Government contracts for construction projects typically include a Differing Site Conditions clause to account for the risk that the contractor may encounter unanticipated subsurface or otherwise latent physical conditions. The purpose of this clause is to discourage contractors from inflating their pricing on account of unexpected physical conditions that may or may not arise. The clause contemplates two types of differing site conditions. In a type I condition, the contractor encounters physical conditions materially different from those specified in the contract. Meanwhile, a type II condition is unknown, unusual, and materially different from that ordinarily encountered. To successfully recover under a type I differing site conditions claim, the contractor must establish five elements by a preponderance of the evidence. The contractor must establish that: (1) a reasonable contractor reading the contract as a whole would interpret it as making a representation as to the site conditions; (2) the actual site conditions were not reasonably foreseeable to the contractor with the information available to it outside the contract documents; (3) the contractor in fact relied on the contract representation; (4) the conditions differed materially from those represented; and (5) the contractor suffered damages as a result.
In Armed Services Board of Contract Appeals (ASBCA) No. 61989, a decision issued on February 18, 2025, the Board reviewed the elements of a type I differing site conditions claim and denied the contractor’s appeal, finding that the conditions were not satisfied. The underlying contract was issued by the United States Army Corps of Engineers (USACE) for the construction of levees, canals, and other infrastructure relating to the Big Cypress Seminole Indian Reservation Western Water Conservation Restoration Project in Florida. The contractor was required to excavate canals and place specified quantities of compacted embankment fill for the levees. The contract specified that sand was a suitable material for the construction of the new levees. However, during the excavation phase, the contractor’s team encountered unsuitable cobble and boulder-sized rocks. The contractor’s team had to spend a substantial amount of time and resources separating the cobble and boulders from the sand. The contractor argued that its type I differing site conditions claim for these excess costs incurred due to unsuitable material should be granted, as the contract specified that the first four feet of material at the excavation site would be sand and other suitable materials for the levees.
Meanwhile, the agency implored the Board to deny the appeal as the contract and certain boring logs advised the contractor that it could encounter unsuitable material requiring processing within the first four-and-a-half feet of excavation. The ASBCA evaluated the contractor’s type I differing site conditions claim before agreeing with the agency. The contractor could not satisfy the first element because it could not establish that the contract had represented that the first four feet of excavated material at the designated site would consist solely of material suitable for levee construction. In this regard, the contract, the geotechnical data report (GDR), and the boring logs all noted that large rocks likely existed at the jobsite that would need processing to become suitable material. Thus, the Board determined that the conditions encountered by the contractor’s team were no different from those outlined in the contract and related documents. Similarly, the contractor could not prove the second element concerning the lack of reasonable foreseeability because the contract and related specification documents notified it of the possibility of rock requiring processing within the first four feet at the excavation site. Consequently, the conditions encountered by the contractor during excavation were reasonably foreseeable, and the second element was not met.
The third element regarding the contractor’s reliance on contract representations was also not satisfied. The contract specifically noted the presence of rocks at the jobsite. However, despite the contract’s fixed-price nature, the contractor did not include the cost of transporting, screening, removing, or processing rocks in its original bid. Next, the fourth element was also not met because the conditions encountered by the contractor did not materially differ from those set forth in the contract. In fact, the contract expressly warned the contractor that it may encounter unsuitable material during excavation that would require processing before it could be used for constructing the levees. The fifth and final element, requiring that the contractor suffer damages solely because of the differing site conditions, was also not met, even though the contractor expended additional time and money to process rock. Since the contract indicated that rock processing was likely, it was the contractor’s responsibility to include these costs in its original fixed-price bid. However, the contractor failed to do so, and thus the additional costs could not be attributed solely to the allegedly differing site conditions. Ultimately, the contractor failed to satisfy the five elements of a type I differing site conditions claim, and its appeal was denied in its entirety.
The Differing Site Conditions clause is almost always included in construction contracts and sometimes in services contracts to mitigate the contractor’s risk of encountering adverse subsurface or otherwise latent physical conditions. Contractors may recover for two types of differing site conditions. Type I conditions are materially different from those specified in the contract. To recover under a type I differing site condition claim, contractors must prove five elements by a preponderance of the evidence, or the more likely than not standard. The contractor must show that: (1) a reasonable contractor reading the contract documents as a whole would interpret them as making a representation as to the site conditions; (2) the actual site conditions were not reasonably foreseeable to the contractor with the information available to it outside the contract documents; (3) the contractor in fact relied on the contract representation; (4) the conditions differed materially from those represented; and (5) the contractor suffered damages as a result. Determining whether the contract advised the contractor of certain site conditions is ultimately a matter of contract interpretation. However, once the five elements of a type I differing site condition claim are established, contractors may recover for any excess costs incurred due to adverse subsurface or latent physical conditions.
This Federal Contract Claims Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.