Did the construction contractor encounter a differing site condition? W.M. Schultz Construction Inc. v. Vermont Agency of Transportation. Supreme Court of Vermont (2018), by Hugh Anderson

Summary: W.M. Schultz Construction entered into a contract with the Vermont Agency of Transportation (VTrans) to rebuild four highway bridges destroyed by Tropical Storm Irene. Schultz completed three of the bridges without incident. The fourth bridge (referred to as Bridge 19) was a single-span steel-girder bridge over the White River. The east abutment of the bridge was to be placed on a bedrock ledge. According to Schultz, the design indicated a level ledge at elevation 802.5 feet, but as work proceeded the ledge was found to be “drastically irregular and much lower in some areas than shown.” Based on the design information, Schultz had planned to construct the east abutment aided by a simple and inexpensive sandbag cofferdam. Instead, a costly steel sheet-pile cofferdam was needed. Also, pinning the new abutment to the actual location of the ledge required substantially more work, and a subfooting. Shultz sought additional compensation under the contract’s differing site conditions clause.

VTrans rejected the DSC claim, contending that the contract documents did not reasonably convey any expectations regarding the elevation of the ledge. Shultz appealed to the Vermont Transportation Board, which conducted an evidentiary hearing regarding the claim. The Board found that the documents furnished to Schultz repeatedly stated the 802.5 ledge elevation, and did not state that the ledge conditions were unknown, could vary, or were sloped. One critical element of the Board’s decision in the contractor’s favor was the information provided to bidders regarding the existing (destroyed) bridge at the same location. This information stated that the footing for the old bridge’s abutment had been poured directly on the ledge (which was portrayed as “a level plateau”) at the same elevation as the anticipated placement of the new abutment.

Another factor considered by the Board was the design for one of the other three bridges that were part of the VTrans-Schultz contract. For Bridge 13, VTrans had depicted a subfooting because of the lower elevation of the supporting bedrock, and had informed all bidders that the elevation of the bedrock at Bridge 13 would be variable; no similar warning was given with respect to Bridge 19, nor was any subfooting shown in the Bridge 19 design. For Bridge 13 VTrans had set up a pay item for concrete for a subfooting; no such pay item was established for Bridge 19.

The Board found that actual conditions were not reasonably foreseeable, and differed from those that Schultz had expected based on its reasonable interpretation of the bid documents. The ledge sloped steeply and varied in elevation by up to 10 feet. During site work it had been determined that the old bridge’s abutment was not poured directly on the exposed ledge, as bidders had been informed, but rather had been suspended over soil.
Schultz had claimed damages of nearly $600,000. At the evidentiary hearing Schultz submitted documentary backup for the damages, together with supporting testimony. VTrans did not strongly contest the damages, and the Board awarded Schultz $589,782.09. VTrans appealed.

Decision: The Supreme Court of Vermont upheld the Transportation Board’s decision in favor of the contractor. In reviewing the Board’s findings regarding a differing site condition, the court followed the Stuyvesant test, which VTrans and the Board had also followed. This test was set out in a 1987 federal court decision as a means of analyzing a contractor’s entitlement to an equitable adjustment for a DSC.

The test builds off the DSC terms used in federal government contracts, which in turn are the basis for many state, local, DOT, and standard DSC clauses (the EJCDC standard DSC clause contains the basic elements of the federal clause). The test requires the contractor to prove four elements:

  1. The conditions indicated in the contract differ materially from those that the contractor encounters during performance of the work
  2. The conditions actually encountered were reasonably unforeseeable based on the information available at the time of bidding
  3. The contractor relied on its interpretation of the contract and related documents.
  4. The contractor was damaged as a result of the material variation between the expected and the encountered conditions.

The Schultz decision thoroughly examined the first element. The court agreed with the Board’s analysis, including the Board’s focus on the information regarding the abutment of the old bridge. The court acknowledged that some of the information provided to the bidders could have supported the VTrans view of the situation—for example, it was true that a notation in the design had described the ledge elevation as “approximate”—but the court stated that it there was no single “controlling” document, and that it was important to consider the contract materials as a whole.

The court concluded that “a reasonable contractor would construe the information provided” as Schultz did, and that the contract materials contained “reasonably plain or positive indications” that the “subsurface conditions would be otherwise than actually found in contract performance.”

Comment: The EJCDC Standard General Conditions of the Construction Contract (C-700 2018) contains a comprehensive approach to differing site conditions, including the determination of whether a DSC exists, and procedures to be followed in response to apparently differing conditions. C-700 also features specialized related provisions for encounters with hazardous conditions, and with underground utilities and similar facilities.
The Vermont case is very fact-intensive, and does not break new ground. It does suggest that although public owners include differing site conditions clauses in their contracts, there is continued resistance to site conditions claims, especially at the project level. The Vermont Supreme Court reminded the parties of the reason for including a DSC clause:

The purpose of the Differing Site Conditions clause is to allow contractors to submit more accurate bids by eliminating the need for contractors to inflate their bids to account for contingencies that may not occur.

Citing one of the cornerstone federal DSC cases (Foster Construction v. United States), the court continued:

This [DSC] clause “makes it clear that bidders are to compute their bids, not upon the basis of their own pre-award surveys or investigations, but upon the basis of what is indicated and shown in the specifications [and] on the drawings. The clause should induce the bidder not to consider such contingencies as the latent or subsurface conditions, for which the Government has assumed responsibility.”