Stuck In The Mud: Are You Responsible For Unforeseen Ground Conditions?

Unforeseen ground conditions can have huge time and money consequences on a project. Who takes the risk for them in standard form contracts?

NEC3

Under NEC3 risk lies with the contractor unless he encounters “physical conditions” within the site. Physical conditions are defined as conditions (not weather conditions) which an experienced contractor would have judged at the contract date to have “such a small chance of occurring that it would have been unreasonable for him to have allowed for them” (clause 60.1(12)). What should the contractor have known to make that judgement? He is assumed to have taken into account the Site Information and publicly available information it refers to, information obtained from visual inspection of the site and other information an experienced contractor could reasonably be expected to have or obtain (clause 60.2). Be aware of what you may “reasonably be expected to obtain” and look out for the employer trying to water down the definition of physical conditions or deleting clause 60.1(12) altogether.

FIDIC

Under FIDIC’s red and yellow books, (for employer/contractor design) the employer bears the risk of physical conditions which could not have been reasonably foreseeable by an experienced contactor at the date of tender (clause 4.12). However, pre-tender the employer is required to provide all relevant data it has about sub-surface and hydrological site conditions and the contractor is deemed to have obtained all necessary information which may affect the works as well as examining the site pre-tender (clause 4.10). So what is “reasonably foreseeable” could be rather wide. The silver book (for turnkey contracts) is even more onerous as clause 4.10 requires the contractor to verify and interpret the employer’s data whilst the employer takes no responsibility for the accuracy, sufficiency or completeness of that data. Clause 4.12 then allocates all risk of encountering “unforeseeable difficulties” on the contractor. Unless amended, these clauses are a significant contractor risk.

IChemE

Similarly the IChemE red book (lump sum contracts) refers to a contractor encountering a physical condition on site which at the date of tender could not reasonably have been foreseen by an experienced contractor possessing all the information he had/could have obtained by visual inspection or reasonable enquiry (clause 6.3). In that case the contractor gives notice to the project manager as to expected increase in time/money. Beware – the notices are stated to be a “condition precedent” to being awarded time/money, so you must follow the notice provisions exactly to avoid losing claims.

JCT

JCT does not generally provide for unforeseen ground conditions. (One exception is an option in the Major Project Construction Contract under which unforeseen ground conditions may amount to a Change.) Remember, though, if the contract is silent the contractor probably bears the risk for unforeseen ground conditions, so you will want to amend the contract if possible.

Summary

Do not accept a standard form position without being aware of the consequences.