Proper Risk Allocation during Construction: Differing Site Conditions

Abstract

Differing site conditions are encountered on site when the actual conditions are materially different from those included in the contract documents (Type I) or from those reasonably expected by the project team given the type of work performed on site (Type II). In both cases, the damages associated with differing site conditions can cause the failure of the entire project if this risk is not properly allocated in the contract documents. Regardless of this allocation, the construction contract requires the contractor to give notice to the owner in the case of differing site conditions. Also, the contractor is required to keep track of the effects that differing site conditions have on his schedule and performance. The main objective of this paper is to describe the risks associated with differing site conditions and to demonstrate how these risks are usually allocated during the different scenarios that may occur if differing site conditions are encountered. This was done by looking at several legal cases and by analyzing the contract language used in each case together with the court interpretation of this language and its final decision about which party should assume this risk. This legal research is summarized in a flowchart that represents the main contribution of this study to the body of knowledge and that can be used by owners and contractors to identify which party will most probably be responsible of this risk and its resulting damages.