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Contractor Wins Appeal of Independent Site Condition Investigation Requirements

We recently blogged in this space about a pair of Federal Claims decisions that sided with an owner and denied a design/build contractor’s (Metcalf Construction Company) $27,000,000 claim for increased construction costs. The main focus of these cases involved the duty of a design/build contractor to independently investigate soil conditions on a project.

The trial court initially found that there was no differing site condition based on the represented and actual soil conditions, in part, because the contract required the contractor to perform its own soil test. The trial court also found that this requirement to conduct an independent investigation negated any representation by the Navy or reliance thereon by the contractor. The contractor was thus barred from recovering the $27,000,000 of added cost it incurred.

The contractor appealed the trial court’s decision and was joined in support by the Associated General Contractors of America (ACGA), Associated Builders and Contractors (ABC), The Design-Build Institute of America (DBIA) and the American Institute of Architects (AIA).

The United States Court of Appeals for the Federal Circuit recently issued its decision on the design/build contractor’s appeal, and returned a verdict in favor of the contractor. In reviewing the trial court’s decision, the Court of Appeals found the trial court’s standard for judging the contractor’s claim of breach of the implied duty of good faith and fair dealing was “improperly narrow,” and that the trial court misinterpreted several contract provisions related to Metcalf’s claim.

Although the contractor ultimately prevailed on its appeal, design-builders should take a lesson from the Metcalf cases. It is critical that design-build contractors draft clear and unambiguous contractual language with regard to owner-provided project and/or site specifications, and reliance thereon, in order to ensure compensation for differing site conditions and related changes orders while on-site. As we previously advised, prudence may also indicate that site conditions be independently investigated before bidding and relying on owner-supplied specifications for design-build/EPC type projects.

For more information about this case or any area of construction law, please contact Steve Theising at stheising@KDDK.com or (812) 423-3183; or contact any member of the KDDK Construction Law Practice Team.

About the Author

Steve Theising

Steven M. Theising, an attorney at Kahn, Dees, Donovan & Kahn, LLP (KDDK), in Evansville, Indiana, practices primarily in the areas of business, construction, real estate, tax, and collection and creditors’ rights law. Steve utilizes his accounting and financial background to provide both legal and practical business analysis in negotiating, resolving and closing business, construction and real estate transactions and disputes. He also assists clients with addressing and resolving environmental and estate planning issues.