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Sample Contracting Officer Claim Letter - PowerPoint

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					Differing Site Conditions Claim
Beazley Expert Retreat
June 5, 2007
Overview
 Construction of a sewage pumping station by Government
 Government retained ABC Engineering to prepare the design
  documents
   ABC Engineering retained Dirt Detectives (DD) to perform
     the necessary geotechnical subsurface investigations
 The foundation of pumping station was to extend forty feet
  beneath surface
   Subsurface water at pump house location critical
Overview
 Dirt Detectives took at least 12 borings and performed soil
  tests in order to provide the data for contractors to estimate
  permeability
 Contract documents issued for bidding included boring logs
  and other test results were made available for inspection at
  the offices of DD
Overview
 Bidders Remorse Constructors (BRC) was the successful
  bidder on the project
 Upon construction, BRC determined it had underestimated
  the dewatering operation
   Additional borings were taken at the pump house which
      allegedly differed materially from the boring logs issued
      at the bidding stage
 BRC brought a claim against Government pursuant to the
  differing site conditions clause in the contract
 Government denies the claim
The Players

                            The Government
                               (Owner)




                                             Bidders Remorse
        ABC Engineering
                                               Constructors
        (Design Engineer)
                                               (Contractor)



         Dirt Detectives
         (Geotechnical
           Engineer)
Contracts and Assignment Of Risk

 Participants in construction projects use contracts to define
  roles and responsibilities as well as to assign risk.

 In the absence of agreement in a lump sum project, the
  common law places on the contractor the risk of
  unforeseen contingencies arising during the course of the
  work.
Policy Reason for DSC Clause

 While it may seem favorable to place risk on a contractor,
  the prudent contractor prices the risk into its bid by
  including large contingencies.
 Subsurface conditions are generally considered the most
  significant unknown risk in a construction project.
 Public owners came to understand that placing the risk of
  unforeseen subsurface conditions on the contractor was
  causing all of their projects to be overpriced due to high
  contingencies when only some of their projects actually
  experienced DSCs.
Standard DSC Clauses

 In an effort to bring contract values down, owners began to
  accept risk for unknown differing site conditions through
  the inclusion of “differing site condition” clauses in
  construction contracts.

 The intent of doing so was to cause contractors to lower the
  contingencies in construction contracts which may never be
  needed and result in a windfall to the contractor.
Standard DSC Clauses

 The standard DSC clause reads as follows:
   (a) The Contractor shall promptly, and before such
      conditions are disturbed, give a written notice to the
      Contracting Officer of (1) subsurface or latent physical
      conditions at the site which differ materially from those
      indicated in this contract, or (2) unknown physical
      conditions at the site, of an unusual nature, which differ
      materially from those ordinarily encountered and
      generally recognized as inhering in work of the
      character provided for in this contract.
Standard DSC Clauses

 (cont.)
   (b) The Contracting Officer shall investigate the site
      conditions promptly after receiving the notice. If the
      conditions do materially so differ and cause an increase
      or decrease in the Contractor’s cost of, or the time
      required for, performing any part of the work under this
      contract, whether or not changed as a result of the
      conditions, an equitable adjustment shall be made
      under this clause and the contract modified in writing
      accordingly.
Type I And II Claims
 Subpart (a), above, describes two distinct types of differing
  subsurface condition claims commonly referred to as Type I
  and Type II.
 Type I claims involve a form of misrepresentation in which
  the contract documents inform the contractor about the
  nature of subsurface conditions expected when those
  conditions later are found to be materially different.
 Type II claims involve unknown subsurface conditions which
  are not ordinarily encountered in the region where the work
  is performed given the nature of the work. Because Type II
  claims require that the condition be “unknown,” Type II
  claims can never succeed where the contractor knows of
  the condition whether through contract documents,
  personal inspection, or otherwise.
Type I Claims

 A Type I claim cannot exist if the contract is silent regarding
  subsurface or latent conditions. However, a contractor may
  still have relief in certain circumstances where the owner
  has “superior knowledge” and fails to disclose.

 Type I claims are proven by comparing the information
  indicated in the contract to actual conditions.
Type I Claims
 Conditions “indicated in this contract” come from:
    Plans
    Boring logs
    Field or lab testing
    Soil or rock samples
    Ground elevations
    Reports
    Reference documents
    General or design indications, i.e., inferences that
     reasonably can be made from reading the plans and
     specifications.
Type II Claims

 Burden of proof is heavy on the contractor.

 Type II claims are proved by comparing actual conditions to
  what the contractor would reasonably expect, taking into
  account all factors that a reasonable contractor would
  consider in bidding the work.

 Further, as stated, a Type II claim will not succeed if the
  contractor knew of the unusual condition when it bid the
  work.
Genesis Of Disputes

The DSC clause provides the contractor with a contractual
means of claiming additional compensation from the
owner. Particularly in low-bid environments, contractors
may view the DSC clause as a means to increase its margin
or to reverse project losses.
 The Engineer’s Role
 Once the contractor claims that there is a differing site
  condition, the owner’s engineer has a responsibility to
  investigate the claim promptly and determine in good faith
  whether such differing site condition exists.
 The engineer simultaneously has the duty to protect the
  owner against increased contract costs for site conditions
  that do not differ materially from those indicated in the
  contract or from those normally encountered.
 The Engineer’s Role
 If a contractor change order for a DSC is paid, the owner
  may seek compensation from the engineer if the site
  condition would have been recognized by similarly situated
  professionals.
 If a DSC is found to exist, the Contractor and the Engineer
  normally confer about how to approach it and the owner
  and the contractor negotiate equitable cost and schedule
  adjustments.
Duty to Disclose

 Ordinarily, misrepresentation is founded on an erroneous
  statement of material fact upon which the allegedly harmed
  party reasonably relied.

 In circumstances where courts have found the existence of
  a special relationship, misrepresentation can be founded
  on omission.
Duty to Disclose

 Courts have held that owners have a duty to disclose to the
  contractor pertinent information that the agency possesses
  or knows is available if such information could reasonably
  be expected to have a material effect on bidding or
  construction of the project. Courts base this conclusion on
  the owner’s “superior knowledge” of site conditions.
Duty to Disclose
 Owners can use contractual provisions to attempt to
  mitigate the risk of a DSC claim through omission.

 For example, owners may include contractual provisions
  alerting the contractor to the availability of test
  results/information and placing responsibility on
  contractors for damages resulting from the contractor’s
  failure to seek out such information.

 General disclaimers have a greater likelihood than narrowly
  tailored disclaimers of being deemed unenforceable.
Duty to Disclose Interpretive Information

 Duty to disclose cases most frequently arise out of factual
  information such as a description of a core sample.

 Interpretive information, such as the anticipated capacity of
  the subsurface soils to resist lateral loads, can form the
  basis of a duty to disclose case. However, owners can
  protect themselves by providing only factual information or
  making clear that, notwithstanding the provision of
  interpretive information, the contractor must draw its own
  conclusions.
Bidders Remorse
Constructors
(The Contractor)
Bidders Remorse Constructors (BRC)
 Bid on project based on the 12 boring logs provided in the bid
  package
 Site conditions differed materially from those included in the
  bid
    Should have been provided with bid documents that
      accurately depicted the subsurface conditions
 Incurred costs and delays due to differing site conditions
Bidders Remorse Constructors (BRC)
 AASHTO Manual on Subsurface Investigation states:
     “It is generally considered desirable and prudent to make all
      geotechnical data available to bidders. . .It is also desirable to make
      pertinent interpretative information available to bidding contractors to
      clarify geotechnical aspects of the project and provide a uniform basis
      for bidding. . .”

 Government’s failure to supply all test results
  and analysis with the bid set of documents
  amounts to misrepresentation
 Differing Site Conditions Clause
Bidders Remorse Constructors (BRC)

 Bidders Remorse fulfilled it’s obligations under the contract.

      They produced the low bid contract for the work
      They were reasonable and prudent in their evaluation
       of the contract indications.
      They provided adequate notice of the differing site
       condition.
                    Type I
                    Type II
Bidders Remorse Constructors (BRC)
1.   Did the contract make affirmative representations about
     subsurface conditions?
2.   Was the Contractor reasonable and prudent with respect
     to his interpretation of those indications?
3.   Did the subsurface conditions differ materially from those
     indications, or did the Contractor encounter a subsurface
     condition that could not have been anticipated under
     normal circumstances.
4.   Did the actual subsurface conditions have a direct impact
     on the Contractor’s prosecution of the work?

If the answer to all of the above is yes, then the Contractor
is eligible for compensation under the contract.
Bidders Remorse Constructors (BRC)

  It is now the Government’s responsibility to investigate the
  claim and render an opinion about how to proceed.
    Is the ground truly different?
    Is the ground behaving differently than was anticipated?
    What are the out of pocket and delay costs associated
       with the claim?
  The Contractor is responsible for minimizing the impact and
  completing the project under any circumstance.
Bidders Remorse Constructors (BRC)

  The practical definition of a “Differing Site Condition”:
      Yesterday I was making money and today I am not
      making money. That is my definition of a differing
      site condition.
Dirt Detectives
(The Geotechnical Engineer)
Dirt Detectives (DD)

 Took 12 standard soil boring logs and completed soil tests
    Are not responsible for differing site conditions that fall
     between these boring sites.
 Made no interpretations of data
 Tests and soil samples were made available for inspection
  by the contractor
 Privately noted that the gravel at the site was an indication
  of high permeability
Dirt Detectives (DD)

 DD performed a geotechnical investigation at the site as
  per their agreement with ABC Engineering.
 DD prepared Boring Logs for each boring completed.
 Boring Logs were made part of the Contract Documents.
 Contract Documents required that the Contractor dewater
  the Pump House excavation.
Dirt Detectives (DD)

 Contractor was provided performance
  criteria: Drawdown and maintain ground
  water level 5 ft. below the new foundation
  level.
 Means & Methods of dewatering determined
  by the Contractor.
Dirt Detectives (DD)

Is there a Differing Site Condition?
1. Do the boring logs represent soils encountered during
     construction? Are groundwater levels representative?
2. Should the Contractor have reviewed the available
     information (gradation curves and soil samples) prior to
     bid? Would review of this information indicate more
     permeable soils?
3. Was it the Contractor’s underestimate or lack of
     experience with dewatering that contributed to the
     additional construction costs and delay?
The Government
(Owner)
The Government
 Retained ABC Engineering to prepare design documents for the
  construction of a sewage pumping station
    Relied on these documents to be complete and represent accurate site conditions
    ABC is a mechanical design firm with limited civil/structural experience

 Owner-Contractor agreement provided:
       “The Contractor also acknowledges that it has satisfied itself as to the character,
       quality, and quantity of surface and subsurface materials or obstacles to be
       encountered insofar as this information is reasonably ascertainable from an
       inspection of the site, including all exploratory work done by the Government, as well
       as from the drawings and specifications made a part of this contract. Any failure of
       the Contractor to take the actions described and acknowledged in this paragraph will
       not relieve the Contractor from responsibility for estimating properly the difficulty and
       cost of successfully performing the work, or for proceeding to successfully perform
       the work without additional expense to the Government.”

       “Explorations:…Whenever subsurface exploration logs are presented in the contract
       documents, the soil test results are available for inspection at the offices of Dirt
       Detectives [which is within five miles of BRC’s home office].”
The Government

 Contractor visited site and noted presence of a dry creek
  bed, which may be an indication of high permeability zone
 Contractor should have reviewed all of Dirt Detectives
  subsurface documents before submitting bid
 Upon reviewing documents contractor should have asked
  pre-bid questions if issues arose
ABC Engineering
(The Designer)
ABC Engineering

 Retained Dirt Detectives, a geotechnical engineering firm,
  to perform the subsurface site investigations
 Completed scope of work provided under contract with
  Government
    Provided with limited funds to complete work
    Government restricted access for soil testing or
     monitoring at the proposed site due to restricted access
     from a contested eminent domain taking process
General Considerations

 Recognize that every entity has an “interest” to protect
 Reputation and Money are at the “core” of achieving
  resolution
 Facts, strategy and tactics are crucial to achieve objectives
 Understand where leverage is; remember that life is not
  always fair
 Recognize the “true cost of the fight” – legal costs,
  diversion of personnel - know when to compromise
General Considerations

 Understand “exposure” – it drives decisions
 Contract language is great, except that it takes $$$ to
  enforce – can you afford to “play”
 Understand one’s “BATNA”
 Look for lessons learned – how could this dispute have
  been avoided, we don’t want to be here again
Government’s Interests to Protect

 County Executive promised constituents on-time delivery of
  the facility
 Election year
 New head of Capital Projects Division
 Contingency funds are available
 On-site resident engineer is uncompromising and does not
  care much for BRC
ABC Engineering’s Interests to Protect

 80% of revenue is generated from this Government Agency
 Short-listed on new $450 million facility
 The new pump house is one of ten system-wide facilities
 SIR is $100,000 on a $5 million practice policy; current
  year exposure is $0
 Annual insurance premium is $150,000
 BRC is an out-of-state contractor, no long-term relationship
  expected
Approach to Resolution

 Is there a legitimate entitlement position, and how would it
  be viewed by a third party?
 Who owns the risk and was it a risk, in the eyes of a third
  party, that could be reasonably transferred?
 Is there a sharing of responsibilities and therefore a
  subsequent allocation of costs?
Key Considerations

 No ability to get to the specific site to take additional
  borings or monitor groundwater
 No pump tests for drawdown
 Who is best qualified to provide permeability test, but more
  important, calculating expected flow rate is it an expected
  engineering function – permeability is not the sole
  determinate of expected flow rate
 For a competitive, hard money bid, price variability and
  contingencies can produce a significant range of bid prices
  and thereby render a misleading low bid
Key Considerations

 What was the design consideration for the foundation
  design and pump house floor to resist hydrostatic uplift?
 It seems like, from an engineering point of view,
  understanding the hydrostatic uplift was crucial to know
  both for the permanent design as well as during the
  construction to ensure proper soil strength
 Field notes were not incorporated into the boring logs or
  observation reports
Key Considerations

 In an effort to minimize design costs and reduce the design
  phase duration, the Government’s resident engineer
  reduced the scope of soil investigation by ABC/DD and
  eliminated pumping draw down test
    Option A: In response, ABC wrote a letter to the resident engineer
     advising that the absence of a GBR and eliminating the pumping
     draw down test could result in a contentious situation on the project
    Option B: In response, ABC acquiesced without any
     acknowledgment
Key Considerations

 Through a limited audit and assessment of causal
  relationships it was determined that 50% of the submitted
  claim costs were not justified
 Adequate time available to recover from the delay
 Parties reach an agreement on a structured negotiation,
  highlighting the facts and findings
Analyzing a DSC Claim
 In analyzing a DSC claim, consider the following:
      Are soils and/or rock types materially different from those indicated
       in the contract documents?
      Are soils and/or rock physical properties materially different from
       those indicated in the contract documents?
      Are ground water levels materially different from those shown in the
       contract documents?
      Are ground elevations materially different from those shown in the
       contract documents?
      Should the contractor have recognized the condition during a field
       inspection?
      Did the owner conceal material information?
      Did the contractor provide a prompt written notice of the condition?
      If there is a DSC, what was its effect on the time and cost to perform
       the work?
Contact Information

     Dr. Gary Brierley                            Jason Welch
     Brierley Associates, LCC                     Beazley Group
     2329 West Main Street, Suite 201             20 Batterson Park
     Littleton, CO 80120                          Farmington, CT 06032
     gbrierely@brierleyassociates.com             Jason.Welch@beazley.com
     (303)-703-1405 (tel)                         (860) 677-3765 (tel)
                                                  (860) 679-0247 (fax)

     Ross D. Ginsberg                             Francis J. Arland
     Weinberg Wheler, Hudgins, Gunn & Dial, LLC   Mueser Rutledge Consulting Engineers
     950 East Paces Ferry Road                    14 Penn Plaza-225 West 34th Street
     Atlanta Georgia 30326                        New York, NY 10122
     rginsberg@wwhgd.com                          farland@mrce.com
     (404) 832-9543 (tel)                         (917)339-9318 (tel)
     (404) 875-9433 (fax)                         (917) 339-9400 (fax)


     Philip Helmes
     CRA International
     200 Clarendon Street, T-33
     Boston, MA 02115
     PHelmes@crai.com
     (617) 425-3640 (tel)
     (617) 425-3132 (fax)

				
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