The U.S. Court of Federal Claims recently issued a decision arising from work at an Oklahoma dam that contains two holdings on Type I differing site condition claims (“DSC claims”) helpful for contractors asserting such claims.[1]  Type I differing site conditions are site conditions which differ in a material way from the site conditions indicated in the contract.[2]  The decision indicates that a contractor will nearly always survive a motion to dismiss a Type I DSC claim where the contract documents contain technical information about the site conditions and indicates such a claim will survive a motion to dismiss based on a contract term providing for local variations in the site conditions.

The spillway for an Oklahoma dam was deemed inadequate and to resolve the issue, the U.S. Army Corps of Engineers planned a two phase project.  Phase I was the construction of an auxiliary spillway, and Phase II was the construction of improvements to stabilize the existing spillway.  The contractor performing Phase I encountered higher than expected, flowing groundwater, made a DSC claim, and settled with the Corps.  The Corps then issued a request for proposals for Phase II which included an engineering report with a site description and geotechnical testing data, but which did not mention the groundwater encountered by the contractor that performed the Phase I work.

ASI Constructors, Inc. was awarded the Phase II contract and alleges it asked about, but was never told of, any unexpected condition encountered during Phase I.  ASI began performing the work but encountered two unexpected conditions: fissured rock and flowing ground water.  The fissured rock caused the failure of tiebacks, and ASI had to modify the drilling method for installing the tiebacks resulting in additional time to complete the work.  The flowing groundwater was the same condition encountered by the Phase I contractor and caused ASI to perform additional, unanticipated dewatering.  ASI sought an equitable adjustment, the Corps denied the request, and ASI filed suit.

The Corps moved to dismiss ASI’s DSC claim on the basis that the contract did not make representations about site conditions.  Specifically, the government asserted that the contract documents did not explicitly represent that the rock was not fissured and that the groundwater was not flowing.  The Court looked to the 212 page engineering report included in the contract documents and denied the government’s motion to dismiss.  While the interpretation of a contract’s terms is a legal question that can be resolved through a motion to dismiss, the Court found that determining the meaning of technical specifications in a contract and whether those specifications can give rise to a DSC claim is a question of fact that cannot be resolved through a motion to dismiss, holding:

“Interpreting the text and the test results set forth in the [report] manifestly involves more than legal analysis; as described below, it requires factual determinations for which expert testimony would likely be needed.  Such determinations cannot be made in the context of a motion to dismiss.”[3]

In other words, reading the technical information about site conditions provided in a contract and determining what that information should cause a reasonable contractor to understand is a factual issue, not a legal issue that can be resolved through a motion to dismiss.  As a result, contractors can use this to argue that whenever a contract provides any information about site conditions, a contractor’s DSC claim survives a motion to dismiss because of the need to make factual determinations.

Additionally, the decision addressed an argument by the government that a disclaimer provision in the contract specifications barred ASI’s reliance on the contract’s site condition descriptions and any resulting DSC claim.  The specifications provided that the information was only “representative of subsurface conditions,” there may be “local variations in the characteristics of the subsurface materials,” and such variations do not constitute material differences from the contract descriptions of the site conditions and therefore cannot give rise to a DSC claim.  The Court rejected the government’s position that the DSC claim should be dismissed based on this provision on the basis that factual development was necessary to determine whether any condition encountered at the site was only a “local variation” or was a differing site condition.

[1] ASI Constructors, Inc. v. US, 129 Fed. Cl. 707 (Dec. 20, 2016).

[2] A Type I differing site condition is distinguished from a Type II differing site condition which is a condition different from the conditions normally expected for the work being performed.

[3] ASI Constructors, Inc., 129 Fed. Cl. at 718.