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Recovering Under a Type I Differing Site Conditions Claim

Government contracts for construction projects typically include a Differing Site Conditions clause to account for the risk that the contractor may encounter unanticipated subsurface or otherwise latent physical conditions. The purpose of this clause is to discourage contractors from inflating their pricing on account of unexpected physical conditions that may or may not arise. The clause contemplates two types of differing site conditions. In a type I condition, the contractor encounters physical conditions materially different from those specified in the contract. Meanwhile, a type II condition is unknown, unusual, and materially different from that ordinarily encountered. To successfully recover under a type I differing site conditions claim, the contractor must establish five elements by a preponderance of the evidence. The contractor must establish that: (1) a reasonable contractor reading the contract as a whole would interpret it as making a representation as to the site conditions; (2) the actual site conditions were not reasonably foreseeable to the contractor with the information available to it outside the contract documents; (3) the contractor in fact relied on the contract representation; (4) the conditions differed materially from those represented; and (5) the contractor suffered damages as a result.

In Armed Services Board of Contract Appeals (ASBCA) No. 61989, a decision issued on February 18, 2025, the Board reviewed the elements of a type I differing site conditions claim and denied the contractor’s appeal, finding that the conditions were not satisfied. The underlying contract was issued by the United States Army Corps of Engineers (USACE) for the construction of levees, canals, and other infrastructure relating to the Big Cypress Seminole Indian Reservation Western Water Conservation Restoration Project in Florida. The contractor was required to excavate canals and place specified quantities of compacted embankment fill for the levees. The contract specified that sand was a suitable material for the construction of the new levees. However, during the excavation phase, the contractor’s team encountered unsuitable cobble and boulder-sized rocks. The contractor’s team had to spend a substantial amount of time and resources separating the cobble and boulders from the sand. The contractor argued that its type I differing site conditions claim for these excess costs incurred due to unsuitable material should be granted, as the contract specified that the first four feet of material at the excavation site would be sand and other suitable materials for the levees.

Meanwhile, the agency implored the Board to deny the appeal as the contract and certain boring logs advised the contractor that it could encounter unsuitable material requiring processing within the first four-and-a-half feet of excavation. The ASBCA evaluated the contractor’s type I differing site conditions claim before agreeing with the agency. The contractor could not satisfy the first element because it could not establish that the contract had represented that the first four feet of excavated material at the designated site would consist solely of material suitable for levee construction. In this regard, the contract, the geotechnical data report (GDR), and the boring logs all noted that large rocks likely existed at the jobsite that would need processing to become suitable material. Thus, the Board determined that the conditions encountered by the contractor’s team were no different from those outlined in the contract and related documents. Similarly, the contractor could not prove the second element concerning the lack of reasonable foreseeability because the contract and related specification documents notified it of the possibility of rock requiring processing within the first four feet at the excavation site. Consequently, the conditions encountered by the contractor during excavation were reasonably foreseeable, and the second element was not met.

The third element regarding the contractor’s reliance on contract representations was also not satisfied. The contract specifically noted the presence of rocks at the jobsite. However, despite the contract's fixed-price nature, the contractor did not include the cost of transporting, screening, removing, or processing rocks in its original bid. Next, the fourth element was also not met because the conditions encountered by the contractor did not materially differ from those set forth in the contract. In fact, the contract expressly warned the contractor that it may encounter unsuitable material during excavation that would require processing before it could be used for constructing the levees. The fifth and final element, requiring that the contractor suffer damages solely because of the differing site conditions, was also not met, even though the contractor expended additional time and money to process rock. Since the contract indicated that rock processing was likely, it was the contractor’s responsibility to include these costs in its original fixed-price bid. However, the contractor failed to do so, and thus the additional costs could not be attributed solely to the allegedly differing site conditions. Ultimately, the contractor failed to satisfy the five elements of a type I differing site conditions claim, and its appeal was denied in its entirety.

The Differing Site Conditions clause is almost always included in construction contracts and sometimes in services contracts to mitigate the contractor’s risk of encountering adverse subsurface or otherwise latent physical conditions. Contractors may recover for two types of differing site conditions. Type I conditions are materially different from those specified in the contract. To recover under a type I differing site condition claim, contractors must prove five elements by a preponderance of the evidence, or the more likely than not standard. The contractor must show that: (1) a reasonable contractor reading the contract documents as a whole would interpret them as making a representation as to the site conditions; (2) the actual site conditions were not reasonably foreseeable to the contractor with the information available to it outside the contract documents; (3) the contractor in fact relied on the contract representation; (4) the conditions differed materially from those represented; and (5) the contractor suffered damages as a result. Determining whether the contract advised the contractor of certain site conditions is ultimately a matter of contract interpretation. However, once the five elements of a type I differing site condition claim are established, contractors may recover for any excess costs incurred due to adverse subsurface or latent physical conditions.

This Federal Contract Claims Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.

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The primary method for managing risks associated with latent physical conditions encountered in construction projects is the differing site conditions clause in Federal Acquisition Regulation (FAR) 52.236-2. Since fully redressable claims under specifically included contract clauses may not be brought under separate breach of contract claims, most claims for hidden site conditions are brought under the differing site conditions clause. However, certain federal contracts for smaller construction projects awarded through simplified procedures, and some custom-negotiated construction contracts may lack a well-defined differing site conditions clause. In such cases, contractors must pursue their claims arising out of unforeseen conditions, such as claims related to subsurface conditions under traditional breach of contract theories. Additionally, when faced with unforeseeable events like extreme and unpredictable weather or unanticipated changes in labor conditions that are not typically covered by the differing site conditions clause, construction contractors may opt to initiate breach of contract claims to recover their increased costs.

The Government’s non-disclosure or misrepresentation of information material to site conditions are two breach of contract actions available to construction contractors in such situations. To be successful in a non-disclosure claim, the construction contractor must demonstrate that the Government possessed information pertinent to a material site condition, which it failed to disclose to the contractor. The contractor must also establish that the presence of the material site condition could not have been readily determined through a site inspection or other reasonable methods. Government misrepresentation is the other breach of contract claim commonly applicable in contracts without a differing site conditions clause. A misrepresentation claim is essentially based on the Government breaching its duty to disclose its superior knowledge of the site condition. To prove that the Government breached its duty to disclose, the Court of Federal Claims (COFC) has previously required that the contractor demonstrate Government culpability. One way of demonstrating Government culpability is by proving that the Government knew that the contractor was unaware of the differing site conditions. However, the Federal Circuit has recently rejected the Government culpability requirement, making contractor claims easier to prove in such situations. Therefore, depending upon the circumstances, the adjudicative forum’s analysis for a breach of contract claim for Government misrepresentation is similar if not identical to a differing site conditions claim.

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Under the Spearin doctrine, when the government furnishes design specifications directing the contractor on how to undertake performance on a contract, it provides an implied warranty that the contractor will be able to perform the contract satisfactorily if it adheres to the government’s specifications. The doctrine allows contractors to transfer to the government the risk of increased costs resulting from defective specifications. Notably, however, the Spearin doctrine only applies when the defective specifications are design specifications as opposed to performance specifications. Design specifications expressly describe how contract performance must be undertaken and do not permit the contractor to make any deviations. Meanwhile, performance specifications state the overall objectives that must be achieved but leave the decisions on how to achieve those objectives at the discretion of the contractor. Since design specifications do not allow deviations or grant the contractor discretion in achieving contractual objectives, the government implicitly warrants that design specifications are free from defects. Consequently, when the government’s design specifications are defective or result in unsatisfactory performance the government is deemed to have breached its implied warranty of specifications under the Spearin doctrine. In such cases, the contractor may recover all proximate costs stemming from the government’s breach.

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Contractors may recover their increased costs of performance attributable to government-supplied defective specifications, provided they are design specifications rather than performance specifications. However, most government-furnished specifications contain both design and performance requirements. To recover under the Spearin doctrine, a contractor must prove that the requirement adversely affecting its performance relates to an area in which the government has expressly described how to perform. On the other hand, the contractor will be denied recovery if the government can show that the dispute concerns requirements that granted the contractor discretion to develop its own performance methodology to achieve necessary contractual objectives. Since it is not always clear whether the government has supplied a design or performance specification, the contractor may have to determine the amount of discretion granted by the specification. Such an analysis must be conducted by viewing the contract in its entirety and assessing the contractor’s overall discretion, along with the obligations imposed by the specification, before the requirement may be categorized as a design or performance specification. In this regard, the relevant inquiry may be the degree to which the contractor can exercise its ingenuity to achieve the contractual objectives and its ability to select the appropriate methodology to do so.

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The government provides contractors with a variety of information during the solicitation process before a contract is awarded. Such information may be furnished through pre-award conferences, questions and answers, solicitation attachments, specifications, diagrams, drawings, contract provisions, etc. When the government misstates material facts during the contract formation process, it may later be liable under express provisions of the contract or for breaching an implied warranty that it furnishes correct information. In this regard, when the government provides incorrect representations and directs or expects prospective offerors to base their contract pricing on those misrepresentations, the government is responsible for any losses the contractor suffers as a result of its reliance on that information. In other words, when the government instructs offerors to base their pricing on data it furnishes, it assumes responsibility for ensuring that the data accurately reflects the conditions the contractor will encounter during performance. In such cases, as long as the contractor can demonstrate that the government's information was incorrect, it need not prove the government's intent to deceive or bad faith. Furthermore, the contractor may also not need to prove that the incorrect information was inadequately or negligently prepared.

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Recovering Under a Type I Differing Site Conditions Claim

TILLIT LAW Federal Contract Claims Insights