Expect the unexpected: the "experienced contractor" and unforeseen ground conditions
Published on 25th Nov 2015
Disputes over unforeseen ground conditions are a familiar issue for contractors and employers alike. Standard forms of contract contain clauses which contractors often seek to rely on to claim extensions and additional payment. As two recent cases have demonstrated, however, the courts will expect contractors to have applied a considerable level of foresight before they can rely on such clauses.
What’s the issue?
Unforeseen physical,
usually ground, conditions present a major risk for civil engineering projects.
The general rule in law is that in the absence of
terms to the contrary the contractor carries the risk of unforeseen ground conditions.
Unsurprisingly, employers
will generally be keen to ensure the contractor is responsible for anticipating
at tender stage all possible conditions that might affect the works and for the
subsequent time and cost impact where the contractor’s initial assessment turns
out to be wrong.
From the contractor’s
perspective, there is rarely enough time to carry out a comprehensive site
investigation in the period prior to tender. This makes it very difficult for
the contractor to include an accurate price for dealing with all of the
conditions that it might encounter.
Contractors eager to submit
competitive prices in order to win work often feel compelled to adopt an
interpretation of ground conditions most favourable to doing the work cheaply
and quickly, especially where the employer’s own geotechnical consultants have provided
an optimistic assessment at tender stage. In such circumstances, the unwary contractor
may well blindly adopt this without questioning whether such assessment is
correct.
“The experienced contractor”
In order to try and
strike a balance between the interests of the employer and the contractor, both
the FIDIC and NEC standard forms of building and engineering contracts apply an
objective test as to whether and to what extent the contractor should have
allowed for difficult physical conditions in its price and programme (clause
4.12 of the FIDIC Red and Yellow books and clause 60.1(12) of NEC 3rd edition). Each is by reference to what an “experienced
contractor” could reasonably have been expected to anticipate or allow for.
There are notable differences, however, between
the way in which these two very different contracts approach the test of
foreseeability. For example, unlike
FIDIC, the NEC does not deal with the assessment of risk simply on the basis of
whether a physical condition was or should have been foreseeable. Rather, the
assessment of risk under the NEC is more nuanced, factoring in chance and probability.
How is this
interpreted in practice? recent case law
Two recent cases have considered the question
of what an “experienced contractor” could reasonably have been
expected to allow for:
- The Court of Appeal’s decision in Obrascon Huarte Lain SA v Her Majesty’s
Attorney General for Gibraltar [2015] EWCA Civ 712 considered the expression in the context of Sub-Clause 4.12 of
the FIDIC Red Book; and - The Technology and Construction Court’s (TCC’s) decision in Van Oord UK Ltd
& Anor v Allseas UK Ltd [2015] EWHC 3074 (TCC) considered
a claim arising under a bespoke form of contract, but which included a provision
similar to that in Sub-Clause 4.12 of
FIDIC.
Obrascon: conduct your own analysis
This case concerned
a contractor’s appeal against a finding that the level of contamination
encountered in the ground on a tunneling project in Gibraltar should have been foreseeable
to an experienced contractor.
The contractor argued that the ground conditions were unforeseeable because the environmental statement supplied by the employer at tender
stage contained an estimate of contaminated material which was much lower than
the levels of contaminated material actually encountered on
site. It was only after the contractor had commenced its works that the
contractor appreciated this estimate was out by some margin.
The contractor pointed out
that the environmental statement had been commissioned by the employer in order
to discharge certain planning requirements and that the author of the environmental
statement was therefore under a duty to make a proper assessment of the amount
of contamination present and its likely impact. The contractor submitted that
in these circumstances, not only was it obliged to take this estimate into
account when preparing its tender, it was also reasonable to rely upon it.
The contractor’s argument was unanimously rejected
by the Court of Appeal.
The Court of Appeal accepted the trial judge’s finding that an experienced contractor at tender stage would not have limited itself simply to a study of the environmental statement, which was primarily directed towards planning matters.
Rather, an experienced
contractor should have asked itself why the contamination identified in the environmental
statement was there in the first place. The information provided to the contractor
at tender stage indicated that the site was at the end of a runway and near a
fuel farm, on what had for many years been an extensive rifle range. The
contractor should therefore have anticipated the risk that there could be
extensive lead and hydrocarbon residues from these activities in the made
ground on the site.
In upholding Mr Justice Akenhead’s decision in
the TCC, the Court of Appeal also noted that whilst the contractor was bound to take the
estimate provided in the environmental statement into account,that estimate was only “one
person’s interpretation” of
the ground information data taken from the site. Under clauses
1.1 and 4.12 of the FIDIC conditions, the contractor was also required at
tender stage to:
a) Draw upon
its own expertise and experience of previous civil engineering projects; and
b)
Make its own independent assessment of the
available information regarding physical conditions.
What the contractor could
not do was “simply accept someone else’s interpretation of the data and
say that is all that was foreseeable”.
Van Oord: make allowances for more difficult conditions
In this case, the contractor made three disruption and prolongation claims against the employer arising out of an onshore gas pipe line laying contract in the Shetland Islands. One of these claims arose out of what the contractor alleged were unforeseen ground conditions.
The contractor had originally intended to carry out the pipe laying work
by constructing a stone road 8 metres wide, then digging a trench into the
untreated ground immediately to the side of the road into which it would then lay
the pipeline.
However, peat was encountered over a section of the works at a greater
depth than the contractor said it could reasonably have foreseen. As a result of
the less stable ground conditions, it was obliged to build a 13.5 metre wide
stone embankment instead, and lay the pipe within that embankment. The contractor claimed the additional costs of building the stone embankment, as
opposed to the 8 metre stone road.
Mr Justice Coulson rejected the contractor’s claim on the basis that it was inconsistent with the facts. Further, it was not sufficient for the contractor to show that there were pockets of peat deeper than those shown in the probe survey provided to the contractor at tender stage. The court would need to decide objectively whether or not an experienced contractor could reasonably have been expected to have foreseen (and provided for) areas of deeper peat. As the Judge put it:
Based on the evidence that was provided, the Judge found that an
experienced contractor would reasonably have been expected to foresee many
pockets of deep peat along the pipeline. Indeed one of the contractor’s own
witnesses confirmed in cross-examination that that was precisely his
expectation.
What does this mean for contractors?
As the recent Obrascon and Van Oord cases demonstrate, contractors
should not assume when preparing their tenders for works that inaccuracies in
the ground information provided to them at tender stage will necessarily
entitle them to claim more time and money for ground conditions for which they
did not allow.
The decision in Obrascon shows the risk of
adopting, without question, information and analysis provided by others.
The decision in Van Oord suggests that an “experienced contractor”
must consider and make allowance for the possibility that more difficult
conditions exist in parts of the site that have not been subjected to testing.
Whilst clauses like Sub-Clause 4.12 of the FIDIC Red Book and clause
60.1(12) of the NEC 3rd edition are intended to lessen the burden imposed on
contractors, ill-informed contractors
may still find it difficult to show the level of foresight expected of them
under these forms.
The decision in Van Oord is also a timely reminder of the old mantra “records, records, records”. Had the contractor maintained detailed records of the assumptions made regarding ground conditions when preparing its tender, its position and prospects of recovery might well have been dramatically improved.
