Government Can’t Use Contract’s General Disclaimer of Reliance on Site Information to Deny Differing Site Condition Claim (Metcalf v. U.S. precedent)

By: J. kent Holland, Jr.

The U.S. Army denied a differing site condition claim of its contract that allegedly encountered subsurface rock conditions as well as ground water conditions, differing materially from what was represented in a geotechnical report provided to bidders. In response to the contractor’s lawsuit alleging differing site conditions, superior knowledge, breach of good faith and fair dealing, and misrepresentation, the government filed a motion to dismiss. The U.S. Court of Federal Claims denied the government’s motion, stating that it found all of the government’s arguments to be unpersuasive, particularly the arguments how the geotechnical was to be used and relied upon by the contractor. It also rejected the Army’s argument that general language in the contract regarding site conditions was exculpatory and eliminated the contractor’s differing site condition claim. The language in question stated, “variations may exist in the subsurface between boring locations” and that contractors should “review the geotechnical information provided, assess if any additional subsurface information is required, and develop a plan … to … perform laboratory or field testing, and install and monitor [ ] piezometers.” ASI Constructors, Inc. v. Untied States, 129 Fed.Cl. 707 (2016).

With the request for proposals, the U.S. Army Corps of engineers (USACE) included project specifications and a 212 page geotechnical report describing the site conditions and results of geotechnical testing conducted by the Corps and various contractors. The report stated its purpose was to “share insights into the site geology, water table information, [and] select laboratory and field instrumentation and field data considered relevant to the design of the new shoring system at the site of the weir.”

In its suit, the contractor alleged that its proposal was based on the assumption that the geotechnical information in the report represented actual site conditions. What it actually encountered was highly fractured rock, and excessive ground water flow, both of which it asserted were materially different from the conditions shown in the report.

The government sought dismissal of the suit on the grounds that the contract documents didn’t affirmatively represent that the rock was not pervasively fissured and that the water table at the site didn’t have active water flowing into it. “It also argued that certain caveats and disclaimers contained in eh contract documents precluded ASIA from relying upon representations in the [ ] Report as a basis for its DSC claims.” This argument was rejected by the court as a basis for a motion to dismiss, with the court explaining:

“The government’s arguments are unpersuasive. While the interpretation of a contract involves a question of law, ‘the question of what meaning should be given by a court to the words of the contract[ ] may sometimes involve questions of material fact and not present a pure question of law.’” [citations omitted]. In this case, the primary contract document upon which ASI relies for its DSC claims is the 212–page ERDC Report entitled “Summary and Interpretation of Select Laboratory and Field Test Results in Support of a Temporary Shoring System at the Weir of the Canton Dam Auxiliary Spillway.” The ERDC Report contains highly technical descriptions of site conditions and numerous tables, graphs, and drawings that present the results of geophysical tests conducted by the Corps and various contractors. Interpreting the text and the test results set forth in the ERDC Report manifestly involves more than legal analysis; as described below, it requires factual determinations for which expert testimony would likely be needed. Such determinations cannot be made in the context of a motion to dismiss.”

The court further explained the government’s argument that the Report merely provided qualified speculation concerning site conditions that could not be relied upon by bidders. “The government argues that the statements in the ERDC Report which ASI cites in its complaint employ words such as “speculate” and “suggest,” which are not sufficiently “affirmative” or “unqualified” to serve as the basis for a DSC claim. See Def.’s Mot. at 7–10. It contends that the statements “merely provided qualified speculation based on the limited data available.” Id. at 7. In addition, the government cites the following clause, contained in the contract’s “soil and rock anchors” specification, which it claims “expressly precludes ASI from asserting a differing site condition claim based on rock fissures”: A foundation investigation has been made at the site by the Government and data is presented on the foundation exploration drawings. Subsurface soil data logs are shown on the drawings. While the foundation information is representative of subsurface conditions at the respective locations, local variations in the characteristics of the subsurface materials may be anticipated. Local variations which may be encountered include, but are not limited to, classification and thickness of rock strata, fractures, and other discontinuities in the rock structure, and variation in the soil classifications. Such variations will not be considered as differing materially within the purview of the CONTRACT CLAUSES, paragraph Differing Site Conditions.

The court found the argument unpersuasive because the contractor was not relying upon particular passages of the Report in isolation as the basis for its claim but rather that the Report “as a whole, including the extensive test result data it contains, supplied such representations.”

The court also rejected the government’s argument that ground water information contained in the Report could not be relied upon by bidders because of statements in the report that “additional groundwater studies should be conducted to confirm whether the Dog Creek Shale has the capacity to transmit ground water in the vicinity of the weir excavation.” This argument was premature, said the court, to consider in motion for dismissal.

“Finally, the Court also declines to dismiss ASI’s DSC claims based on certain general language regarding site conditions that is included in the contract documents. In particular, the government cites Section 02 00 00 of the contract, which states that “variations may exist in the subsurface between boring locations” and that contractors should “review the geotechnical information provided, assess if any additional subsurface information is required, and develop a plan … to … perform laboratory or field testing, and install and monitor[ ] piezometers.” Def.’s Mot. at 7–8 (quoting Def.’s Mot. App. at DA010).

It is well-established that, assuming contract documents make affirmative representations about site conditions, “broad exculpatory clauses … do not relieve the defendant of liability for changed conditions.” United Contractors v. United States, 177 Ct.Cl. 151, 165–66, 368 F.2d 585 (1966) (internal quotation omitted); see also Woodcrest Constr. Co. v. United States, 408 F.2d 406, 410 (Ct. Cl. 1969) (“[G]eneral portions of the specifications should not lightly be read to override the Changed Conditions clause.”). Further, to the extent that the contract documents suggest—as they appear to do here—that additional testing should be performed “by the contractor” after a contract is awarded, “the natural meaning” of such a clause is that, “while [a contractor] would investigate conditions once the work began, it did not bear the risk of significant errors in the pre-contract assertions by the government about the subsurface site conditions.” Metcalf Constr. Co. v. United States, 742 F.3d 984, 996 (Fed. Cir. 2014).”

On the Superior Knowledge Claim, in denying the government’s motion to dismiss, the court stated to survive a motion to dismiss, ASI need not allege facts sufficient to show that the contract specifications misled it. Rather, said the court, “it is sufficient that it allege facts that show that the specifications “did not put it on notice to inquire” about the conditions at issue. But, more to the point, the question of what information was supplied to ASI in the contract documents, and whether it was misleading, again depends upon how the ERDC Report and its findings are interpreted. Thus, for the same reasons that the Court found it inappropriate to address the ERDC Report’s interpretation in the context of a motion to dismiss the DSC claims, it also declines to do so in considering whether to dismiss ASI’s superior knowledge claims.”

Comment: This decision is important for how it frames the issue of a bidder’s right to rely upon information contained in geotechnical reports and other documents provided by the government with the bidding documents. Citing the important decision in the case of Metcalf Construction v. U.S., the court once again has explained that it will not accept general caveat language in geotechnical reports, or general disclaimer in a contract concerning site conditions to be a basis for denying a differing site condition claim. The differing site condition provision of a federal contract accomplishes the important purpose of saving the government costs by eliminating the necessity of bidders to include large contingencies in their bids for potential differing site conditions. By compensating a contractor when it actually encounters conditions materially different from what was indicated in the contract documents, the contractors are treated fairly and the government saves money in its overall federal procurement program.

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 19, No. 7 (July 2017). Copyright 2017, ConstructionRisk, LLC