For piling contractors, the potential Armageddon is always the unknown – pricing conditions that are unavailable to the naked eye and simmer beneath the surface.
Consider the following scenario, which most, if not all, piling subcontractors have had the misfortune of experiencing in some form: a municipality’s geotechnical baseline report forecasts a basal till layer at 62 feet below grade and a dense sand layer at 15 feet. Shortly after drilling begins, the piling subcontractor discovers that both layers are significantly deeper than anticipated. Costs escalate as the original construction approach becomes increasingly impractical. The contractor submits a claim for additional work, which the municipality rejects, pointing to the contract’s site investigation clause.
Site investigation clauses are common in municipal construction contracts. They typically state that owners do not warrant the accuracy of geotechnical information and that contractors must satisfy themselves as to site conditions before bidding. In practice, that obligation can be difficult to fulfil. Tender periods are often short, and obtaining access to conduct meaningful subsurface investigations before submitting a bid may be impractical or prohibitively expensive.
Municipal owners often possess geotechnical information about a project site while limiting responsibility for its accuracy through contractual disclaimers. Contractors, meanwhile, may bear the financial consequences when subsurface conditions differ materially from what was anticipated, despite having had little practical opportunity to independently verify those conditions. These consequences can be significant, even where the conditions are beyond a piling contractor’s control.
For piling contractors bidding on municipal work, understanding, navigating and carefully allocating these risks is critical before submitting a bid. The following considerations can help contractors flag potential exposure and better protect their position.
Start with a geotechnical baseline report
Every construction contractor understands that reliable geotechnical information is essential to pricing and executing a subsurface project. Geotechnical baseline reports (GBRs) can assist contractors in making several decisions. Selecting the appropriate equipment, establishing the correct construction methodology and generally assessing risks are all important considerations before a contractor submits its bid. Municipalities will often provide some form of geotechnical information during the tendering period, although they may expressly disclaim responsibility for its accuracy.
A GBR is purportedly designed to establish the parties’ agreed interpretation of anticipated subsurface conditions. By creating a baseline against which actual conditions can be assessed, it allows bidders to price the identified risks more accurately.
Owners also have an incentive to disclose what they know, since any risk omitted from the tender documents may ultimately be reflected in project pricing. Where tender documents do not contain a GBR, contractors should consider requesting one. A GBR does more than compile geotechnical data; it establishes the parties’ shared understanding of anticipated subsurface conditions and the risks associated with them.
Ultimately, a contractor’s rights and remedies will depend on how the contract allocates the risk of unforeseen subsurface conditions.
Where no GBR is provided, contractors may face greater difficulty recovering costs associated with unforeseen subsurface conditions. Without a clear baseline, it can be difficult to establish that actual conditions differed materially from what was reasonably anticipated at the time of bidding. Where an owner has made no representation regarding subsurface conditions, a contractor will understandably have limited grounds to subsequently argue that those conditions were misrepresented once construction begins.
Contractors should also examine the wording of any GBR carefully. The utility of a GBR that is overly broad or heavily qualified is limited, as it provides a contractor with little, if any, protection. Non-specific baseline statements, worst-case scenario language and provisions that shift responsibility for differing conditions to the contractor can make it difficult to price the risk accurately. Ultimately, a contractor’s rights and remedies will depend on how the contract allocates the risk of unforeseen subsurface conditions.
Beware of site investigation clauses
When a municipality provides a GBR or other geotechnical information, bidders will typically rely on that information to price the work and plan their means and methods. However, what governs a contractor’s ability to rely on or challenge the accuracy of a GBR is the plain reading of the contract. Construction contracts routinely include “site investigation” and “full investigation” clauses. These provisions generally state that the municipality does not warrant the accuracy of its geotechnical information and that contractors must conduct their own investigations to satisfy themselves as to site conditions before bidding.
Courts across Canada have recognized that, in certain circumstances, where tight tendering timelines make independent investigations impractical or economically infeasible, an owner may not be able to rely on such clauses to defeat representations made during the tendering process. In some circumstances, contractors may also have a claim where an owner fails to disclose material information within its knowledge.
That said, contractors should not assume that courts will relieve them of their contractual obligations. The contract remains the primary source of the parties’ rights and obligations. Courts, including the Supreme Court of Canada, have strictly enforced full investigation clauses even where subsurface conditions materially differed from those described by the owner.
Contractors bidding on municipal projects should therefore review site investigation provisions care fully and assess whether the potential return justifies the geotechnical risk being assumed. Where independent verification is not realistically possible, contractors should ensure that the uncertainty is reflected appropriately in their bid price. As the Supreme Court of Canada has recognized, contractors may benefit when soil conditions are more favourable than expected. It follows that contractors conversely bear the risk when conditions prove less favourable.
Claims outside the contract: Negligent misrepresentation
Where contractual language limits recovery for changed site conditions, a contractor may still explore whether a claim for negligent misrepresentation is available. These claims are typically grounded in allegations that an owner or consultant provided inaccurate information and that a contractor’s reliance on that information was reasonable.
Courts have recognized that pre-contractual representations can, in appropriate circumstances, form the basis of a negligent misrepresentation claim even where the parties have subsequently entered into a contract that provides otherwise. Specifically, a party may have a right to sue despite an exclusionary clause if the circumstances warrant considerations beyond the plain reading of the contract.
Without a clear baseline, it can be difficult to establish that actual conditions differed materially from what was reasonably anticipated at the time of bidding.
Owners may rely on contractual disclaimers of liability, including non-reliance clauses, to defend such claims. However, courts have found that reliance on owner-provided information may be reasonable where contractors have little practical ability to independently investigate site conditions during the tender period. Contractors should preserve tender documents, geo technical reports, specifications, all correspondence and pre-bid communications, as those materials may become important evidence if the accuracy of owner-provided information is later disputed.
Contractors should also recognize that their experience may, in some circumstances, hinder their ability to advance a claim. Courts expect contractors to exercise the level of business judgment reasonably expected of a specialist in the field. Claims are less likely to succeed where contractors misinterpret available geotechnical information, select inappropriate construction methods or adopt unrealistic schedules.
Know your adjustment clauses and notice requirements
Some construction contracts include mechanisms for allocating the risk of unknown or concealed site conditions. These provisions, often referred to as “adjustment clauses,” may allow a contractor to seek an adjustment to the contract price when subsurface conditions differ materially from those indicated in the contract documents. Similar provisions are commonly found in standard CCDC 2 contracts.
Adjustment clauses can provide an important measure of balance between the owner and contractor. However, that protection is often subject to strict procedural requirements. In particular, contracts may require contractors to provide notice within a specified period and in a particular manner immediately after discovering the changed condition. Courts have routinely found that failing to comply with contractual notice requirements can be fatal to an otherwise valid claim.
Contractors should therefore identify these requirements before work begins and ensure project teams understand when notice must be provided, to whom it must be delivered and what information it must contain.