Dismissal of differing site conditions claim on federal dam project. ASI Constructors, Inc., v. United States of America. United States Court of Federal Claims (2016), by Hugh Anderson

Summary: The contractor on a project to modify and improve the Canton Lake Dam in Oklahoma claimed that it had encountered site conditions that differed from those shown in the contract documents, and that the Corps had withheld relevant site information. After the project’s contracting officer denied the claims, which totaled approximately $6.6 million, the contractor filed a lawsuit in federal court to pursue its claims. The government moved to dismiss the lawsuit, resulting in the decision under discussion.

The Canton Lake Dam had been constructed in 1948. Sixty years later the Corps of Engineers launched Phase 1 of a rehabilitation project that focused on the dam’s spillway. During Phase 1, the contractor reported fissured rock, high groundwater, flowing groundwater, and spring-like conditions; eventually a differing site conditions (DSC) claim based on these conditions was mediated and settled.

When Phase 2 of the project was put out to bid in 2011, the bidding documents contained a highly technical, lengthy, and detailed report on site conditions and geotechnical testing. ASI was the low bidder on Phase 2. According to ASI, during the bidding process one of the bidders had requested relevant information from the Phase 1 work, but the Corps did not provide such information.

During construction ASI experienced major problems in installing tiebacks related to a shoring system. Reportedly the underlying rock was “pervasively fissured” and would not hold the tiebacks, and according to ASI representatives of the Corps admitted that the Phase 1 contractor had encountered the same problem.

ASI also claimed that it encountered flowing, spring-like groundwater conditions that had not been identified in the geotechnical report—conditions similar to those reportedly encountered by the Phase 1 contractor.

Decision: The federal court of claims denied the government’s motion to dismiss the contractor’s complaint. One basis for the decision was the technical complexity of the geotechnical report and the conditions actually encountered. The court acknowledged that to evaluate the claims and the government’s defenses the court would need expert testimony regarding the contents of the report and the site conditions.

The court also reviewed certain exculpatory clauses that warned that variations in conditions would exist between boring locations, and requiring the contractor to conduct testing to verify field conditions. The court cited longstanding federal precedent that “broad exculpatory clauses…do not relieve the defendant of liability for changed conditions.” The court also invoked the recent landmark DSC case, Metcalf Construction Co. v. United States (2014), for the point that the “natural meaning” of a clause requiring additional testing is that the contractor must investigate conditions while performing the work; this does not mean that contractor should bear the risk of errors in the pre-contract assertions in the government’s reports.

Comment: The ASI case illustrates that a differing site condition claim will usually survive a motion to dismiss if the relevant contract documents and reports are highly technical, and if the factual record has not yet been developed, with the help of experts.

EJCDC’s site conditions clauses require the project owner to disclose reports and drawings regarding the site. Some of the information allegedly withheld by the Corps in the ASI case was contained in reports and drawings, but the case also touched on the disclosure of information in other formats: claims submitted by contractors on preceding projects, correspondence about prior claims, results of mediation of the claims. The case does not provide a ruling on disclosure of such information, but does inspire reflection about whether owners should have an obligation (contractual or otherwise) to disclose such information.