Issue: Contractual allocation of risk regarding underground facilities. J.F. Allen Corporation v. Sanitary Board of City of Charleston, West Virginia. Supreme Court of Appeals of West Virginia (2016), by Hugh Anderson

Summary: $5 million municipal sewer project. J.F. Allen, the contractor, brought a breach of contract claim against the owner, alleging that during construction the contractor encountered 122 unmarked or mismarked underground  utilities, resulting in delay and additional costs, and also contending that the owner allowed other contractors to conduct work that interfered with Allen’s work.

At a preliminary stage in the lawsuit, the owner moved for dismissal based on lack of written  notice  of  claim,  and  on  the  argument  that  the  construction  contract allocated the risk of underground facilities to the contractor. The trial court granted the motion to dismiss, and the contractor appealed.

Decision: The court of appeals allowed the contractor’s case to continue, reversing the lower court’s dismissal.

The construction contract contained an “Underground Facilities” clause very similar to the provisions of what is currently Paragraph 5.05 of the EJCDC Standard General Conditions (C-700). The appellate court concluded that the trial court had erroneously ignored the terms of this clause, which allows for an adjustment in contract time and contract price if the contractor encounters an underground facility that is not shown on the drawings, or not shown accurately.

The appellate court also determined that although the contractor had not filed timely formal notices, it was possible that the owner had received adequate actual notice of the contractor’s underground facilities claims. The pleadings alleged that the owner’s representative had documented each subsurface incident, and that the owner had waived strict compliance with many other procedural provisions of the contract. If proven, such allegations might be sufficient to overcome the lack of formal notice.

Comment: The EJCDC Underground Facilities clause makes clear that the contractor is entitled to additional compensation and time for the cost of contending with unmarked and mismarked utilities at the jobsite. However, it is possible that a reader unfamiliar with the Underground Facilities clause might focus on the parts of the clause that emphasize the contractor’s responsibilities for the safety and protection of all utilities—but that responsibility is not uncompensated.

According to the somewhat abbreviated written decision, the contractor did not begin to pursue its claim until after receipt of final payment. Most construction contracts, including EJCDC® C-700, indicate that final payment closes the opportunity for contractor to make claims. The written decision does not mention whether this sewer contract contained such a clause, or whether there were factors that allowed for post-payment claims.