Recent Opinion Affirms Contractor Reliance on Owner-Provided Geotechnical Information

In Metcalf Construction Company v. United States, the United States Court of Appeals for the Federal Circuit added further support for contractors’ reliance on owner-provided geotechnical data. 2014 U.S. App. LEXIS 2515, 2014 WL 519596 (Fed. Cir. Feb. 11, 2014). The decision dealt, in part, with the federal government’s standard differing site conditions clause, 40 CFR 52.236-2; however, the decision may have some impact beyond federal contracts since many other standard contracts employ similar language.

Metcalf Construction Company was the successful bidder on a contract to design and build 188 housing units at Marine Corp Base Hawaii. The Government provided Metcalf and the other bidders with “preliminary” soils information as part of the request for proposals. The bidders, however, were instructed to conduct their own independent investigation of the site. One wise bidder submitted a pre-bid question asking: “This requires an independent investigation after award. . . . Should we infer from this that any unforeseen soil conditions or variances from the Government’s soils report will be dealt with by change order?” The Government responded: “Yes, if there’s a major disparity from the Government’s soil reconnaissance report.”

Metcalf encountered soils significantly different than the government’s soil report indicated shortly after beginning construction on the project. Specifically, the soils were more expansive and susceptible to swelling than indicated in the Government’s preliminary report. In fact, Metcalf’s geotechnical engineer concluded that the building’s foundation would fail under the actual soil conditions unless additional measures were implemented. Accordingly, Metcalf submitted a request to the Contracting Officer seeking compensation for the additional work required to address the actual soil conditions; work that would not have been required if the soils were as the Government’s “preliminary” report indicated. The Contracting Officer denied Metcalf’s request and Metcalf was forced to file suit in the United States Court of Federal Claims under the Tucker Act, 28 U.S.C. §1491(a)(1), and the Contract Disputes Act, 41 U.S.C. §§601-13.

Metcalf lost at trial. The trial court read the contract requirement that Metcalf conduct its own independent investigation as, effectively, placing the risk of unforeseen site conditions on Metcalf. It also found that the pre-bid question and answer—where the Government acknowledged differing site conditions would entitle the contractor to a change order—was nullified after the contract was executed because of Metcalf’s obligation to investigate the site. Metcalf did not accept the trial court’s decision and, instead, appealed to the United States Court of Appeals for the Federal Circuit.

The appellate Court recognized the correct allocation of risks in the contract. The Court reminded the Government of prior decisions noting that the Differing Site Conditions clause exists to take the gamble out of bidding on projects when subsurface conditions are not fully known. It acknowledged that absent some contractual provision allowing contractors to receive an equitable adjustment when differing soil conditions are encountered, contractors would be forced to include large contingencies in their bids—contingencies that may not be needed and that would result in potential windfalls for contractors at the expense of the Government. Further, the Court pointed out the commonsense notion that there is something fundamentally distasteful about the government providing information to bidders, only to then tell the bidder they can’t rely on that information.

The Metcalf decision does not necessarily establish new law regarding the Differing Site Condition clause. Several prior decisions establish the general disfavor of geotechnical disclaimers. Despite this, many recent decisions tend to focus on contractors’ obligations to conduct reasonable site investigations. Some decisions even hold that an owner’s disclaimer of geotechnical data is enforceable notwithstanding that the contract contains a Differing Site Condition clause. To that end, Metcalf is important because it reinforces that, at least on federal contracts which incorporate 40 CFR 52.236-2, contractors may rely on geotechnical data provided by the government, even in the face of a disclaimer.

Of course, the Metcalf decision has its limits. In Metcalf the disclaimer was a little ambiguous. It stated that the “soil reconnaissance report [was] for preliminary information only.” Contractors should still be concerned if they encounter disclaimers that are less ambiguous. Further, Metcalf was a federal contract subject to standard clauses found in the Federal Acquisition Regulations. Contracts with other states, municipalities, or private owners may be subject to different interpretations under legal principles that do not apply to federal government contracts.

The cliché “The best offense is a good defense” certainly applies to contractors who are likely to face differing site condition claims. Contractors should develop a checklist before bidding on any project. That checklist should inquire whether the request for proposal or invitation to bid, specifications, and contract contain the following:

• Geotechnical/soils data
• A geotechnical/soils data disclaimer
• A Differing Site Condition clause
• Any reason to suspect adverse subsurface conditions
• The opportunity for a reasonable pre-bid site investigation

Thinking about these things before bidding on a project, like the wise bidder in Metcalf, may go a long way to ensuring you are not left holding more risk than you bargained for if adverse subsurface conditions are encountered after you get the job.