Concealed Conditions

Generally a construction contractor may assume that the site and other physical conditions relating to his work will be those normally expected under the circumstances. If not, he may be entitled to extra payment and time extensions.

However, the time and pay increases are not automatic. The contract must be properly drawn, and the contractor must promptly detect the unforeseen conditions, notify the owner of their occurrence, carefully document the cost and time impact and comply with contract requirements for claim presentation and resolution.

The theory underlying the contractor’s entitlement to additional payment and time resulting from the occurrence of unforeseen conditions demonstrates the high degree of sophistication in construction contracting. In arriving at his bid, the contractor need not provide a cushion for the contingency of unforeseen site conditions his contract allows additional compensation in the event of additional expense because of unexpected conditions.

The owner is protected by not having to pay extra for concealed conditions unless they actually occur. The owner s added expense would be only the increased cost actually incurred, rather than a contingency cushion arbitrarily included in the contractor’s original bid.

This area of construction contracting involves a requirement for intelligent treatment of risk allocation. At the very first stages of contract negotiations, the parties, owner and contractor must decide who should bear the risk for unforeseen subsurface conditions, if any. They have three choices: the owner, the contractor or perhaps an engineering professional who may be willing to or does undertake to represent actual subsurface conditions.

Since the likelihood of the third alternative is usually remote, either the owner or the contractor must bear the risk. The American Institute of Architects standard forms place the risk upon the owner, and it is commonly understood that he has the responsibility to provide an adequate site or pay the expenses incurred because of concealed and unforeseen subsurface conditions.

With appropriate contract provisions allowing additional compensation, the burden would fall upon the contractor to detect subsurface problems if they occur, report them promptly to the owner, follow any required contract procedures and properly and carefully document his additional costs and any time loss involved. Unanticipated subsurface conditions may be costly. Understanding the problem and wise contract administration should nevertheless avoid unnecessary contractor losses if such conditions occur.