100 Years of Differing Site Conditions
San Antonio attorney Christian Trevino wrote an article for the April edition of Construction News magazine. Christian examines the evolution and practical impact of differing site conditions (DSC) clauses in construction law. Tracing their origins to early federal projects, he explains how these provisions allocate risk when unforeseen site conditions arise. The article outlines the two primary types of DSC claims and underscores the importance of contract language, proper documentation, and timely notice in preserving recovery. Ultimately, Christian highlights that while DSC clauses promote fairness and efficiency, their effectiveness depends on careful drafting, strong project administration, and a clear understanding of how courts interpret these provisions.
Construction projects are all about risk vs. reward—a constant evolution of mitigation and allocation. Everyone is asking the same question: how do I decrease my risk and maximize my profit? From bidding projects to finalizing contract negotiations, today, more and more of a party’s risk portfolio is being determined on Teams calls rather than in jobsite trailers. Once the ink is dry, owners, general contractors, and subcontractors alike live in a world of constant adjustments to comply with contractual obligations and complete the project within a set time and budget. But what happens once ground is broken? What happens when you find that the ground beneath you isn’t really what you thought it was? Who pays for it? Why? These critical questions are generally answered by differing site condition (DSC) clauses.
Beginning in 1926, the federal government began inserting DSC provisions to alleviate some of the risk for subsurface conditions in federal projects. In doing so, the resulting bids were more competitive, as parties were no longer forced to price in heavily weighted contingencies to expect the unexpected, and a tenet of construction law was formed. In the 100 years since, DSC clauses have continued to evolve in their formation, application, and adjudication.
Today, a DSC clause relieves the contractor of assuming the risk of encountering unanticipated or unusual site conditions and provides a remedy—typically through a change order or claim—allowing the parties to mitigate their risk of loss when the unexpected happens. Common examples of differing site conditions include unanticipated soil conditions, unexpected water conditions (whether static or permeable), quicksand, muck, and rock formations that are either excessive or insufficient for the planned work, as well as artificial or manmade subsurface obstructions. Notably, DSCs are not limited to buried, subsurface conditions that cannot be seen. DSCs can also include conditions above the surface, including drywall, man-made structures, preexisting structures, fixtures, and rock formations.
A claim for a differing site condition will depend on the condition encountered and the contract language. Generally, there are two types of DSCs: Type I and Type II. A Type I claim depends primarily on the interpretation of the contract documents as compared to the actual conditions encountered at the project site. A Type II claim, by contrast, focuses on whether the conditions encountered were so unusual as to be abnormal for the particular locale. Although the distinction between the two types is important for classification purposes, the overall approach for evaluating and making these claims is largely the same.
Industry-standard contract documents reflect this framework. The American Institute of Architects (AIA) publishes nearly 200 contracts and forms recognized throughout the design and construction industry as the benchmark documents for managing transactions and relationships involved in construction projects. One of the more common contract documents, the A201-2017 General Conditions of the Contract for Construction, contains the governing conditions, representations, and obligations for performance under a construction contract. Specifically, Section 3.7.4 of the A201-2017, in relevant part, states:
If the Contractor encounters conditions at the site that are (1) subsurface or otherwise concealed physical conditions that differ materially from those indicated in the Contract Documents or (2) unknown physical conditions of an unusual nature that differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the Contract Documents, the Contractor shall promptly provide notice to the Owner and the Architect before conditions are disturbed…
The purpose behind Section 3.7.4 of the A201-2017 is straightforward: it allows the parties to press pause and assess the conditions and their impact(s). From here, the Architect will make a determination on time and cost impact, including the issuance of any necessary change orders. If either party disputes the Architect’s determination, that party is allowed to submit a claim in accordance with the dispute resolution procedures found in the contract.
DSC provisions are intended to promote equity and transparency in construction contracts, but no two DSC provisions are exactly the same. A seemingly routine contractual provision can still be revised to contain waiver language or stringent notice requirements that impact a contractor’s ability to recover. Before signing your contract, thoroughly review your DSC provisions—what are you representing about site inspections, what all is in the contract documents, how fast you have to give notice, do you have to stop work, and are you actually entitled to both time and money? Even the most unambiguous of contract clauses can be interpreted differently, especially by those with competing interests. That’s why the careful drafting and negotiation of your contracts is so critical, but the project administration can be just as important. Questions such as what constitutes a “material” difference and what is “unusual” are fact-specific inquiries that require proper documentation, timing, and consistency in project records. It is one thing to have a tool in your tool belt; it is another to know how to use it. The better your documentation, the stronger your claim.
Courts have generally allowed parties to enjoy the benefit of their bargains with respect to express contract negotiations and differing site conditions, but equity remains a close consideration. Courts are forced to answer fundamental questions: What was reasonable? What differs materially? What is truly unforeseeable? The introduction of differing site conditions into contract clauses has brought risk-sharing, lower aggregate costs, and a greater emphasis on the pre-construction phase to construction projects across the country, but the law on differing site conditions is not settled yet. As technology continues to advance, parties will have more detailed and reliable information upon which to base their contract negotiations—a development that may serve to the detriment of those with less bargaining power. In the next 100 years, contracting dynamics on construction projects are sure to evolve with this increase in information and use of technology. But the next time a DSC comes up, before you start x-raying the ground, give us a call—we’d be glad to help.
About the Author
Christian Trevino is an attorney in Cokinos | Young’s San Antonio office, focusing on construction law and commercial litigation. Raised around his family’s construction business, he brings firsthand industry insight to matters involving mechanics’ liens, construction defects, contract disputes, and negotiations. Christian earned his bachelor’s degree in Economics from Texas A&M University and his law degree from the University of Texas School of Law, where he held multiple leadership roles. He can be reached at 210-293-8738 or ctrevino@cokinoslaw.com.
About Cokinos | Young
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