ParsCo Guide to Dealing with Hidden and Concealed Construction ConditionsApril 4, 2013
ParsCo Construction – Certified General Contractor – Pensacola, FL
Although contractors often have no opportunity to discover concealed conditions before executing contracts and bidding the work, they sometimes unwittingly assume the risks of such hidden conditions and may be held liable for the additional cost to overcome them, depending on the contract language. Many contracts drafted by owners require contractors to accept responsibility for unanticipated costs that may result from site conditions. Many such contracts also require contractors to acknowledge they have fully examined and analyzed all site conditions that may affect performance and to affirm no conditions exist that may affect the progress, performance, or price of the work.
Examining a contract for such clauses before agreeing to sign it and changing these clauses so the duties mentioned are limited to visible conditions and responsibility for unforeseen or hidden site conditions is clearly disclaimed can save a contractor from substantial liability. Therefore it is important a contract be reviewed prior to its execution to ensure no such liability is imposed on the contractor.
When in doubt as to the effect or meaning of a particular clause or whether a contract imposes liability for unforeseen or hidden site conditions, contractors should consult with their attorneys. Alternatively, they should compare the clause in their contract to Article 4.3.4 of the AIA A401 Standard Form of Agreement Between Contractor and Subcontractor. That clause, an example of a fair and reasonable differing site conditions clause, provides that if concealed conditions differ materially from those indicated in the contract documents (commonly referred to as “Type I Conditions”) or if physical conditions are of an unusual nature that differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of that type (commonly referred to as “Type II Conditions”), provided written notice is given promptly and before the conditions are disturbed, the contractor may be entitled to an equitable adjustment in the contract sum, contract time or both.
hidden or unforeseen physical condition is discovered, it is important not to disturb the condition and act quickly to provide written notice. Many contracts provide a small window, sometimes as little as 48 hours, for the contractor to notify the owner/designer/general contractor of a condition it has discovered. Accordingly, upon discovery of a hidden or unforeseen physical condition, contractors should immediately stop working in the area and consult the contract to determine their obligations. Usually, a contract will require written notice to identified parties within a specific period of time, as well as a statement as to the effect on cost and time to complete. After ensuring the condition is not disturbed, complying with the time limitation is the foremost concern and, within the identified time frame, contractors should endeavor to provide as much information as is obtainable. If they are unable to collect or draft all of the required information in the time frame, they should send the information they have along with a note explaining what is missing and advising that they will supplement the notice as soon as they are able. Regardless of whether additional costs are approved as a result of the condition, ensure that separate cost codes are put in place for work performed as a result of, or to overcome, the condition. Accounting should be kept separate for this work to the greatest extent possible.
hidden or unforeseen physical conditions are usually enforceable, subtle aspects of the contract, such as the language used in the inspection clause and the detail with which the work is described, may render the clause unenforceable. Moreover, some states will grant relief to the contractor if both parties shared an affirmative but incorrect belief as to the site condition. Accordingly, contractors should always consult their attorneys for their opinion as to whether the clause is enforceable. If the notice provision does not allow sufficient time to wait for the attorney’s opinion, contractors should proceed as if they were entitled to an extension, an increase in the contract price or both. Not all owners/general contractors will stand on the contract and require contractors to absorb the cost of the hidden condition simply because they are able to. If they keep the lines of communication open and honest, provide prompt written notice of the hidden condition and its effect on their work, a fair and reasonable owner/general contractor may work with them to reach an equitable solution.
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