The Differing Site Conditions clause at Federal Acquisition Regulation (FAR) 52.236-2 is typically included in construction contracts to discourage contractors from inflating their proposed prices on account of unexpected physical conditions that may not arise. There are two types of differing site conditions claims contemplated under the clause. In a type I claim, the conditions encountered by the contractor differ materially from those indicated in the contract. On the other hand, in a type II claim, the conditions are different from those ordinarily encountered. To qualify as a type II differing site condition, the conditions must be such that they cannot be predicted by the contractor’s review of the contract documents, site inspections, and its general experience, if any, as a contractor in the region. Proving a type II differing site condition is typically more difficult than proving a type I condition, as it involves a heavier burden of proof because there is no clear point of reference in the contract documents as to the known and usual conditions on site. To prove a type II condition, the contractor must first establish the known and usual conditions at the site. Next, the contractor must show that the actual physical conditions it encountered were different from the known and usual conditions. Finally, the contractor must demonstrate that the different conditions increased the cost of performance.
In Skanska USA Bldg., Inc. v. United States, 07-143 C, 2013 WL 1179528 (Fed. Cl. 2013), the U.S. Court of Federal Claims (COFC) held that the contractor successfully satisfied the elements of a type II differing site conditions claim. The U.S. Army Corps of Engineers (USACE) awarded the relevant contract for the construction of nine buildings at North Fort Lewis in Washington. The earthwork under the contract required the contractor to excavate, transport, and place soil and other materials. The contractor did not include any costs for disposing surplus soil in its proposal because it believed the contract permitted it to retain any savings from selling the clean soil material. The contractor and its team ultimately accumulated a stockpile of roughly 15,000 cubic yards of soil material over the course of the project. While the contract documents or site visit reports did not indicate it, a soil sampling of the stockpile conducted by USACE revealed lead contamination, as the soil contained chips and materials from World War II-era buildings demolished in the 1990s that had been painted with lead-based paint. Since the contractor could no longer sell the stockpiled soil due to the contamination, it moved the surplus soil to a government-designated landfill and submitted a certified claim for $148,498, which was partially denied by the contracting officer (CO).
In the suit that followed, the contractor argued that the discovery of lead in the stockpiled soil constituted a type II differing site condition under the clause at FAR 52.236-2, included in the contract. The COFC agreed, noting with respect to the known and usual conditions at the site, that the contract documents and the site inspection did not disclose the lead contamination. Additionally, the contractor presented evidence that its estimator, with 17 years of experience in the Fort Lewis region, who worked for a construction firm doing business in the region for more than 41 years, found lead contamination to be an unusual condition. Thus, the lead contamination was not a known or usual condition at the site. Next, there was no dispute that the contractor had encountered contaminated soil following excavation, as the USACE soil sampling revealed lead contamination. The CO testified that the contractor was neither responsible for the contamination nor could it have known about it. Accordingly, the actual physical conditions encountered by the contractor were different from the known and usual conditions. Finally, the contractor presented evidence that, under its proposal to retain savings from selling clean soil, disposal costs for uncontaminated material would have been $0. Meanwhile, disposal costs for the contaminated material exceeded $120,000, and the surplus material could not be sold as the contractor had originally anticipated. Consequently, the third and final element for establishing a type II condition was also met as the contractor had demonstrated that its cost of performance had increased due to the differing conditions.
Government construction contracts typically include a differing site conditions clause that addresses two types of conditions. For both types of differing site conditions, the contractor must prove its claim by a preponderance of the evidence. In a type I claim, the known and usual conditions are indicated in the contract, and the conditions encountered by the contractor differ materially from those indicated. Meanwhile, in a type II claim, the conditions encountered by the contractor differ from the known and usual conditions at the site. Proving a type II differing site condition is typically more difficult than proving a type I condition because the contractor has the additional burden to establish the known and usual conditions at the site. Next, the contractor must demonstrate that the physical conditions it encountered were different from the known and usual conditions. In this regard, the unknown physical condition must be such that it cannot be reasonably anticipated from the nature and location of the work or the review of contract documents. The contractor can present any relevant climatological, hydrological, and geological data, among other relevant evidence, to demonstrate that the conditions encountered materially differed from what should have been reasonably expected. Finally, the contractor must prove that the differing site conditions increased its performance costs. Once the three elements are established, the contractor can recover under a type II differing site conditions claim.
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.