| Date | 7 March 2007 |
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| Judgment | General |
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| The Issue | Examining claims for unforeseen ground conditions. |
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| Implication |
There is no standard way in which unforeseen ground condition claims may be resolved. Reference must be made to the specific terms of contract as a starting point in examining any such claims. |
printIt is said that as many as 25% of construction and engineering projects are delayed by unforeseen ground conditions. Whilst this percentage may appear high, the really surprising issue is the inconsistent way in which standard forms of construction contract seek to deal with the problem. There is no single set of rules which govern the discovery of unforeseen ground conditions and no acknowledged ‘best practice’ when it comes to risk allocation and procurement practices. The starting point is the initial ground investigation report. These reports are all too often hopelessly inadequate. They are procured at minimum cost, sampling at best a tiny fraction of the site, and often prepared in isolation from, and in ignorance of, the intended development of the site. The responsibility for preparation of the initial ground investigation report rarely lies with the party who will carry out the structural design of the project. This contributes to an uncertainty over the allocation of the risk of adverse ground conditions which pervades almost all construction contracts. If the ground investigation has been carried out in this isolated and superficial manner, it is inevitable that its author will heavily qualify his findings and disclaim responsibility for any errors or omissions in the report. Plainly, in such circumstances, the value of the report will be minimal. Moreover, the contractor may be unable to carry out more extensive site investigations during the period available to prepare his tender. The use to which the initial ground investigation report is put will vary from contract to contract. Take for example the latest FIDIC forms. The Red (employer design) and Yellow (contractor design) books follow a ‘traditional’ forseeability test when adverse physical conditions are discovered on site. Clause 4.10 requires the employer to have made available all relevant data in his possession on sub-surface conditions, not later than 28 days prior to the submission of the tender. Clause 4.11(b) dictates that the contractor is deemed to have based the contract amount on such data. The bottom line here is that the employer warrants the accuracy of the information he has provided and the contractor is only responsible for interpreting the data provided to him prior to tender. Under Clause 4.10 the contractor is also deemed to have obtained all necessary information as to risks which may influence or affect his tender for the works. He is deemed to have inspected and examined the site and other available information. However, these "deeming" provisions are limited to the extent that the investigation by the contractor is practicable, taking into account cost and time. Clause 4.12 then sets out the allocation of risk between the parties. The employer carries the risk of physical conditions which could not have reasonably been foreseen by an experienced contractor at the date of the tender. Physical conditions are defined as both natural physical conditions and man-made and other physical obstructions and pollutants. This follows the well established clause 12 provisions of the ICE forms of contract. The use of the term “reasonable” creates difficulty in itself. Contractors will frequently argue that if the engineer’s design shows that the engineer did not envisage particular physical conditions, there is no reason why an experienced contractor should have foreseen them. Arguments will also be made concerning whether the “reasonable forseeability” should attach to events which would be very likely to occur in the circumstances, or should apply only to very remote occurrences. If this were not already difficult enough, this is an aspect of the contract that is often amended in order to transfer a greater risk burden to the contractor. Instead of taking responsibility for conditions which could not reasonably have been foreseen, the contract may narrow the employer’s risk allocation to ‘unforeseeable’ events. This difference inevitably leads to arguments. In simple terms if ground conditions are ‘unforeseeable’ then they will remain unforeseen until they are discovered by accident in the execution of the work. Whatever steps the contractor can undertake to investigate site conditions prior to fixing the price for the works will give him greater confidence in his tendered price. By definition however, the contractor will remain liable for all ground conditions encountered unless he can show that no matter what investigations had been carried out, the conditions would not have been discovered until the works were commenced. By contrast, ‘unforeseen’ ground conditions are far more common, in that they are only unforeseen because the extent of geotechnical investigations has been limited and insufficient data has been recorded to allow a proper assessment of the ground conditions. The FIDIC Silver (turnkey) book takes this one step further. As with the Red and Yellow books the employer is obliged to make available to the tendering contractors all information it has concerning the site conditions. Here however, the similarity ends. The contractor is responsible for verifying as well as interpreting the data provided to him. The bottom line under this form is therefore that the employer offers no warranty as to the sufficiency or completeness of the information provided. Thus, under the Silver book the risk of adverse ground conditions lies fairly and squarely with the contractor. Clause 4.12 provides a ‘catch all’ statement to the effect that the contractor accepts responsibility for all difficulties and costs in completing the works. In conclusion, if a contractor faces delay and additional costs as a result of an unforeseen ground condition, and he asks his lawyers or consultants what his remedies are, he will be given the old faithful response: “it depends”. It depends on what actual conditions have been encountered, it depends on what investigations were carried out prior to executing the contract, it depends upon the precise wording of the contract and, in many cases, it will depend upon one person’s view of what is reasonable.
CJ-0709
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