December 11, 2006

A recent ASBCA ruling awarded a federal government contractor damages for Type II differing site conditions even where there was no evidence of formal notice. While this is not a common outcome in federal government contract claims, this case indicates that contractors can recover for these claims. A review of the pertinent facts shows that contemporaneous documentation of both project conditions and the conduct of the parties during the course of the work can carry the day.

In Parker Excavating, ASBCA No. 54637, 06-1 BCA 33,217, the government contracted with a specialty contractor to install five miles of underground conduit as part of certain improvements at Fort Carson, Colorado. The contractor undertook to perform the work at a fixed unit price based on site conditions disclosed by the government. The contractor intended to and did, in fact, use a directional boring (or subsurface drilling) method to perform its work. After completion of the work, the contractor submitted a claim for roughly $75,000 based on damage to its drilling equipment. The contracting officer denied this claim, concluding that the contractor had failed to document sufficiently its proper use of the drilling equipment and that it had failed to provide timely notice of its claim.

The contract incorporated standard FAR clause 52.236- 2, DIFFERING SITE CONDITIONS, which provides for recovery for a Type II differing site condition (“DSC”). To recover for a Type II DSC, the claimant must establish four things. First, it must offer proof of the job site’s “recognized and usual conditions.” Second, the claimant must offer proof of the “actual physical conditions” at the site. Third, the claimant must offer sufficient proof that the conditions encountered “differed materially from the known and the usual.” Fourth, and finally, the claimant must offer adequate proof that the different site conditions “caused an increase in the [cost and/or time of] contract performance.” This FAR clause also requires the claimant to “promptly and before the conditions are disturbed give written notice to the contracting officer of the conditions encountered.” Failure to provide timely notice can be, and often is, fatal to such a claim.

In addressing both the entitlement and notice issues in Parker Excavating, the ASBCA set out detailed findings of fact in which, among other things, it determined that the contractor documented nineteen separate instances of “problems” with its drilling equipment during conduit installation. The Board also concluded that the contractor had presented contemporaneous evidence that the problems, which caused drilling equipment damage, were due to unforeseen and unknown obstacles encountered while drilling. These obstacles consisted mainly of asphalt, concrete, rebar and other debris indicative of construction demolition materials. The government reasoned, however, that hard rocky subsurface conditions also existed at many site locations, conditions that the contractor knew about before submitting its final pricing. The government also considered that much of the contractor’s equipment damage might have been caused by operator error, a fact that the contractor easily refuted with compelling evidence that it had independently, and contemporaneous to when the damage was occurring, operated the equipment with several different persons, including the contractor’s president and the equipment manufacturer’s representative, all of whom encountered the same difficulties.

The ASBCA also found that the contractor repeatedly notified government representatives of these unforeseen conditions and the associated additional costs while the work was ongoing. This “actual” notice primarily manifested itself in written correspondence between the parties, periodic quality control reports, and documented first hand observations by government representatives while the contractor was encountering the obstructions. There was also ample evidence presented by the contractor that the parties frequently discussed these obstructions and the ensuing equipment damage during the work. At one point, a government representative even instructed the contractor to “keep track of the occurrences” of encountering the construction demolition debris.

In finding that the contractor had adequately proven the existence of Type II differing site conditions, the ASBCA distinguished between existing conditions that might impede performance, such as hard rocky subsurface structures, and other obstructive conditions such as buried construction demolition debris. The Board based this decision on the contractor’s underlying knowledge of such conditions before commencing work. Where it might be reasonable to conclude that a contractor had knowledge of certain subsurface conditions through information provided by the government or based on its past experience at a particular site or location, such knowledge does not extend to all underground conditions.

Likewise, the ASBCA addressed the insufficient notice issue based on compelling evidence showing actual or constructive notice of the differing site conditions encountered, finding that “[l]ack of prompt written notice is not a bar to recovery.” Instead, where the government is deemed to have actual notice, it waives the strict notice requirements of FAR 52.236-2. In Parker Excavating, the contractor’s quality control reports provided sufficient actual notice to the government of the conditions encountered.

Likewise, the government was aware of the conditions through project meetings and site visits. Finally, the ASBCA concluded that the government had not come forward with sufficient evidence to establish that it was harmed in any way by a lack of the required formal written notice. This decision can offer some comfort to government contractors who properly and timely document ongoing construction work. Examples of such project documentation would typically include daily reports, equipment logs, inspection records, quality control reports, meeting minutes, and timely correspondence such as memos and e-mails. Although such documentation is not the equivalent of contractually required written notice (i.e., a letter), in some instances it may be sufficient especially if there is no prejudice to the other party.