An Engineer’s Lessons Learned from

DSC Claims

Denver, Colorado

September 10-12, 2018

Don Del Nero, PE, CDT

Stantec Consulting Services, Inc.don.delnero@stantec.com

Emphasize the importance of a differing site condition

clause---------------------

Not all DSC clauses are created equal----------------

DSC clauses often fall short of the needed direction

Contractors need for recovery----------------------

Renderings from DSC claims can provide a wealth of

information------------------------

Contractors play poker better than engineers! Take

the gamble out of bids and use a DSC Clause--------------------------------------------

Keep you in meeting rooms and out of court rooms

Overarching Messages…

Speaking of Court Rooms…

Agenda

1 Introduction & Industry Facts of Life

2 Different Site Condition Language

3 School of Hard Knocks

4 Refinements to DSC Language

5 Conclusions and Questions

Introduction & Industry Facts of

Life1

A tunnel is a hole in the ground with a

lawyer at each end and a tunnel engineer

in the middle!

Tunnel Definition…(not found in Webster’s)

In a general sense a DSC contract clause

is a risk management tool that is a

pathway for contractor relief should the

ground conditions or ground behavior be

different than indicated in the contract

documents.

Also, a DSC clause avoids shifting of

ground risk to a contractor and provides

for equitable damage recovery.

What is a DSC Cause?

• The ground is a good slave and a poor master!

• Contractors don’t take risk they price risk!

• Tunneling is blind construction!

• >$3,000/per hour at face• Mixed Face Conditions

• Groundwater has the habit of flowing where it does not belong!

• Difficult ground conditions

– Gravels, cobbles, and boulders, squeezing ground, swelling ground, weak rock, karstic conditions, leaky ground, sticky clay

• Rock to soil transitions often in tunnel alignments

• Linear nature of tunneling means any delay is a critical path delay

Why is a DSC Clause Important? • Cutterhead opening ratio

• Underground litigation can last a number of years

• Variations in cutterhead tooling

• Cutterhead crushing ability in GCB ground

• Relatively “infinite” volumes of ground compared to very finite amounts of ground investigated

• Reduce contingencies

• Reduce Bid scatter

• Increase bidder pool

• Reduce protracted conflicts

• Nuisances of underground construction difficult for lay jury to grasp

• Tunneling destroys the very ground that caused the claim in the first place!

DSC Language2

US Federal Government DSC Clause…paraphrasedIn federal government contracting, a Type I DSC is defined as follows:

1. The contract indicated a particular site condition;

2. The contractor reasonably interpreted and relied on the indications;

3. The contractor encountered latent or subsurface conditions which

differed materially from those indicated in the contract; and

4. The claimed costs were attributable solely to the differing site conditions.

A Type II DSC is defined as follows:

1. The contractor did not know about the actual condition found during

performance at the site;

2. The contractor could not reasonably have anticipated the actual

condition at the site from inspection or general experience; and

3. The actual condition varied in a material way from the norm in similar

contracting work.

Type I DSC

Type II DSC

EJCDC DSC Language*…GC 5.04

*EJCDC language has a copyright and requires purchase of EJCDC General Conditions

Differing Subsurface or Physical Conditions: Notice by Contractor: If

Contractor believes that any subsurface or physical condition that

is uncovered or revealed at the Site either:

1. is of such a nature as to establish that any

Technical Data on which Contractor is entitled to

rely as provided in Paragraph 5.03 is materially

inaccurate; or

2. is of such a nature as to require a change in the

Drawings or Specifications; or

3. differs materially from that shown or indicated in the

Contract Documents; or

4. is of an unusual nature, and differs materially from

conditions ordinarily encountered and generally

recognized as inherent in the work of the character

provided for in the Contract Documents;

CCDC Language*…GC 6.4

*CCDC language has a copyright and requires purchase of

CCDC General Conditions

If the Owner or the Contractor discover conditions at the Place of

the Work which are:

1. Subsurface or otherwise concealed physical conditions

which existed before the commencement of the Work

which differ materially from those indicated in the Contract

Documents; or

2. Physical conditions, other than conditions due to weather,

that are of a nature which differ materially from those

ordinarily found to exist and generally recognized as

inherent in construction activities of the character provided

for in the Contract documents

Type I DSC Clause – First “changed condition” clause was used on

November 22, 1921. Included as standard form of GC’s for

construction contracts that was completed on August 20, 1926.

Type II DSC Clause – First introduced in Federal contracts in 1935

Approved by POTUS for Federal contracts in 1985. DSC Clause now

mandated by Federal Regulations for use in US Gov. contracts and

in contracts with full or partial Federal funding.

DSC Clause approved by….US Feds, AIA, EJCDC, ASCE, AASHTO,

AGCOA, DBIA, NSPE, ACEC, and numerous other state and

municipal governments

Brief History of DSC Clauses…

• Material. Important; affecting the merits of a case; causing a

particular course of action; significant; substantial. A description

of the quality of evidence that possesses such substantial

probative value as to establish the truth or falsity of a point in

issue in a lawsuit.• To demonstrate a “material” difference you must test the

“material”!...follow that and you will have a bullet-proof case!

• Is the sampling program statistically representative?

• To more clearly define a “material” difference a geotechnical

baseline must be established. A material difference can be

established just from boring logs but that can be a convoluted

exercise! Materially different from what?

• Key: If the “material” cannot be tested the same way it was

during design it may not be the best parameter for a baseline!

So what is a “Material” Difference?

School of Hard Knocks3

Caveat….

Many of the examples provided are the

types of lessons that good, qualified

Owners, Engineers and Tunnel

Contractors work to avoid…but DSC

claims are still common!

Lesson: Prequalify contractors and keep in

mind the vast majority of tunnel contractors

want the best for the owner and project!

So now my “dirty dozen”…

plus some!

DSC Adjudication - Lost Efficiency…

Pre-DSC Advance Rates vs. Post-DSC

Advance Rates Comparisons are Valid!

Appeal of Bay West, Inc. to Armed Services

Board of Appeals

Rendering: Quantifying a lost of productivity

by the “measured mile” approach was

endorsed by the Board.

Contractor chose to use approximately

40% cutterhead opening ratio in running

sand…excessive settlement

Rendering: TBM cutterhead not adapted

to baselined ground conditions….sands

can be unstable even above

groundwater! No DSC.

TBM Cutterhead Opening Ratio…

Contractor chose a certain tunnel machine,

which was unsuccessful because of a

DSC…Owner claimed Contractor was not

prudent in machine selection

Rendering: Contractor was reasonable and

prudent in technology selection…(avoid trying

claim a contractor is unreasonable and not prudent– very subjective). DSC accepted.

Definition of a Reasonable and Prudent Contractor…

DSC Notifications & Procedures…

Contractor notified owner of a DSC but

beyond timeframe required and without

backup required…

Rendering: DSC notification timeframes

and procedural requirements must be

followed. No DSC…even though the DSC

may be legitimate. (from Construction

Claims Monthly, Jan. 04)

Contractor chose to rely on referenced geotechnical

information and ignore exculpatory clauses regarding

geotechnical information…

Rendering: In a competitive bidding environment

Contractor is obligated to review and consider

“reference” materials even though exculpatory

language is included. Contractors are not clairvoyant

about ground conditions!

No reliance clause on geotechnical information included with contract documents

DSC for Communications at a Remote Project Site…

A remote construction site did not have

cell phone reception.

The Contract Documents were silent on

the matter and no mandatory pre-bid

was held. Contractor awarded recovery

for use of satellite phones.

DSC Recovery Limitation…

Contractor was unhappy with recover from the

DSC Recovery Limitation so attempted a breach

of contract claim via defective specifications.

Rendering: A Federal court recognized the

close relationship between these two provisions

and blocked the contractor’s attempt to do an

end-run around the recovery limits in the

owner’s DSC provision.

(Compotrol v. United States (Fed Cir. 2001)

Pitfalls of a DSC Claim

Claim: Owner failed to grant change orders and time extensions for

DSC’s so was in breach of contract. Contractor claimed the

frequency of soil transitions was more frequent than indicated in

the Contract Documents and slowed progress.

Rendering: The court identified the following requirements for

establishing a DSC claim. 1) the contract documents indicated

certain conditions; 2) the contractor reasonably relied on those

indications when making its bid; 3) actual conditions materially

differed from those that were indicated in the contract; and 4) the

materially different conditions were not foreseeable.

Pitfalls of a DSC Claim, cont’d

Rendering: The Contractor failed to meet the first two

requirements… 1) the contract documents indicated

certain conditions and 2) the contractor reasonably

relied on those indications when making its bid.

First, the contract documents did not baseline the

number and location of soil transitions so did not satisfy

requirement one. Also, the court was not convinced

the Contractor made a reasonable interpretation of

those ground conditions.

Pitfalls of a DSC Claim, cont’d

Rendering: Next the court found that the Contractor

failed to establish the second requirement of a differing

site condition claim – that a Contractor reasonably

relied on the indicated conditions when making its bid.

The Contractor’s geotechnical consultants, who relied

on the Contract Documents, did not analyze the

expected frequency of soil transitions themselves.

(PepperHamilton LLP, Differing Site Condition Defense Rejected,

11/30/2015)

DSC Man-made Obstructions…

TBM cutterhead openings were found to be

clogged upon intervention inspection

Rendering: Inspection of clogged opening revealed

steel well casing was encountered that was not

documented in Contract Documents. Valid DSC.

DSC Documentation Not Completed in a Timely-way…

To avoid being liable for not following DSC

timelines indicated in the Contract Documents

Contractor submitted a letter to the indicating

they “reserved the right” to still pursue the DSC

at a later date.

Rendering: The Owner did not agree in writing to

change the Contract relative to DSC timelines so the

“reserve the right” language was not applicable.

Competent Person vs. Qualified Person…

OSHA 29 CFR 1926.32/ANSI A10.16-2009

There is a major difference between a

Competent Person and a Qualified Person. If

the Contractor is required to select excavation

support to maintain a safe excavation the

Contractor must have a Qualified Person on-

site.

Plus some…

• He who has the most accurate data wins!

• Dated stamped photographs

• Captions for all photographs

• Reserve the right language not always held up

• Avoid “dooms-day GBR”

• Keep track of leased vs. owned equipment

• Clearly define TBM downtime events

• Emails are court admissible

• Text will likely become court admissible

• Assignment of hierarchal precedent for each Contract Document

is essential…especially for geo-information

• Require an affidavit that the contractor relied on the GBR for the

basis of bid

Plus some more…• Clearly define every term related to ground conditions and ground

behavior

• The GBR is very much a specification for the ground…use it but use

it wisely

• Avoid ambiguous terms like “sometimes” and other relative terms

like “strong”

• Clarity is needed on who will measure the size of cobbles and boulders

• Consider unit price item for a unplanned recovery shaft

• Do not “approve” shop drawings…only “No Exceptions

Taken”…by approving you may be approving means and

methods! Stay out of the contractors business!

• Do not use the term “certified”…great legal meaning!

• DRB renderings often not binding but are court admissible

• Avoid non-baselined ground conditions

• Require signed affidavit from GC and subcontractor that entire set

of CD’s has been provided to the subcontractor

Refinements to DSC Language4

Consultants must establish clear procedures to get from DSC

merit to DSC recovery…too little information on “how to do it” in

current contracts. This gives contractors uncertainty as to the

chance for recovery

DSC Language Refinement

Establish DSC Merit (is there a material difference

between actual and contract

documents)

Establish DSC Quantum or Recovery (Equitable adjustment in price, time or both)

Possible DSC Clause Refinement…

SC-4.03.B: No claim by the CONTRACTOR related to construction

shaft excavation or tunnel excavation shall be allowed under the

Differing Subsurface conditions provisions unless the CONTRACTOR

investigates and demonstrates that such alleged conditions are

materially different from those conditions identified in the

Geotechnical Baseline Report and results in an increase in the CONTRACTOR’S cost of and/or time required for performance of

the Work. CONTRACTOR shall within 30 calendar days after

notification to the OWNER that CONTRACTOR believes a material

difference exists, provide the documentation, backup,

justification, and compensation for the alleged impact to

CONTRACTOR’S cost of and/or time required for performance of

the Work.

Possible DSC Clause Refinement…

Any and all costs incurred by the CONTRACTOR for demonstrating

that a material difference exists shall be borne by the

CONTRACTOR unless the OWNER agrees that the material

difference does have a cost and/or time impact. If OWNER

agrees that there is a material difference that impacts

CONTRACTOR’S cost and/or time, payment for geologic investigation(s) and testing of the material difference will be paid

for by the OWNER. Payment will be made by the OWNER for

reasonable and customary prices for geologic investigation(s)

and testing. CONTRACTOR is encouraged to review geologic

investigations and/or testing planned with the Engineer to

demonstrate a material difference prior to execution of the same.

Why this suggested refinement?

• There is a process and procedural gap between a DSC

notification, DSC merit, and DSC quantum/recovery

• This will expedite ultimate recovery to the contractor

• Owners are not equipped to go out and quickly confirm or deny

• The GBR must be established as the defining document for a

material difference• An engineer will likely delay the project to hire, contract with and

mobilize a driller and laboratory

• The Engineer-Owner agreement is never set up to quickly

respond to and cover additional field testing during construction

• Engineer’s do not always have adequate in-field construction

management services

DSC Claim Review Suggested Language…many GC’s or SC’s only have timeframe for DSC notification!

SC-10.05.D. Claim Review. Upon receiving a statement of claim,

complying with the requirements of Paragraphs A and B and with

advice and assistance of the ENGINEER as appropriate, the OWNER shall review the statement of claim submitted by the CONTRACTOR.

In conducting this review, the ENGINEER shall have the right to

require the CONTRACTOR to submit such additional or supporting

documents, data and other information as the OWNER and/or

ENGINEER may require, and the failure to submit such additional

documents, data or other information within fifteen (15) days

following written request shall be deemed a waiver of claim. Upon

completion of such review, to take place within thirty (30) days of receipt of the additional documents…

DSC Claim Review Suggested Language…most GC’s or SC’s only have timeframe for DSC notification!

data or other information as may have been required by the OWNER

and/or ENGINEER, the OWNER in consultation with the ENGINEER shall

issue a written determination, and if it deems appropriate accept

such parts of a claim as they find in good faith to be proper and, if

the CONTRACTOR agrees, a Change Order shall be issued to amend

the Contract Price, the Contract Time or either of them as may be

found proper. If the CONTRACTOR disputes the determination made by the OWNER, the CONTRACTOR as a condition precedent to any

further action to resolve such dispute must notify the OWNER and

ENGINEER in writing within five (5) days following receipt of the

decision of the factual basis of such dispute and permit the OWNER

fifteen (15) additional days to reconsider and, if it deems it

appropriate, issue a modified decision.

The Subcontractor shall demonstrate the following elements for a

determination of merit and to receive recovery:

1. There must be a difference between reasonably anticipated and

documented encountered conditions,

2. There must be a difference between reasonably anticipated and

documented encountered construction performance,

3. A cause-and-effect relationship must be demonstrable between the

differences in conditions and difference in construction performance,

4. There must be a demonstrable impact on time or costs, and

Contract conditions must be fulfilled (including, but not limited to conditions

such as reliance, notice, and mitigation).

In addition, Subcontractor must rely on all available geotechnical information

and assumptions and baseline statements provided in the Geotechnical Baseline

Report, have viewed the available soil and rock samples, have “walked” the

tunnel alignment and viewed conditions at shaft and staging areas, and provide

evidence of reasonable interpretation into material behavior.

*Paraphrased from World Tunneling, “Managing the Unforeseen”, March 2008

Determination of Merit and Recovery…

Avoid Undefined or Ill-defined Pricing

Items…facilitates quantum determination

1. Labor Rate Schedule Defined

2. Equipment Rates Defined

3. Active and Inactive Equipment Rates Defined

4. Owned vs. Leased Equipment Rates Defined

5. Schedule Float Ownership Clearly Defined

6. Inspection Daily Reports Cover Time, Motion, and Crew Size and

Makeup

7. General Conditions Costs Defined

8. General Conditions Charges for Remote Office Staff Clearly

Defined

9. Crew and Equipment Standby Time by Shift, Day, and Week

Defined

10.Use Lump Sum Items Cautiously…we are not dealing with doors

and hinges!

11.TBM Mobilization & Payment

Closing Thoughts…• Mega-tunnel projects should have legal counsel

experienced in underground projects on the team as a

technical advisor

• Includes guidance for the Contractor on how to

establish Quantum!

• Pay once for a different ground condition with a DSC

Clause or pay twice for a differing ground condition with

no DSC Clause!

• Could the lack of a DSC Clause be viewed by the courts

as a “defective specification”? ...with so many

engineering and construction organizations saying the

clause is an industry standard.

“We cannot solve our problems with the same level of

thinking that created them” – Albert Einstein

Questions & Potential Answers5