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.
A simple yet effective example demonstrating the application of these non-disclosure and misrepresentation actions is J.A. Jones Constr. Co. v. United States, 390 F.2d 886 (Ct. Cl. 1968). In this old but oft-cited case involving changed labor conditions, the construction contractor sought recovery for increased labor costs because it had to pay premium labor rates to achieve timely performance. The premium on labor costs was necessary due to a labor shortage exacerbated by another ongoing high-priority construction program in the area. The Government argued that ascertaining labor conditions was solely the construction contractor’s responsibility as the contract contained a pre-bid site investigation provision. According to the Government, the site investigation provision required the contractor to be aware of general and local site conditions, including the availability of labor. However, the Court ruled in favor of the contractor because it determined that Government personnel were aware of the potential labor shortage caused by the other construction program in the area. Meanwhile, the contractor was unaware of the other project and consequently, its probable consequences on labor costs. The Court further determined that the Government had actual or constructive knowledge of the contractor’s ignorance regarding the other project. However, despite this knowledge, Government personnel failed to disclose the pertinent information to the contractor during the formation phase, and the Government was therefore responsible for the increased cost of performance.
Construction contractors facing situations involving differing site conditions should bring their claims under an applicable differing site conditions clause as the preferred method of action because doing so likely maximizes their recovery options. However, it is important to note that even without a well-defined differing site conditions clause, contractors may still pursue claims for unforeseen site conditions under traditional breach of contract theories such as non-disclosure, misrepresentation, breach of implied warranty, or mutual mistake. While successful recovery under these traditional theories is generally more complex and challenging than relying on a well-defined differing site conditions clause, contractors in such situations need not get discouraged as recovery for increased costs incurred is still possible under traditional breach of contract actions.
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.
