Contractors often bid projects based solely on information provided by owners and after only a limited site investigation. Yet, owners often use broad risk-shifting provisions in their contracts to disclaim responsibility for problematic site conditions that may arise, even if the discovered condition differed from information provided by the owner in the bid or contract documents. Although courts do not always enforce these broad provisions in light of specific representations made elsewhere in the contract by an owner, they are enforceable if properly written. Therefore, contractors should carefully consider and negotiate contract provisions that attempt to broadly shift risks concerning site conditions to the contractor.
SITE CONDITIONS CLAUSE
A site conditions clause is a contractual provision used to shift the risks (usually to the contractor) for certain conditions at the project site that may affect the work. The provisions often require the contractor to acknowledge that he or she has investigated the site and has considered all conditions that may affect the work prior to submitting the bid. Here is an abbreviated example: “The contractor has examined and familiarized itself with the site and physical conditions, as well as all local conditions of the site and surrounding area and any other factor which may affect the contractor’s work or costs thereof, all of which are being considered in the contractor’s price.” These provisions sometimes require the contractor to correlate the site conditions with the information provided by the owner to confirm that the conditions are not in conflict with the contract documents. Site investigation provisions are often coupled with a statement that the contractor assumes full responsibility for any site condition pertaining to the work and that the contractor will not seek additional compensation if different site conditions are later found.
But a contractual duty to generally familiarize oneself with the construction site does not typically require more than a visual observation. And where an owner has previously provided information concerning the site conditions, courts are hesitant to enforce an owner’s attempt to broadly shift the risk for site conditions to the contractor through general contract disclaimers.
However, disclaimers that specifically disclaim information or place responsibilities on the contractor may be enforceable. For example, owners may provide information such as a soil report or other reports addressing underground obstructions with a warning to the contractor that the information in the report is not guaranteed. Or the owner may want the contractor to investigate and assume responsibility for certain specified conditions at the site. In either case, the contractor should reasonably know what is expected or what information is not reliable. An example is found in the MasTec North America, Inc. v. El Paso Field Services, L.P. case decided by the Texas Supreme Court in 2012. In that case, the owner provided the contractor information on underground crossings in a right of way, but otherwise contractually required the contractor to accept all the risks of the crossings, to investigate the right of way and confirm the locations of crossings prior to digging. The Court held that the contractor’s assumption of “ ‘all risk’ in connection with physical conditions … must mean all risk” and “the Court’s role is not to redistribute these risks and benefits but to enforce the allocation that the parties previously agreed on.”
WHAT SHOULD CONTRACTORS DO?
What are contractors to do when faced with broad risk shifting site conditions clauses and other duties to independently investigate the site and contract documents? First and foremost, contractors must try to avoid accepting “all risk” provisions, particularly those that address site conditions that the contractor cannot independently verify with certainty. If the contractor can obtain exceptions to broad all-risk shifting provisions, those exceptions should be clearly stated and should appear in the same provision where the all-risk provision is found, not left buried elsewhere in plans, specifications or bid documents.
Contractors should also avoid representing that they have visited and investigated the site if they did not actually do so. When investigations are conducted, they should be documented to show the contractor acted reasonably and diligently to investigate the site and verify the accuracy of the information provided by the owner. Contractors should also be careful when describing in the contract the manner in which investigations were conducted. Stating in the contract that the contractor has carefully examined the local and site conditions places a strong emphasis on that which was examined, as opposed to more general phrases such as “the contractor has become familiar with” or “acquainted itself with” the project site and its conditions.
Contractors should carefully consider and negotiate site and local conditions provisions that broadly assign risks of differing conditions to the contractor. Contractors that do not do so may find themselves accepting risks that they are not prepared to handle along with costs that they did not anticipate incurring. ■
About The Author:Anthony D. Whitley is a construction attorney and shareholder in the Houston office of Ford Nassen & Baldwin P.C. (www.fordnassen.com), which is nationally recognized in the industry and is one of the largest construction law firms in Texas. His practice involves counseling and advising all participants in the construction industry in both the public and private sectors on issues including contract creation and review, lien and bond law, dispute resolution and negotiations, and litigation. He can be reached at firstname.lastname@example.org or 281.953.7700.
Modern Contractor Solutions, March 2013
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