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Contract provisions requiring contractors to perform site investigation and inspection prior to bidding did not impose the risk of subsurface conditions on the contractor, and therefore, did not preclude a claim for equitable adjustment.  When the contractor began work it discovered a deep scour hole in the river bottom that prevented it from building cofferdams where indicated on the plans.  Additional work and expense was required to solve the problem.

The public authority acknowledged that the scour hole would require additional work but rejected the contractor’s demand for almost $200,000 in additional compensation.  The trial court ruled that the contractor was not entitled to change orders.  This was reversed on appeal, with the court holding that although the authority could legally shift all the risk to the contractor, it’s ambiguous contract language had failed to accomplish that.

In reviewing the legality of shifting the risk to the contractor, the court noted that under federal contracts, the contractor is entitled to be compensated for changed conditions despite language requiring pre-bid investigations and site inspections.  It also noted that under New Jersey law, a public owner may allocate the risk of the unknown to the contractor so long as it contains a strong clause imposing the risk of subsurface conditions on the contractor.  The language in this particular contract provided the following:

“The contractor acknowledges that he has satisfied himself as to the nature and location of the work, the general and local conditions, particularly those bearing upon transportation, disposal, handling and storage of materials, availability of labor, water, electric power, roads and uncertainties of weather, floods or similar physical conditions at the site, the topography and conditions at the ground, the character of equipment and facilities needed preliminary to and during the execution of the work, and all other matters upon which information is reasonably obtainable and which can in any way affect the work or the cost thereof under this Contract.  The Contractor further acknowledges that he has satisfied himself as to the character, quality and quantity of information regarding the above that is reasonably ascertainable from an inspection of the site, including all exploratory work done by the Authority or Engineer, as well as information contained in Drawings and Specifications forming a part of this Contract…. Any failure of the Contractor to acquaint himself with all the available information will not relieve him from the responsibility for estimating properly the difficulty or cost to successfully perform the work.”

The trial court granted summary judgment in favor of the Authority, saying that it had made no “affirmative misrepresentation” regarding existing conditions.  Although the appellate court agreed that there had been no affirmative misrepresentation concerning the scour hole in the river bottom, it held that the contract was ambiguous concerning whether the contractor had assumed the risk concerning subsurface conditions.

Rather than being responsible for all subsurface conditions, the contractor was responsible only for those that were reasonably ascertainable from information that was reasonably obtainable.  These standards, said the court,  imply that conditions not known to the Authority or the contractor, and which cannot be reasonably ascertained by the contractor, may be the basis for a claim for extra work.   For these reasons, the court reversed the lower court decision and sent the matter back for a trial on its merits. SMC Corporation, Inc. v. New Jersey Water Supply Authority, 759 A.2d 1223 (N.J. Super.A.D 2000).

Copyright 2001, ConstructionRisk.com, LLC – Virginia

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 3, No. 2 (Mar/Apr 2001).