able to control that risk. When it comes to conditions at the project site, the owner of that site (with the assistance of its design and construction professionals) is typically in the best position to investigate those conditions and determine what can be built on that site and how. A contractor asked to prepare a competitive bid within a short period of time is typically not in a position to do that. Even a design-builder is typically brought in after an owner has made the initial decision about what kind of project will be constructed on the site, usually after the owner’s consultations with design and other construction professionals.

If the site has conditions that will require special attention (e.g., in the case of high groundwater levels or an existing building for which there is no reliable as-built information), an owner, in theory, is only able to factor a budget for dealing with those conditions after determining—to the best of its ability—the extent of those conditions. The owner is in control. It can do whatever investigation of the site is warranted based on its proposed project, and based on the results of that investigation to determine whether the planned project is viable.

If an owner asks the contractor to assume all site condition risks, the contractor would likely include in its bid price a contingency to cover the risk of unanticipated or unusual site conditions. If no such conditions are encountered, the contractor stands to recover the potentially large contingency via payments against the contract price.

If the owner accepts the site condition risks, however, the owner will only pay the contractor for dealing with unanticipated or unusual conditions actually encountered. And in any event, the owner will pay no more than it would have paid had the conditions been known at bid time.

A DSC clause relieves the contractor of assuming the risk of encountering unanticipated or unusual site conditions and provides a remedy—typically a change order or claim—if such conditions are encountered while eliminating over-inflated contingencies and bids. DSC claims are construction law in a nutshell, and an examination of differing site conditions can lead to a better understanding of construction law.

Differing Site Conditions

One of the first strides forward in risk allocation came in 1921 when the single largest construction owner in the country—the federal government—began to accept the risk of adverse subsurface or latent physical conditions to “take at least some of the gamble on subsurface conditions out of bidding.” In 1926, the Federal Board of Contracts began requiring DSC clauses in its construction contracts. The Federal Acquisition Regulations (FAR) define a differing site condition as any condition encountered that differs materially from those (a) indicated in the contract or (b) ordinarily encountered and generally recognized as inherent in work of the character provided for in the contract. DSCs are not limited to instances of inadequate soil and can include cases of unanticipated water conditions (static or permeable), quicksand, muck, rock formations (that are either excessive or insufficient), and artificial (manmade) subsurface obstructions.

The DSC clause relieved the contractor from assuming the risk of encountering conditions differing materially from those indicated or ordinarily encountered and provided a contractual remedy so that the matter could be handled as an item of contract administration. This action was taken not out of generosity or goodwill on behalf of the federal government but rather to “eliminate the contingency factor for subsurface conditions and to limit the latent costs incurred by contractors for pre-bid subsurface explorations.” Simply put, by accepting the risk for differing site conditions, the federal government was able to receive lower bids because contractors did not have to inflate their contingencies to account for the risk of the unknown. Contractors were also spared the added cost of exhaustive site inspections, consultant fees, and the additional time to bid a project necessitated by considering potential site conditions and the corresponding risk.

At first, the clause was limited to conditions that varied materially from those indicated, but in 1935 the federal government extended the consideration to “unforeseen, unusual conditions which differ materially from conditions ordinarily encountered.” As the federal government incorporated these clauses into their contracts, private parties followed suit. Today, most construction contracts allow for equitable adjustments for differing site conditions in two different situations (and sometimes three).

Type I, Type II, and “Type III”

A claim for a differing site condition—Type I, II, or III—will vary on the condition encountered and what the contract says. Type I DSCs depend primarily on interpretation of the contract documents and the actual conditions encountered at the project. Type II DSCs, by contrast, rely on the abnormality of the conditions encountered at the project. An argument can be made that the “Type III DSC” is a blend of its siblings, requiring the condition to be absent from the contract and to be of an abnormal nature, specifically hazardous. The coining of “Type III” remains novel but is beginning to gain recognition in the construction industry.

Type I DSC

Type I DSC claims cover conditions that vary materially from what was indicated in the contract documents or what could reasonably have been inferred from the contract documents. Federal courts have accepted Type I DSCs as “subsurface physical conditions at a work site that differ materially from those indicated by a contract, and that these conditions are reasonably unforeseeable by the contractor making the claim determined by what was in the contract documents.” Courts have traditionally relied on a six-part test for a plaintiff to prove a claim for a DSC: (1) the contract affirmatively indicated conditions upon which the contractor’s claims are based; (2) the plaintiff acted as a reasonably prudent contractor in interpreting the contract documents; (3) the contractor reasonably relied on the indications of conditions in the contract; (4) the conditions actually encountered differed materially from conditions indicated in the contract; (5) the conditions encountered were reasonably unforeseeable; and (6) the contractor’s claimed excess costs were solelyattributable to the materially different conditions. Federal courts have, as of late, simplified the elements necessary to prove a Type I DSC.

1. Indicated

The construction contract must indicate conditions upon which the contractor’s claims are based. The indication may come from anywhere in the contract, contract documents, or even materials referenced in the contract documents. Indications do not have to be express, but can be as subtle as suggestions of certain conditions. The court in Foster Construction C.A. & Williams Bros. Co. held “all that is required is that there be enough of an indication on the face of the contract documents for a bidder reasonably not to expect physical conditions at the site differing materially from those indicated in this contract.”

2. Reasonably Interpreted and Relied on

A contractor is required to prove it acted reasonably with respect to interpreting the contract documents and relying on them. While this standard is somewhat subjective, it does not require a party to perform extensive, costly investigations, but it does require a party to be prudent in its decision-making given the experience of a contractor called for in the bid solicitation. In 2015, the U.S. Court of Federal Claims removed the heightened standard of a reasonably prudent contractor but maintained the reasonableness standards with respect to interpretation of the contract and contract documents.

3. Differed Materially

The test for material difference is more broad and allows a contractor to prove a material change in a number of ways, including, but not limited to, volume of work, equipment required to perform the work, and density in subsurface conditions. A material difference in price, however, is insufficient to establish the material difference for these purposes. Ultimately, a contractor must establish a material difference between conditions indicated in contract documents and those encountered at the site.

4. Reasonably Unforeseeable

While a contractor is not required to perform exhaustive investigation to make a claim for a Type I DSC, it must show that the condition was reasonably unforeseeable. While—again—what is “reasonable” can be open to interpretation, courts have held a condition to be reasonably unforeseeable if not readily discoverable by a reasonable investigation of the contract documents and the site.

5. Attributable Increase in Cost

A contractor must establish a causal link between the differing site condition and the increased cost. In cases of concurrent factors, courts have historically required claimants to demonstrate the independence of the causal link on the increased costs. Inability to segregate increased costs from concurrent factors traditionally precluded recovery for the differing site condition. The streamlined test in Weston, however,removed the contractor’s requirement to demonstrate that the costs be solely attributable to the materially different conditions.

In Weston, a contractor filed suit against the Army Corps of Engineers seeking equitable adjustment after encountering “materially different conditions” in the form of oversized boulders in connection with contractual obligations to dredge and dispose of river sediments. The contractor did not dispute knowing about the boulders but posited that it did not think it had to remove the boulders as part of the contract. In denying the contractor’s Type I DSC claim, the court stressed the distinction between contractor’s knowledge of the conditions (that there was rock in the dredging template) as compared to contractor’s understanding of the contractual requirementsforthe dredging of the rock. The court pointed to the language of the solicitation and the geotechnical report and held that a reasonable contractor should have interpreted the contract documents to include removal of the boulders. The court’s ruling in Weston emphasized the importance of not only the contractual language, but the contract’s incorporated documents such as solicitations, disclosures, plans and specifications, and baseline reports.


A Type II DSC requires less contractual interpretation; instead, it focuses on whether the unknown and unusual physical conditions discovered at a work site differ materially from those ordinarily encountered in the course of work required by the contract. A claimant seeking recovery for a Type II DSC must show (1) it encountered an unknown physical condition, (2) the condition was unusual, and (3) the condition differed materially from those ordinarily encountered and generally recognized as inhering in the work of the character provided for in this contract. Put simply, do the actual conditions differ materially from those normally expected? Relative to Type I claims, plaintiffs have a greater burden demonstrating the existence of Type II conditions because courts have attempted to shift the risk to the party best placed to mitigate the risk of loss. In other words, courts have trended toward the distinction that contractors are likely better situated to mitigate the amorphous risk of encountering something out of the ordinary (as found in Type II DSCs), whereas owners are likely better situated to mitigate the Type I DSC risk for conditions materially different than those represented in the contract documents because owners (or owner-directed parties) are traditionally the parties making those representations.

In contrast to the more contract-focused Type I DSCs, Type II DSCs are highly fact specific and determinations of claims allow a broader range of evidence to be considered. In Servidone, a contractor sought equitable adjustment for work completed after encountering several problems that more than doubled its cost of completion; the problems included, but were not limited to, the nature of the soil on an embankment just outside of Dallas, Texas. The project’s scope included excavating, processing, and compacting of fill material to create the embankment within a certain time. In order to achieve a sufficient rate of production to meet the project schedule, the contractor had to use additional and more powerful pieces of equipment. The contractor sought recovery of the additional cost for such equipment from the government.

In finding that the government owed the contractor additional compensation, the court held that no bidder, no matter how experienced, would have anticipated the conditions found. The court noted that the contractor failed to act reasonably in preparing its bid, but stated that denying the contractor’s claim for that reason would have resulted in a windfall for the government. The equitable adjustment handed down by the court and the extent of the differing site condition, however, consisted of the difference between the conditions a reasonable contractor could have anticipated and conditions actually encountered.


While Type I and Type II DSCs predominate the literature surrounding DSCs, an increasing trend has termed the handling of unanticipated hazardous and/or toxic materials encountered on a job site as a Type III DSC. The term remains novel and/or theoretical in nature, as courts have remained reluctant to formally recognize the term. However, bodies such as the American Institute of Architects, ConsensusDocs, EJCDC, and others have served as trendsetters for the observance of “Type III DSCs”—meaning court opinions are likely not far behind. As with Type I and Type II DSCs, the risk is assigned to the owner, unless brought to the site by the contractor or a party directly or indirectly employed by the contractor.

Type I, Type II, Type III—More Than Dirt

Unforeseen conditions that impact a project’s schedule and cost are not always limited to things like soil and rock. Contractors of aqueducts, dams, and bridges often have to anticipate conditions below the water’s surface—both depth and the stability of the soil underneath. Technological innovations have led to advanced analysis with respect to site layouts, grading plans, and anticipated bearing loads. Similarly, DSCs are not limited to buried, subsurface conditions that cannot be seen. DSCs can include manmade structures, preexisting structures, fixtures, and rock formations.

International Applications

The American treatment of differing site conditions varies considerably from its international counterparts, the American approach typically placing a greater emphasis on equity. A brief sampling of the international application is contained below.

United States v. Abroad

The American treatment of DSCs has largely relied upon the parties’ freedom to contract, but concrete, equitable measures are in place to protect from the unknowns and inflated contingencies. Although the American legal system is largely derivative of the English common law system, the English common law system has yet to catch up to the trend and still places the burden of unforeseen conditions almost entirely on the contractor. When parties have reached no express agreement on the risk of adverse site conditions being encountered, English law is clear that, for a fixed-price contract, it is the contractor who bears the risk of being delayed or disrupted where the works are more difficult or expensive to perform than anticipated. Further, the most frequently used standard forms of the construction contracts in the UK do not entitle the contractor to time or monetary relief if adverse conditions are encountered. Thus, construction contracts in the UK have either (a) substantial built-in contingencies to account for the risk placed upon contractors of unforeseen conditions or (b) express provisions governing the risk of changed conditions. The UK evaluation of a contractor’s experience and/or prudence requires a contractor to “make provision for a possible worst case scenario.” In sum, where the contractor has undertaken to complete works and to comply with contract drawings and specifications, it is responsible for performing the promises, irrespective of unforeseen conditions, without entitlement to variations.

In contrast, the American standard for reasonableness does not require exhaustive efforts but rather evaluates “what a reasonable bidder would have expected” in evaluating whether a DSC exists. For Type I DSCs, there is no such invitation into the evaluation of a contractor’s reasonableness, with the evaluation instead relying on what the contract documents stated.

The Canadian legal system shifts the risk of DSCs almost entirely onto the owner, encouraging aggressive bidding, lower costs, and a more amicable business relationship. Under General Conditions 6.4 of CCDC-2 where the consultant determines that the conditions at the place of work are materially different, a change order or change directive will normally be issued.

In France or Qatar, the latent geological risk is a joint and several responsibility of “all builders,” that is, the contractor, the engineer or architect, and the designer, for a period of 10 years. In Italy, Article 1664 of the Civil Code requires the employer or owner to give the contractor fair compensation in the case of unforeseen geological difficulties that make the works substantially more expensive. New Zealand courts have found, in the absence of express contract provisions, where contractors offer fixed-price contracts, contractors adopt the risk of unforeseen circumstances that render performance more difficult, but not impossible or wholly different, restricting restitution to where the contract becomes frustrated—an increasingly high threshold for a contractor to prove.

While the American system reinforces equitable considerations in protecting contractors from deficiencies in owner-supplied information, UK courts offer differing opinions regarding whether a contractor may rely upon an owner report. British courts observe a “fitness for purpose” requirement, which substantially precludes a contractor from relying upon owner-furnished information, effectively forcing contractors to shoulder the burden for differing site conditions, despite owner-furnished reports. However, British courts also have held that where there is “an implied term or warranty that the ground conditions would accord with the hypothesis upon which the contractors had been contracted,” then the risk, under differing circumstances, should be borne by the employer/owner.

Spearin Doctrine and Owner-Supplied Information

A longtime pillar of American construction law, the Spearin Doctrine offers insight into the reliability of owner-provided information. In 1905, the federal government sought bidders for the construction of a dry dock at the Brooklyn Navy Yard. The federal government supplied the bidders with plans and specifications. Mr. George Spearin won the bid with a bid of $757,800; after commencing construction, however, he found the owner-provided plans and specifications to be faulty, causing significant damages for which Mr. Spearin sought compensation. In finding for Mr. Spearin, the U.S. Supreme Court held that where a contractor is bound to build according to plans and specifications prepared by the owner, the contactor will not be responsible for the consequences of defects in the plans and specifications. With regard to DSCs, the Spearin Doctrine lends particular importance to determinations of (1) a contractor’s reliance on owner-supplied information, such as owner reports, which are commonly incorporated into the contract documents, and (2) risk allocation among the parties, including carveouts, disclaimers, exculpatory language, and other attempts to negotiate around the Spearin Doctrine.

Contract Treatment

While the court system has, at least in theory, shifted the risk of differing site conditions at least partially onto owners, each party is free to contract according to its own risk portfolio and job requirements. There are, however, contract forms promulgated by institutions like the American Institute of Architects (AIA), ConsensusDocs, and EJCDC that have, in addition to federal and state governments, set a standard for negotiations and risk allocations.

FAR/State & Local Government

The FAR establishes a principal set of rules and guidelines for government procurement and certain government contracts. The FAR sets forth specific requirements for federal construction contracts and local public works contracts that involve federal funds. Moreover, the FAR places a significant focus on the importance of notice in order to establish a claim for DSCs:

(a) The Contractor shall promptly, and before the conditions are disturbed, give a written notice to the Contracting Officer of—

(1) Subsurface or latent physical conditions at the site which differ materially from those indicated in this contract; or

(2) Unknown physical conditions at the site, of an unusual nature, which differ materially from those ordinarily encountered and generally recognized as inhering in work of the character provided for in the contract.

(b) The Contracting Officer shall investigate the site conditions promptly after receiving the notice. If the conditions do materially so differ and cause an increase or decrease in the Contractor’s cost of, or the time required for, performing any part of the work under this contract, whether or not changed as a result of the conditions, an equitable adjustment shall be made under this clause and the contract modified in writing accordingly.

(c) No request by the Contractor for an equitable adjustment to the contract under this clause shall be allowed, unless the Contractor has given the written notice required; provided, that the time prescribed in paragraph (a) of this clause for giving written notice may be extended by the Contracting Officer.

(d) No request by the Contractor for an equitable adjustment to the contract for differing site conditions shall be allowed if made after final payment under this contract.

As seen above, the FAR specifically sets forth Type I and Type II DSCs in (a)(1) and (a)(2), respectively, and generally tracks applicable case law. To receive an equitable adjustment for either Type I or Type II DSCs, a contractor must provide notice promptly and before the conditions are disturbed. While the language is likely hyper-technical to afford the federal government sufficient opportunity to review the circumstances of the site condition and allow the bureaucracy to make a decision as to how to proceed, the rigidity could, in theory, make compliance more difficult for a contractor.

Courts will sometimes intercede in the name of equity and hold that a contractor’s failure to provide notice is not preclusive should the contractor be able to show that the government was not prejudiced by the lack of notice. In turn, however, the government may defeat recovery by establishing that it was prejudiced or otherwise disadvantaged by the plaintiff’s failure to give notice; the government may satisfy this burden by establishing that the passage of time obscured the elements of proof or that the government could have minimized the extra work and attendant costs had proper notice been provided. Claims for equitable adjustments made after final payment has been tendered are effectively waived under subsection (d), although this provision has limited application in terms of precedent.

Certain states, such as California, have adopted statutes closely resembling the language from the FAR, an excerpt of which is as follows:

Any public works contract of a local public entity which involves digging trenches or other excavations that extend deeper than four feet below the surface shall contain a clause which provides the following:

(a) That the contractor shall promptly, and before the following conditions are disturbed,notify the local public entity, in writing, of any:* * *

(2) Subsurface or latent physical conditions at the site differing from those indicatedby information about the site made available to bidders prior to the deadline forsubmitting bids.

(3) Unknown physical conditions at the site of any unusual nature, differentmaterially from those ordinarily encountered and generally recognized as inherent inwork of the character provided for in the contract.

The California statute goes on to establish a vehicle for “a decrease or increase in the contractor’s cost of, or the time required for, performance of any part of the work,” similar to the FAR language. In observance of the similarities, state courts consider and, in certain circumstances, have adopted federal language interpreting the construction and application of the tests for differing site conditions. Federal cases predominate the literature surrounding DSCs due in large part to the large number of federal project claim determinations on which courts hearing current disputes may rely.

“Type III DSCs”—hazardous materials found on site—are briefly mentioned within the FAR; section 52.223 calls for a contractor to notify the contracting officer for a reevaluation of the data and reassessment of the project.

American Institute of Architects

AIA publishes one of the most popular contract forms used in the domestic construction industry. Where disputes are burgeoning, the AIA forms traditionally defer to a “neutral third-party” in the form of the architect to play “middleman” between owner and contractor. Accordingly, the architect enjoys an emphasized role in determining the propriety and extent of a DSC in the A201 General Conditions of the Contract for Construction:

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, the Contractor shall promptly provide notice to the Owner and the Architect before conditions are disturbed and in no event later than 14 days after first observance of the conditions. The Architect will promptly investigate such conditions and, 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 that an equitable adjustment be made in the Contract Sum or Contract Time, or both. If the Architect determines that the conditions at the site are not materially different from those indicated in the Contract Documents and that no change in the terms of the Contract is justified, the Architect shall promptly notify the Owner and Contractor, stating the reasons. If either party disputes the Architect’s determination or recommendation, that party may submit a Claim as provided in Article 15.

Here, the AIA form recognizes both Type I and Type II DSCs and requires a contractor to provide notice of the DSCs no later than 14 days after discovery. This form, updated in 2017, places a stronger burden on contractors than the 1997 version of the AIA A201, which previously required notice to be given by the observing party. The change reflects the contracting dynamic for parties using AIA Contract Documents—traditionally private parties with a certain degree of sophistication. Per the current AIA A201, contractors are now expected to discover DSCs and comply with the notice requirements in order to recover equitable adjustment. Section 3.7.4, as written, however, leans heavily in the owner’s favor on account of the relationship between the owner and architect, as compared to the typically nonexistent relationship between contractor and architect. Contractors have often lamented that architects answer to owners and thus have been known to side with owners from time to time.

The AIA has also specifically addressed hazardous materials and substances found at a job site, the “Type III DSC”:

§ 10.3 Hazardous Materials and Substances

§ 10.3.1 The Contractor is responsible for compliance with any requirements included in the Contract Documents regarding hazardous materials or substances. If the Contractor encounters a hazardous material or substance not addressed in the Contract Documents and if reasonable precautions will be inadequate to prevent foreseeable bodily injury or death to persons resulting from a material or substance, including but not limited to asbestos or polychlorinated biphenyl (PCB), encountered on the site by the Contractor, the Contractor shall, upon recognizing the condition, immediately stop Work in the affected area and notify the Owner and Architect of the condition.

Again, the AIA places a strong emphasis on notice to the owner and the architect. Unlike in Type I or Type II DSC claims, however, a contractor is not afforded significant time in which to provide notice; section 10.3 requires immediate stopping of the work and notice to the owner and architect. Upon discovery of the hazardous materials, a project’s reassessment and corresponding change order or claim for time/cost is likely to occur.


ConsensusDocs, while based on input from many industry players, is sometimes viewed as the contractor-friendly version of promulgated contract forms. It comes as no surprise, therefore, that ConsensusDocs offers more favorable recourse for contractors facing DSCs.

3.16.2 CONCEALED OR UNKNOWN SITE CONDITIONS If a condition encountered at the Worksite is (a) subsurface or other physical condition materially different from those indicated in the Contract Documents, or (b) unusual and unknown physical condition materially different from conditions ordinarily encountered and generally recognized as inherent in Work provided for in the Contract Documents, Constructor shall stop affected Work after the concealed or unknown condition is first observed and give prompt written notice of the condition to Owner and Design Professional. Owner shall investigate and then issue an Interim Directive specifying the extent to which Owner agrees that a concealed or unknown condition exists in directing how Constructor is to proceed. Constructor shall not be required to perform any Work relating to the condition without the written mutual agreement of the Parties. Any change in the Contract Price or the Contract Time as a result of the condition, including any dispute about its existence or nature, shall be determined as provided in ARTICLE 8.

While slightly derivative of the FAR language for Type I and Type II DSCs, ConsensusDocs subtly shifts the risk of unforeseen conditions to the owner by excusing contractor’s performance without written mutual agreement of the parties. Language requiring notice as a condition precedent to recovery of time or money is also not present, as well as a finite time period for providing notice. The ConsensusDocs 200 essentially calls for a reevaluation of the contractual relationship upon discovery of unforeseen conditions.

ConsensusDocs, similar to the AIA, also calls for the immediate stoppage of work upon discovery of hazardous materials or “Type III DSCs,” which supersedes contractor’s obligation to perform and requires a project’s reevaluation and possible claim for time/cost.

Engineers Joint Contracts Documents Committee

EJCDC is a joint force of stakeholders from The American Council of Engineering Companies (ACEC), The National Society of Professional Engineers (NSPE), and The American Society of Civil Engineers—Construction Institute (ASCE-CI). The EJCDC was designed to develop and update fair and objective standard documents that represent the latest and best thinking in contractual relations between all parties involved in the engineering, design, and construction of projects. The EJCDC’s provision governing differing conditions expressly incorporates “technical data” relied upon by the contractor and, similar to the AIA, inserts a third-party factfinder to be the middleman in contractual interpretations—in this case, the engineer:

4.03 Differing Subsurface or Physical Conditions

A. Notice: If Contractor believes that any subsurface or physical condition that is uncovered or revealed either:

1. is of such a nature as to establish that any “technical data” on which Contractor is entitled to rely as provided in Paragraph 4.02 is materially inaccurate; or

2. is of such a nature as to require a change in the Contract Documents; or

3. differs materially from that shown or indicated in the Contract Documents; or

4. is of an unusual nature, and differs materially from conditions ordinarily encountered and generally recognized as inherent in work of the character provided for in the Contract Documents;

then Contractor shall, promptly after becoming aware thereof and before further disturbing the subsurface or physical conditions or performing any Work in connection therewith (except in an emergency as required by Paragraph 6.16.A), notify Owner and Engineer in writing about such condition. Contractor shall not further disturb such condition or perform any Work in connection therewith (except as aforesaid) until receipt of written order to do so.

The EJCDC language is much broader than its AIA or ConsensusDocs counterparts and allows expanded pathways for recovery, particularly under section 4.03(A)(2), which provides seemingly “catch-all” language for a contractor. The clause, while yet to be interpreted in depth by courts, allows for recovery in cases of changed conditions “of such a nature as to require a change in the Contract Documents,” which provides courts the opportunity to hear and decide cases where equity requires.

The EJCDC’s treatment of Type III DSCs varies slightly from those of its counterparts. While a contractor is still required to stop work and notify the owner, EJCDC C-700 § 4.06(D) requires the contractor “to secure or otherwise isolate such condition” in addition to notifying the owner and engineer.From there, the owner and engineer will reevaluate and determine next steps and corrective actions as necessary.

While common law is helpful for parties in evaluating the merits of a claim, ultimately, a DSC claim will be a matter of contractual interpretation: What does the contract say and what did the parties agree to? These central questions will determine the existence and extent of a potential contract adjustment.

Covering Your [Actions]

For the most part, the era of inflated contingencies for site conditions that may never be realized has passed with the development and observance of differing site condition clauses. Beyond picking a promulgated contract form most favorable to one’s interest, there are several other proactive steps a party can take to reduce the risk of loss resulting from unforeseen conditions, including site investigations, disclaimers, and exculpatory language.

Site Investigations

While integral to the bidding process, the nature and extent of site inspections can be limited in certain situations whether on account of time, money, or inexperience. By properly investigating a project’s site, a party can better determine how to bid a project and predict conditions related to construction. Consultants, such as geotechnical engineers, can perform extensive, targeted analyses to provide contractors and owners alike with information and data to manage their respective risk. Proper site investigations go beyond reliance on owner-provided reports and baselines and serve to fulfill a party’s independent obligation of reasonable prudence, whether in contract or in principle. By performing an independent analysis of the site conditions, a party can ensure the accuracy of the owner-provided information, if any, and better position itself to make a claim for a DSC.

A contractor’s performance of a site investigation is not a prerequisite to recovery for a DSC, but failure to do so will force the contractor to bear the entire risk for what a reasonable investigation may have revealed. A condition that would not have been readily apparent would excuse a contractor’s lack of investigation and allow for recovery.

Owner’s Reports

As DSC claims gained popularity, so too did owner efforts to reallocate risk downstream. Owners began paying for and providing geotechnical reports, such as soil reports, to bidders. This allows bidders to have the same information to rely upon and to avoid inflated contingencies—removing much of the guesswork from the bidding process and thus decreasing cost for the owner in the long run. The strategic move is not without downfalls, however, as the furnishing of faulty data opens the door for claims of negligent misrepresentation and/or fraudulent inducement.

Two of the biggest challenges parties face regarding differing site conditions are (1) understanding the range of conditions so that contracting parties can account for those conditions and (2) realistically describing those conditions, whether it be in a claim for equitable adjustment or an owner report.

Beginning in the 1970s, geotechnical reports served as a risk-sharing tool for construction parties. It was not until the 1990s that the American Society of Civil Engineers began publishing its suggested guidelines for geotechnical baseline reports (GBR) for construction. In large part, these guidelines resulting from “poorly written and ambiguous interpretive geotechnical reports” and “inconsistencies between the interpretive report and other Contract Documents” that were “doing more harm than good in the effort to avoid and resolve construction disputes.” The ASCE Suggested Guidelines, now in their second edition, serve as a reference for preparers and users of GBRs and inform owners of the importance of the contents of the GBR in the allocation of financial risk.

GBRs are primarily found in subsurface construction projects where often the underground contains the unknown and thus necessitates the greater need for information. The industry has been proactive in finding ways to provide accurate information to parties in an effort to allow parties to determine their respective risk tolerances. Providing GBRs (or “baselining,” for short) translates the results of geotechnical investigations and previous experience into clear descriptions of anticipated subsurface conditions upon which bidders may rely. The risk of unanticipated site conditions cannot be eliminated, but by baselining realistic, clear data, the owner can mitigate that risk and curb the price of bids. Ultimately, GBRs put the ball in the owner’s court to make decisions about the time and cost it is willing to absorb via undertaking subsurface investigations and what that time and the cost mean for ultimate contract risk. The more time and money spent on subsurface investigations, the more reliable the GBR and presumably and/or hopefully a contractor will not be in sound position to assert a DSC claim.

Where the baseline is set determines risk allocation, bid prices, quantity of change orders, and final cost of the project. “Risks associated with conditions consistent with or less adverse than the baselines are allocated to the contractor, and those materially more adverse than the baselines are accepted by the Owner.” A baseline that portrays relatively adverse site conditions will tend to (i) increase bid price as more risk is on the contractor, (ii) allocate less risk to the owner, and (iii) cost the owner more as it will pay for adverse conditions whether encountered or not.

Conversely, a baseline that portrays less adverse conditions will likely (i) decrease bid prices, (ii) allocate more risk to the owner, (iii) cost the owner more if adverse conditions are encountered, and (iv) cost the owner less if adverse conditions are not encountered.

By way of hypothetical, assume that a tunnel is to be constructed through two types of rock, with one type being stronger and more difficult to bore. The relative percentage(s) of the two types of rock is unclear (i.e., which type of rock is in greater quantity and which is in lesser quantity). A reasonable interpretation of available data is that the stronger rock could be encountered in 30 to 60 percent of the total tunnel length. In the GBR, the baseline for the stronger rock percentage is set at 45 percent. If the contractor encounters stronger rock in 50 percent of the tunnel alignment, it would be entitled to additional costs to bore the additional five percent of stronger rock, even if the contractor itself had suspected that more than 45 percent of the tunnel alignment contained stronger rock. However, if the contractor assumed stronger rock in 35 percent of the alignment and encountered rock in 40 percent of the alignment, it would not be entitled to additional compensation because what was encountered was less adverse than the baseline (even though it was more than the contractor itself suspected). The baseline is not a “warranty” that stronger rock will only be encountered in 45 percent of the tunnel alignment; rather, it is an agreed assumption against which a DSC claim will be determined. That is, if more than 45 percent stronger rock is encountered, a DSC exists. The goal of a GBR is to wring the geotechnical ambiguity out of the bidding process, not add to it; however, the use of ranges in a baseline results in an “unnecessarily wide battle zone.”

Importantly, a GBR is a contract document and a contractual representation of anticipated geotechnical conditions; accordingly, it should take precedence over any other geotechnical report or statement. A GBR addresses the problem of owners providing information about site conditions but disclaiming any responsibility for the information. Baselines must be realistic and not based on the most optimistic of reasonable interpretations. GBRs should indicate an expected range of conditions and uncertainty, but then state a baseline upon which bidders may rely. Conversely, geotechnical data reports (GDR) consist of factual subsurface data collected during a project investigation including, but not limited to, data collected during borehole drilling, laboratory testing, test pit excavation, geophysical survey, geologic mapping, literature review, and other means that provide quantitative or objective data about the subsurface. While GBRs contain interpretations of conditions, GDRs contain factual data. The reports are not mutually exclusive as GDRs are commonly used by geotechnical experts in making the interpretations found in GBRs.

GBRs can be subject to intense scrutiny, interpretation, and possible misinterpretation if there is a DSC claim made. A clear and comprehensive GBR will aid in the determination of whether a DSC exists. A poorly written GBR, however, will be a lightning rod for claims and disputes whether between owners and contractors, owners and engineers, or even contractors and subcontractors.

Baseline reports and GBRs have not gained the popularity that many anticipated they would, due in part to litigious owners seeking to hold engineers responsible for interpretations of information and incorrect baselines leading to claim exposure. Baseline reports were originally intended to serve as a risk-sharing mechanism, yet the reports and content contained therein are not infallible. The reports are, in summary, reasonable interpretations by an engineer of an expected range and state of subsurface conditions. Recently, owner attempts to extract a determined certainty out of the baseline report have undermined the essence of the baseline and had a deleterious effect on the future of GBRs.

Geotechnical reports could represent the future of differing site conditions—an agreed fairness metric and sharing of the risk. There are only so many ways a party can contract around risk, whereas the opportunity for technological advancement is seemingly limitless. As technology advances, data will become more detailed and reliable. Technology like satellite imaging and remote monitoring have supplemented, if not replaced in their entirety, manual field measurements and observations. Advances in geographic information systems, microchip technology, ground-penetrating radar, zoom camera technology, and trenchless technology continue to modernize the industry and geotechnical reports. These methods allow for the provision of more information in a faster and more accurate manner—reducing risks, lowering costs, and building safer structures. Still, a balancing act exists between protecting owners from entirely inaccurate GBRs while also protecting engineers providing their reasonable interpretations of the data irrespective of that interpretation’s potential for owner exposure. Simply put, GBRs are not intended to insulate owners from liability all of the time, but in the event of owner exposure, engineers may sometimes unjustly be caught in the crosshairs.

The process of establishing a GBR necessarily means more time and effort has gone into the investigation. Accordingly, it is typical that a GBR yields a net gain for construction projects with their increased certainty, reliability, and safety—finding a way to increase and maintain their prominence will require an acknowledgment of such and good-faith collaboration throughout the industry.

Disclosures, Disclaimers, and a Contractor’s Duty to Inquire

With the growing trend of owner-provided information, parties have attempted to further negotiate around risk by including disclaimers and exculpatory language about the accuracy of contract data. In the public sphere, courts have been reluctant to enforce these provisions as they undermine the intent behind a differing site condition clause. In the private sphere, however, courts have been more willing to allow for a negotiation of the risk allocation, especially among commercial parties. With public policy reinforcing the freedom of contract, disclaimers and exculpatory language related to owner-provided information and differing site conditions promises to remain prominent in construction contracts. As a practice tip, exculpatory provisions should be explicit and conspicuous, with the expectation for narrow interpretations.

Certain contracts may, as a disclaimer, include a contractor’s duty to inquire as to the site conditions after a review of the information provided. Absent a clause requiring otherwise, generally a contractor does not have a duty to inquire as to information not provided by the owner. Similar to investigations not being a prerequisite for recovery, however, a contractor’s failure to inquire as to the site conditions may cause a contractor to bear the risk as to what a reasonable inquiry may have revealed, especially in cases in which an owner can establish that a contractor had notice of the condition(s).

Owner Misrepresentation/Concealment

Irrespective of a party’s contractual obligations, a contractor may have a claim against an owner in cases involving misrepresentation or concealment of facts related to the project’s site conditions. Misrepresentation and/or concealment by an owner have been recognized by courts as limiting the sanctity of contract and serving as a basis for the reallocation of risk to the owner. The common law approach draws slight distinctions between misrepresentation and concealment, with concealment involving a slightly higher burden, where a claimant must prove actual knowledge. A case of concealment involves an owner having special knowledge vital to the performance of a contract that the contractor does not possess or cannot reasonably acquire but where the owner fails to provide that information to the contractor. For purposes of equitable adjustment and absent a clause requiring a specific standard, distinguishing between negligent misrepresentation, intentional misrepresentation, concealment, or fraud has not been necessary for a contractor’s recovery. Generally, a showing of misrepresentation requires a contractor to establish positive misrepresentation of a material fact that induced the contractor to enter the contract, and upon which the contractor justifiably relied, which resulted in damages. To avoid allegations of misrepresentation, owners often include disclaimer language to disclaim a contractor’s reliance on information provided with varying degrees of enforcement and, thus, success.

Notice and Claim Requirements

Most construction contracts require notice as a prerequisite for any adjustment in time or cost. The notice requirement for differing site conditions varies depending on the form, with AIA setting forth a 14-day notice requirement, while FAR, ConsensusDocs, and EJCDC require “prompt” notice. The often-onerous notice requirements are frequently litigated as owners seek to limit the recovery of contractors and contractors argue that their compliance was sufficient or that the notice requirement was waived altogether. Jurisdictions vary in their interpretation of notice requirements, with some jurisdictions favoring strict compliance and others favoring a more liberal “fairness demands” approach.

Notice and Constructive Notice

The essence of a notice provision revolves around fairness. Compliance with a notice provision permits the recipient of the notice to (1) assess the implications and potential liability that may be created, (2) investigate whether the claimed item truly is “extra” to the original contractual undertaking, (3) document costs incurred in performance of the extra work, and (4) fairly adjust the contract price before memories fade, documents are lost, and the facts recede into the “construction haze.” Notice also affords the recipient the opportunity to change the design if that will be less costly than addressing the DSC.

As parties attempt to limit their risk exposure, notice requirements can become lengthier and more complex, with more “hurdles” to jump through for a contractor to perfect its claim. Interpretation and enforcement of notice provisions require a balancing test of (a) the owner’s legitimate need to know about cost and schedule impacts against (b) the contractor’s reasonable right to payment for work performed. Federal courts have employed a “total fairness” approach that heavily considers an owner’s prejudice and a contractor’s right to compensation for work performed.

Powers Regulator Co. set forth several instances in which notice requirements of federal contracts will not be strictly enforced, including:Written notice is in fact given the contracting officer. (Hoel–Steffen)

  1. The contracting officer has actual or imputed knowledge of the facts giving rise to the claim. (R.R. Tyler)
  2. Notice to the contracting officer would have been useless. (Mil–Pak)
  3. The contracting officer frustrated the giving of the notice. (Merando)
  4. The contracting officer considered the claim on the merits. (Propper Manufacturing)

In short, if the government knew of the claim, considered the claim, or would not be prejudiced by the contractor’s failure to comply with the notice requirements, the failure to comply typically does not preclude a contractor’s recovery. The government may prove prejudice from lack of contractual notice by showing, among other things, preclusion from pursuing less costly alternative solutions, preclusion from determining whether the contractor’s solution was warranted at the time it was performed, or preclusion from inspecting the site to determine that the differing site condition existed at all.

State courts vary in the enforcement of notice provisions, with certain states, such as New York, Virginia, and Florida, strictly enforcing notice provisions and therefore being more likely to preclude a contractor’s claims. On the opposite end of the spectrum, other states such as Massachusetts, California, and Ohio have chosen to employ a more equitable approach and declined to enforce strict notice provisions. Even further, other states, such as Texas, have found substantial compliance will suffice to meet the notice requirement of a contract, but when a contract requires written notice, substantial compliance without a notice in writing is insufficient to meet a party’s contractual obligations, irrespective of the other party’s actual notice. Failure to give notice altogether, however, may bar a contractor’s claim for a DSC. As a practice note, courts may be more willing to strictly enforce notice provisions in private contracts to afford parties the freedom of contract. From a practical standpoint, parties should endeavor to notice as early and often as practicable to document the file and encourage collaboration in problem solving. Parties should review notice provisions in their contracts before and after contract negotiations, whether for DSCs or otherwise.


A detailed discussion of damages arising out of DSCs is beyond the scope of this article, but a short summary is included below. The purpose behind DSCs and equitable adjustments is to compensate parties for “the difference between what it ultimately cost the contractor to do the work and what it would have cost if unforeseen conditions had not been encountered.” Courts use one of three methods to calculate damages after a finding of a DSC.

The “direct cost method” or the “reasonable cost method” permits the recovery of reasonable excess costs for the DSC, which may include labor, equipment, materials, overhead, losses in productivity or profit, and liquidated damages. The “jury type” verdict method uses a fair and reasonable approximation of the damages in cases in which a contractor could not have submitted an “actual cost” claim or it suffered any damages beyond the additional expenses actually documented. The “total cost” method, often seen as a last resort and generally disfavored by courts, permits the recovery of the difference between contractor’s actual cost and the original bid. A rare application, the “total cost” method would only be used in cases in which the nature of the loss makes it extremely difficult to determine that the estimated costs were realistic, the actual costs were reasonable, and the contractor was not responsible for added expenses.


While courts have generally allowed parties to enjoy the benefit of their bargains with respect to express contract negotiations and differing site conditions, equity is not a distant consideration. There exists significant room for interpretation, answering questions like What was reasonable? What differs materially? What was truly unforeseeable? The introduction of differing site conditions into contract clauses has brought risk-sharing, lower aggregate costs, and a greater emphasis on the pre-construction phase to construction projects across the country, but the law on differing site conditions is not settled yet. As technology develops, parties will have more detailed, reliable information upon which to base their contract negotiations—a development that may serve to the detriment of those with less bargaining power. Contracting dynamics on construction projects are sure to evolve with this increase in information and use of technology. The determination of equitable adjustments and contract interpretations, however, will remain subject to human input, at least for the foreseeable future.

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    Christian C. Trevino

    Cokinos | Young

    Attorney Christian C. Trevino is based out of the law offices of Cokinos | Young in San Antonio, Texas. Trevino focuses primarily on construction law and commercial litigation.

    Robert J. MacPherson

    Cokinos | Young

    Robert J. MacPherson is based out of the law offices of Cokinos | Young in Saddle River, New Jersey. McPherson acts as construction contract and disputes counsel for contractors, subcontractors, suppliers, and owners involved in building and heavy civil construction for public and private work. He is a Fellow of the American College of Construction Lawyers and former Chair of the American Bar Association’s Forum on Construction Law.