July 9, 2009
By Stephen A. Melcher
Generally speaking, a “differing site condition” is a physical condition encountered at the project site that is materially different than indicated in the contract documents (or materially different than what would ordinarily be encountered in the type of work being performed). A “material” difference is one that affects the project cost or time for performance. This Briefing Paper demonstrates how one contractor overcame the challenges presented by differing site conditions, both in the field and in the courtroom.
It looked like a reasonably straightforward dredging job to the bidders. During the five years preceding the solicitation, the Army Corps of Engineers had been dredging the navigational channel of the river and depositing the dredged sand on a small nearby island. After receiving some 70,000 cubic yards of sand, the island had reached capacity. Now the Corps was soliciting bids to make two changes to the island so that the Corps could continue placing dredged sand on the island in future years.
To restore the island’s original capacity, the stockpiled sand would be removed and transported to the riverbank. The contract documents indicated that the sand “might contain minor amounts of debris including stones, rubble, wire rope, stumps and trees from snagging operations, and other debris.” Basically, this was sand that had been dredged from the channel, so dredging the sand again to the riverbank ought not to present any unusual challenges.
In addition to removing the sand pile, a large cavity would be created in the center of the island to further enhance the island’s capacity. Three soil borings taken from the perimeter of the island were included in the bidding documents. The borings indicated that the native soils that would need to be dredged to create the cavity consisted of silty clay ranging from very soft to medium stiff. Again, clay with these characteristics ought not to present any especially difficult challenges.
However, what the contract documents told the bidders about the sand and clay and what the contractor actually encountered when dredging the sand and clay were two very different things. Dealing with these unanticipated conditions would require every bit of ingenuity and determination the contractor could muster. And, to make matters worse, getting the Corps to acknowledge this would require the contractor to litigate the Corps’ denial of the claims in the Board of Contract Appeals, a process that would ultimately consume five years.
While dredging the sand pile, the contractor soon found that significant amounts of sand bags, plastic sheeting and riprap were fouling up the dredge’s cutterhead and plugging up the dredge’s pump. The dredge would have to be shut down frequently so that debris could be disentangled from the cutterhead teeth. Detailed records maintained by the contractor enabled it to distinguish the additional downtime caused by this unanticipated debris from downtime for normal maintenance and repair. In all, downtime caused just by this debris was nearly 50 hours!
In denying the contractor’s differing site conditions claim, the Corps took the position that this debris had been disclosed in the contract documents. After the contractor presented its case to the Board of Contract appeals, however, the Board agreed with the contractor that the debris was materially different, both in type and quantity, from what was indicated in the contract documents.
First, nothing in the contract documents suggested that the sand would contain sand bags, plastic sheeting or riprap. These sorts of materials would ordinarily not be found in previously dredged sand. Second, the phrase “other debris” would not have put bidders on notice of this kind of debris, and the word “stones” would not have indicated riprap ranging from fist-size up to 2-1/2 feet. Third, the amount of this debris was not “minor.” The contractor encountered hundreds of large riprap rocks, hundreds of sandbags and hundreds of square yards of plastic sheeting.
The Corps also argued that bidders should have anticipated large rocks because at least some of the dredging over the previous five years had been done with mechanical dredges capable of transporting large rocks. The Board rejected this argument, also. There was no indication of mechanical dredging in the contract documents. The only mention of mechanical dredging was buried within pages of detailed spreadsheets contained in a separate report that was only referenced in the specifications. It was not reasonable to expect bidders to even request to see that report, much less find the reference to mechanical dredging.
In any case, it turned out that the rocks and other debris were not placed in the sand pile through mechanical dredging. Photos and confidential internal e-mails disclosed by the Corps during the trial indicated that the riprap, sand bags and plastic sheeting had probably been placed on the island as part of a drop structure constructed by the Corps.
In response to this evidence, the Corps argued that bidders ought to have anticipated such a drop structure was beneath the sand pile because there were several steel risers and pipes abandoned on the shore of the island suggesting that a drop structure had been dismantled. The Board, however, agreed with the contractor’s argument that it was not reasonable to expect bidders to make such assumptions based upon the discarded steel and pipes, in part because even the Corps’ contracting officer was unaware that there had been a drop structure on the island. Moreover, even if a bidder had suspected a drop structure existed at one time on the island, the bidder would not have concluded that the drop structure consisted of riprap, sandbags and plastic sheeting, much less that those materials were abandoned beneath the sand pile when the drop structure was dismantled.
The debris in the sand pile was not the only problem the contractor faced. Dredging the native clay was also much more difficult than anticipated. Although the contractor foresaw the possibility that the dyke at the entrance to the sand repository might be compacted, it otherwise expected soft clay for the vast majority of the native clay beneath the sand pile. Instead, of being very soft, soft and medium as indicated in the soil borings, the clay was predominantly stiff and got stiffer as the dredge moved further into the clay beneath the sand pile. The stiff clay was very difficult for the cutter to remove and often clogged the cutterhead. Some of the clay was so stiff, in fact, that it could not even be removed with an excavator.
In order to maintain as much productivity as possible, the contractor had to completely change its operations. The contractor had planned to use the dredge to cut the clay underlying the sand pile and to use water cannons to wash the sand from the pile down to the dredge. Instead, it had to use an excavator and bulldozers to remove sand from the pile and push it to the dredge.
In defending its rejection of the contractor’s differing site conditions claim, the Corps made the usual argument that the bidders could not rely upon the soil borings, and pointed to admonishments in the boring reports to the effect that the borings were only representative of the subsurface conditions at their respective locations, that normal variations between the borings would not be considered as differing site conditions, and that the contractor was responsible for making a determination of the characteristics of the native soils.
The Board had no difficulty rejecting such arguments on the grounds that giving effect to such boilerplate disclaimers would completely undermine the purpose of the differing site conditions clause, which is to eliminate speculation in the bidding process by shifting the risk from the contractor to the Government and thereby deter the contractors from adding contingencies to their bids to cover worst-case scenarios. Foster Constr., C.A. and Williams Bros. v. United States, 435 F.2d 873, 887 (Ct. Cl. 1970).
The Corps also argued that the contractor ought to have foreseen the stiffness of the clay because the clay had been under surcharge from the sand pile for a few years. After the contractor gave notice of the stiff clay, the Corps took several soil borings of the clay and confirmed its stiffness. Undaunted by this finding, the Corps did some remarkable mental gymnastics. Using a complicated formula (which required knowing information not known by bidders, such as the actual heights and distributions of the sand pile over time, how long the various configurations of sand pile had been in place, and the plasticity of the clay), the Corp computed a “predicted” stiffness for the clay. Finding the “predicted” stiffness to be reasonably consistent with the actual stiffness of the clay, the Corps argued that an experienced contractor should have used such a formula and predicted the stiffness of the clay.
The Board rejected the Corps’ argument that the stiff clay was foreseeable. Although a reasonably competent bidder would understand there likely would be some degree of consolidation of the clay beneath the sand pile, bidders could not have ascertained the level of stiffness without hiring geotechnical experts who would either take soil borings beneath the sand pile or use soil strength prediction formulas.
Bidders are not expected to go to such lengths in their pre-bid site investigations, nor are they expected to assume a less favorable condition than reflected by the soil borings and then to speculate as to how much worse it would be. That would reintroduce the gamble of windfalls and disasters that differing site conditions clauses are intended to alleviate, forcing contractors to revert to the practice of increasing their bids to cover such contingencies. The Board concluded, therefore, that the contractor was justified in relying upon the indications in the soil boring concerning very soft to medium clay.
The Corps also argued that the contractor’s planned method of operation, its selection of allegedly undersized equipment, and allegedly high amounts of downtime for maintenance and repair substantially contributed to lost productivity during the clay dredging. However, the evidence submitted by the contractor, including detailed contemporaneous field logs concerning reasons for downtime, persuaded the Board to reject each of these arguments.
Finally, the Corps argued that the contractor failed to give timely notice of the stiff clay, thereby depriving the Corps of the opportunity to propose remedial actions that would have minimized the impact of the stiff clay. The contractor, however, established through a series of field records and letters that it had orally informed the Corps as soon as it encountered stiff clay and that it had given written notice as soon as it reasonably believed the stiff clay was affecting its productivity. Moreover, the actions the Corps claimed it would have recommended were essentially identical to the remedial actions the contractor had taken on its own accord.
After struggling to overcome the difficulties the debris and stiff clay caused to its dredging operations on the project, and after five years of litigation against the Corps, the contractor finally received a well-deserved seven figure sum in compensation for its two differing site conditions claims. In addition, the Corps was required to pay the contractor’s legal expenses. Ultimately, the contractor was made whole.
Still, given the choice, one might ask whether it would have been preferable to have been spared the ordeal. The problem, however, is that encountering a differing site condition is never a matter of choice. It is something that is thrust upon you without warning. And, when that happens, the only safe course of action is to give prompt notice of the differing site condition, take corrective steps to minimize its impact, and carefully document any impact that can not be avoided so that, like the dredging contractor, you too can be made whole.
 Out of a sense of propriety, the contractor has requested anonymity.
This discussion is generalized in nature and should not be considered a substitute for professional advice. © FWH&T