|February 26, 2014|
Previously published on February 20, 2014
Thanks to a recent decision by the Court of Appeals for the Federal Circuit, in Metcalf vs. U.S., the protection afforded by the Differing Site Conditions clause has been reaffirmed. Although the Court primarily addressed the requirement that federal agencies must demonstrate good faith and fair dealing in the administration of federal contracts, the Court also made an important ruling on the meaning and purpose of the Differing Site Conditions clause. Reversing a decision by the U.S. Court of Federal Claims that had been vigorously opposed by federal construction contractors and industry groups, the Court of Appeals ruled that:
“Requirements for pre-bid inspection by the contractor have been interpreted cautiously regarding conditions that are hard to identify accurately before work begins, so that the duty to make an inspection of the site does not negate the changed conditions clause by putting the contractor at peril to discover hidden subsurface conditions or those beyond the limits of an inspection appropriate to the time available."
It is not uncommon for federal agencies to attempt to write the Differing Site Conditions clause out of the contract by discouraging contractors from relying upon representations of subsurface conditions in the solicitation. We have seen solicitations that tell contractors that borings are not to be interpreted as representative of subsurface materials beyond the individual bore holes; that bidders should make their own determinations of subsurface conditions; or, that information in the solicitation is for “informational purposes only.” What these agencies overlook is that the purpose of the clause is to allow all contractors to compete on the same basis, and without the need to put contingencies in their bids.
Fortunately the Court recognized the importance of maintaining the protection afforded by the Differing Site Conditions Clause, stating that “[i]t exists precisely in order to take at least some of the gamble on subsurface conditions out of bidding.” The Court further stated that “instead of requiring high prices that must insure against the risks inherent in unavoidably limited pre-bid knowledge, the provision allows the parties to deal with actual subsurface conditions once, when work begins, more accurate information about them can reasonably be uncovered.” This is great news for federal construction contractors who, prior to this decision, may have been misled into believing that the risk of differing site conditions had shifted entirely to them.