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The Issue? Is a written notice of differing site conditions a requisite before filing a claim? A typical construction contract will require the contractor to provide written notice to the owner if the contractor intends to file a claim based on increased costs due to a differing site condition. The purpose of these notice requirements is to enable the owner to investigate the condition and instruct the contractor as to how to proceed.
Can a contractor who fails to literally comply with contract notice requirements have a valid claim? Many courts, particularly at the federal government level, have held that the owner's actual or constructive notice of the conditions underlying the claim may be sufficient to meet the contract's notice requirements when the owner fails to demonstrate that it has been prejudiced by the lack of formal contract notice. However, in Neal & Co., Inc. v. City of Dellingham, 923 P.2d 89 (Alaska 1996), the Supreme Court of Alaska held that the contractor's oral notice was not a sufficient substitute for the contract's written notice requirement because the notice failed to adequately alert the owner regarding the differing site condition.
The project. The owner, the City of Dellingham, solicited bids for the construction of a sewage facility. The contract required the excavation and construction of two
lagoon ponds to be dug into a bluff outside the city. For this excavation work, bidders received a geological survey and data summary. The data summary indicated that "stiff–to–hard clay having low–to–medium plasticity" would be encountered during the excavation.
Soil observations. The contract was awarded to Neal & Company, Inc. (NCI), who commenced with the first excavation in the summer of 1987. During excavation, NCI encountered water bubbling through lenses in the excavation. Concerned that the sand lenses would allow sewage to escape and impair the integrity of the lagoon, NCI discussed the issue with the city's representative, and an engineer was sent to investigate the sand lenses. While testing the lagoon's integrity, the engineer obtained a soil sample from one of the pits. Field notes were taken by the engineer indicating that he saw "clayey silt slightly plastic blue gray moist slightly blocky structure" at the level where the lagoons were to be dug. These soil observations differed from those described in the previous data summary.
During the construction of the lagoons, NCI encountered difficulties due to the soil's consistency. The area had turned into sticky mud, causing problems with excavation and transportation. Subsequently, NCI filed a differing site conditions claim as a result of these difficulties. At no time, however, did NCI provide written notice of the unexpected soil conditions as required by the contract.
The court's decision. In determining whether NCI provided adequate notice to proceed with its claim, the court recognized that an owner's actual or constructive notice of a differing site condition may satisfy a contract's written notice requirements. In this instance, however, the court held that NCI did not sufficiently alert the city as to the existence of the differing site condition.
The court rejected NCI's claim that the city was aware of the soil's consistency when the engineer tested the soil as part of his investigation of the sand lenses. In
particular, the court noted that the reason for the engineer's visit was the issue of water permeable sand lenses, not the consistency of the material to be excavated. First, the field notes regarding "clayey silt" were simply recordings of what the engineer observed at various levels and did not address the focus of his investigation. Second, the soil sample was taken two feet below the level anticipated for the lagoon floors, thereby supporting that the engineer was addressing the integrity of the lagoon floors and not the difficulty of excavation. As a result, the court held that NCI's oral concerns regarding the soil composition related to the issue of the lagoon's floor seepage rather than excavation problems. Because the facts did not support the contractor's contention that it gave "clear non–written notice of a differing site condition," the court dismissed the contractor's claim.
This information is provided by Victor O. Schinnerer & Company, Inc. as the program administrator for the CNA Professional Liability Insurance Policy for Design Professionals. The CNA/Schinnerer Program is the Commended Program of The American Institute of Architects and the National Society of Professional Engineers.
In each issue of Constructive Comments we answer questions on important contractor issues. Do you have a question you would like answered? Please submit all questions to: Attention: Constructive Comments, at info@schinnerer.com or fax to 301-951-5444.
This article is taken from Constructive Comments, Vol. 1, No. 3. The contributing editors are Michael C. Loulakis and Owen J. Shean, shareholders in the Washington D.C. area law firm of Wickwire Gavin, P.C. They can be reached by phone at (703) 790-8750, or by fax at (703) 448-1801.
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