THE UNDERLYING PROBLEM: NEGOTIATING THEGROUND CONDITIONS ISSUE A paper presented to the Society ofConstruction Law at a meeting in Londonon 6th November 2012 Ellis Baker and Michael Turrini March 2013 181 www.scl.org.uk1 THE UNDERLYING PROBLEM: NEGOTIATING THEGROUND CONDITIONS ISSUE Ellis Baker and Michael Turrini Introduction The purposes of this paper are: oToconsiderthegeneralpositioninlawrelatingtounforeseen ground conditions; oToreviewcontractualprovisionforunforeseengroundconditions in major standard forms of construction and engineering contracts; oToconsiderthenatureofdisputesoverunforeseenground conditions. Itisnot,ofcourse,suggestedthatthisisthefirstoronlytreatmentofthe subject.The Society ofConstructionLaw itselfpublished a veryworthwhile paper by Julian Bailey, based on his 2006 Hudson Prize-winning essay, which is referred to more than once below.1 This paper seeks to bring a different contribution in two main respects.First, a majorcomponentdealswiththemainstandardformcontracts,particularly thoseinuseininternationalprojects,andtheirallocationofriskasbetween employer and main contractor.Second, there is a significant emphasis on how theissueisdealtwithintheMiddleEast.Theauthorspracticeshavefor someyearsfeaturedbothprojectanddisputesworkinthisregion,aswellas others,anditwasfeltthatthisfocuswouldbeofadditionalinteresttothe many Society members engaged in work connected with it. Theauthorswerepleasedtohavetheopportunitytogiveearlierversionsof thispresentationattheinvitationoftheGulfSocietyofConstructionLawin AbuDhabi2andDoha3andaregratefultoRichardHardingQC,chairmanof theGulfSociety,bothforagreeingtochairtheLondonSCLeventandfor helpful comments on the subject matter. Background: the issue Unsurprisingly,themajorconstructionlawtextsalldealwiththeground conditions issue, to varying extents.A good starting point is the latest edition of Hudson: 1Julian Bailey, What Lies Beneath: Site Conditions and Contract Risk SCL Paper 137 (May 2007) 2Presentation to SCL Gulf in Abu Dhabi on 12th February 2012. 3Presentation to SCL Gulf in Doha on 22nd April 2012. 2 Itfrequentlyoccursinpractice,particularlyinengineeringcontracts, thatunexpecteddifficultiesareencounteredduringconstructionwhich maynotonlynecessitateachangefromtheexpectedmethodof working,butinextremecasesmaymeanthatthecompletionofthe work, at least in accordance with the original design, is impossible.4 Two of the main aspects of the issue under discussion are helpfully raisedby thispassage.First,itreferstotheneedtomakeachangefromtheexpected methodofworking.Toputitanotherway,theproductunderconstruction itself is not changed, but the method of its production is. Second, reference is made to extreme cases in which completion of the work inaccordancewiththeoriginaldesignisnolongerpossibleor,toputit another way, the product under construction itself may have to be changed as a result of the extreme difficulty unexpectedly encountered. So,tosummariseasbrieflyaspossible:thetwoprincipalconsequencesof unforeseengroundconditionsarethatthewayofproducingtheproductmay havetobechanged;inextremecases,theproductitselfmayhavetobe changed. Either of these consequences mayresult in the contractor incurring more cost and being delayed. Thisleadstotheheartofthispaper:thequestionastowhobearsthe consequences of additional cost and delay. Common law approach In the common law jurisdictions, at the highest level of generality, the answer to the question is that, in the absence of contractual provision to the contrary, thecostandtimerisksaretobebornebythecontractor.Ifthecontractor undertakesaproject,theagreedpriceandcompletiondatebindhim.The classicUSauthorityforthisisUnitedStatesvSpearin,wheretheSupreme Court held: Whereoneagreestodo,forafixedsum,athingpossibletobe performed,hewillnotbeexcusedorbecomeentitledtoadditional compensationbecauseunforeseendifficultiesareencountered.Thus onewhoundertakestoerectastructureuponaparticularsiteassumes ordinarily the risk of subsidence of the soil.5 AlthoughtheEnglishcourtshaddiscernedsomeprospectofreliefforthe contractorinBushvWhitehavenTrustees,whereconstructionofapipeline duringtheharshCumberlandwinterattractedtheawardofaquantummeruit on the basis that its laying was intended to be a summer project,6 the English courtshavelargelysupportedthegeneralpositioninSpearin.InBottomsv CorporationofYork,thecontractorhadencounteredpoorgroundqualityin 4Nicholas Dennys, Mark Raeside and Robert Clay (editors), Hudsons Building and Engineering Contracts (12th edition, Sweet & Maxwell, 2010), page 451. 5 United States v Spearin 248 US 132 (1918) (SC), page 136. 6 Bush v Trustees of Port and Town of Whitehaven (1888) (QB and CA), The Hudson Fourth Edition Volume 2 Table of Cases Reprint (Sweet & Maxwell, 2001), page 122. 3 constructing a drainage system but when he abandoned the work, he was held entitledtonoremedyfortheclientCorporationsactioninseizinghisplant anddenyinghimpayment.7TheWhitehavencasewasstronglycriticisedin laterdecisions,notablyDavisContractorsvFarehamUrbanDistrict Council,8 and hardly represents the general tone even of the early cases.9 A principal English authority from the modern era is Worksop Tarmacadam v Hannaby, where the contractorclaimed additional cost incurred asa result of encountering hard rock which had not been foreseen.Counsel submitted that theremeasurementclausereadliterallyandincontextwassufficientlywide for the additional cost claim to be allowed.The Court of Appeal rejected this argument, Russell LJ saying:Idisagree.Hadtheplaintiffswishedtomakesuchaprovisioninthe eventofunforeseenconditionsbeingencountered,itwouldhavebeen theeasiestthingintheworldforthemsotohaveprovidedinspecific terms.They did not do so.10

Thecourtsemphasisontheabsenceofcontractualprovisiontothecontrary and the consequent imposition of the risk of unforeseen ground conditions on the contractor is clear enough to admit of no doubt. As well as the distinction between changes in method of working and changes necessitated to the design as a result of unforeseen ground conditions, a further distinctionshouldbemade.Thisisthedistinctionbetweentheobligationof thecontractortoachievetheresultandtoconstructtheproduct, notwithstandingtheunforeseengroundconditions,andthecontractorsclaim tobeentitledtocostandtimecompensationforovercomingtheunforeseen conditions.Inthecasesmentionedabove,thecontractorwasnotdischargedbythe unforeseengroundconditionsfromitsobligationtocompletetheworksand wasrequiredtobearthecostandtimeconsequencesofovercomingthose conditions. The general common law position, absent contractual provision, is as has been discussed.However, itmust not be assumed that the same approach is taken to ground conditions issues in all jurisdictions. The Middle East and North Africa Here,thelawsofmanycountriesarebasedoncivilcodes;inparticular,they areinfluencedbytheEgyptianCode,itselfwithantecedentsinFrenchlaw.This is true of the United Arab Emirates (UAE) and Qatar, where the authors 7 Bottoms v Lord Mayor etc of the Corporation of York (1892) (QB and CA), The Hudson Fourth Edition Volume 2 Table of Cases Reprint (Sweet & Maxwell, 2001), page 208. 8 Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 (HL). 9 The authors are grateful to John Barber, Director of the Centre of Construction Law and Dispute Resolution, Kings College London, for sending them his unpublished paper The Foresight Saga which deals usefully with the early cases and other points of interest.10Worksop Tarmacadam Co Ltd v Hannaby (1995) 66 Con LR 105 (CA), page 108. 4 havesignificantinternationalconstructionexperience.Thecodesofthose states,speakinggenerally,takeadifferentapproachtogroundriskand typicallyprovideforjointandseveralliabilityofthearchitectandcontractor in respect of total or partial collapse of a building or fixed works for a period of ten years, even if the collapse is due to a defect in the land itself. ThusArticle711oftheQatariCivilCodeprovidesthatthecontractorand engineer(designer)willbeliableforanydestructionordefectinbuildings theyhaveconstructedorfixedinstallationstheyhaveerected,evenifsuch destruction or defect is the result of a fault in the actual land or the employer has approved defective buildings or installations. Liability lasts for tenyears followinghandoverandcoversdefectsappearinginbuildingsorinstallations whichthreatentheirstabilityorsafety.ContractingoutoftheArticle711 provisions is prohibited. Anumberofobservationsshouldbemadeaboutthisprovision,whichis typical of code provisions in other states in the region, and indeed elsewhere in the civil law world.First, the liability is for a long period, namely tenyears, ratherthantherelativelyshortperiodofthetypicalcontractualdefects liabilityperiod;theconceptisnormallyreferredtoasdecennialliability.However, the scope of the liability is narrow, being limited to risks of total or partial collapse.Most important of all from the perspective of negotiation, the liability cannot be excluded or restricted by contract. Anexamplewillillustratethepoint:ifacontractfortheconstructionofa high-risebuildinginQatarwerebeingnegotiatedonthebasisoftheFIDIC Red Book,11 with Qatari law as the governing law, there would be no point in the contractor seeking to have the operation of the liability provision excluded; anyparticularconditiontothateffectwouldbeunenforceableunderQatari law.Nor would there be any benefit in this respect in changing the governing law of the contract to, for example, English law, which, as is well known, has no equivalent provision.The Qatari provisions are mandatory and apply on a territorial basis, irrespective of contractual provision. It is not suggested that these provisions are or should be a source of terror to contractors.However, they are an essential part of the legal framework within which construction work is carried out in the Middle East and thereforemust beincludedinthecontractorsevaluationforriskassessmentandpricing purposes.The provisions of civil codes imposing decennial liability on the basis ofsoil conditionsdonot,however,dealwiththeissuesasbetweenemployerand contractorofcostandtimeconsequencesofunforeseengroundconditions during the construction period.These are almost always governed by express contractprovisionsallocatingrisk.InQatar,forexample,someofthemain employersforconstructionworkhavetheirownstandardcontractsor conditions,whichareoftendevelopedfrominternationalformsofcontract.Generally, it can be said: 11 FIDIC, Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (1st edition, 1999) (The Red Book). 5 Thescopefornegotiatingthetermsoftheseformsisusuallylimited, but in larger projects and depending on the industry, modifications from standard contract forms may be obtained by the contractor.12 Accuracy of ground conditions information A crucial element in the allocation of risk for unforeseen ground conditions is the question of who is responsible for the accuracy of information provided by the employer to the contractor concerning the site. Fromapracticalpointofview,itisgenerallytheownerwhoprovides information about the site and ground conditions relating to it, which is logical enough, since in most cases it will be the employers site.This need not be the caseinevitably.Itwould,atleastintheory,bepossiblefortheemployerto supplynothing,leavingthecontractortoobtainitsowninformationandto take responsibility for its accuracy. Inpractice,thiswouldbeunlikelytooccurinnormalsituations.The contractorwouldnotusuallybewillingtospendmoneyongeotechnical investigations at its own risk prior to signing the contract.But it is not just the viewofthecontractorwhichmakesthisscenariounlikely.Theemployers desire for a competitive price requires certainty and if contractors feel obliged toincludelargecontingenciesintheirpricingtotakeaccountofground conditionsofwhichtheyhavenoknowledge,theeffectontenderpricesis entirely predictable.Accordingly,andalmostinevitably,itistheemployerwhoprovidesthe contractor with information about the site upon which the contractor can then base its tender. Giventhatitistheemployerwhoprovidesinformation,itwillbecrucialto ascertainthedegreeofresponsibilityforit.JulianBaileyhasprovideda useful analysis of the main possibilities.13 Julian Bailey proposes four scenarios: 1.Theemployergivesacontractualwarrantythatinformation provided to the contractor is accurate and complete; 2.The employer provides information but gives no warranty that it is accurateandcomplete,noranydisclaimerastoaccuracyand completeness; 3.Theemployerprovidesinformationwhichcontainsa misrepresentation; or 4.The employer gives a disclaimer denying liability for accuracy and completeness of the information provided to the contractor. 12Marcus C Boeglin, Michael E Schneider, Fadi Sabsabi and Ramy Saleh, Qatar Construction, Bloomberg Law: www.bloomberglaw.com. 13 Julian Bailey, note 1, page 12.6 Tounderstandthedegreeofresponsibilityasbetweenthecontractorandthe employer,itisnecessarytoturntoconsiderhowthepartiesprovidefor unforeseen ground conditions in their contract. Contractual provisions for unforeseen ground conditions DespiteLordBridgeswarninginMitsuiConstructionvAttorney-Generalof Hong Kong that: ... comparison of one contract with another can seldom be a useful aid to interpretation,14 it is in contract provisions and their application indifferentjurisdictionsthatthelawonunforeseengroundconditions developsandisfound.WithallduerespecttohisLordship,therealityof practiceforthoseengagedinnegotiatinganddraftingcontractsisthat comparisonandbench-markingagainstthemajorstandardformsisaroutine techniqueandpartofthewayinwhichanappropriatecontractisproduced.LordBridgebeganhisanalysisintheMitsuicase(concerningtunnellingin HongKong)withthefindingthat:Itisobviousthatthisisabadlydrafted contract.15 Sucharemark,calculatedtoarousesympathyforthosewhoseworkisbeing examinedwiththebenefitofhindsight,particularlyinthemindofafellow draughtsman,begsthequestionastohowagoodcontractistobeproduced.Ofcourse,intheory,itispossibletostartfromthebeginningwithablank sheetofpaperandamindunhamperedbywhathasgonebeforeandto produce a solution to the eternal problem of how to give effect to the parties bargain.Thereality,however,isotherwise.Itisbyconsideringwhathas gonebefore,andwhatiscurrentinthemarketplace,thatgoodpracticeand effectiveprovisionscanbeadoptedandtherepetitionoferrorsavoided.Comparison of contracts means nothing more, nor less, than a knowledge of howotherpractitionersorinstitutionshaveconfrontedtheproblemsoneis facing, and that is equally true of drafting the clauses and interpreting them.Typically,theoutcomeofthecontractualprovisionreflectingtheparties bargainwillbeasharingoftherisk,althoughitmaybefarfromanequal sharing.Normally,neitherpartywouldbepreparedtoaccept100%ofthe risk.The contractor will not wish to be totally responsible in time, money and result for an unforeseeable outcome.The employer will not wish to bear total responsibility for the information and the condition of the site provided to the contractor.LordBridgesdebatabledictumintheMitsuicaseisnotthefirsttimea commonlawjudgehasraisedquestionsaboutthefamiliarityofmembersof the judiciary with the world of construction contract negotiation and drafting.If anything, the evidence of judicial remoteness was even more striking in the oldCanadiancaseofGracevOsler,wherethecontractwasforthe constructionofanofficebuildingwhichsufferedseveresubsidenceduring construction due to unforeseen ground conditions.The contractors claim for 14 Mitsui Construction Co Ltd v Attorney-General of Hong Kong (1986) 33 BLR 1 (PC), page 18. 15 Mitsui, note 14, page 14. 7 relieffailedonageneralapplicationoftheprinciplesalreadyconsidered above.Cameron JA felt that: Haditbeeninthemindsofthepartiestovarythegenerallaw,we shouldsurelyhavefoundsomewhereinthecontractaprovision wherebyitwouldappearclearlyandbeyondperadventurethatthe owners covenanted and agreed that the plans, prepared by the architects, wereabsolutelysufficientforthepurposesforwhichtheypurportedto be drawn.16 The learned judge concluded with the remarkable assertion that: To state the effectoftheplaintiffscontentioninthiswayistoshowitsuntenability.In point of fact owners would not sign such a covenant.17 [emphasis added]. Owners would not sign such a covenant The fallacy of this view, at least so far as is applicable to modern construction contracts,canbedemonstratedbyreferencetoafewleadingexamples.The current FIDIC Red Book contains this provision in part of Sub-Clause 4.12:IfandtotheextentthattheContractorencountersphysicalconditions whichareUnforeseeable,givessuchanotice[totheEngineer],and suffers delayand/or incurs Cost due to thoseconditions, the Contractor shall be entitled to: (a)an extension of time for any such delay, if completion is or will be delayed,underSub-Clause8.4[ExtensionofTimefor Completion] and (b)payment of any such Cost, which shall be included in the Contract Price.18 TheRedBookalsoprovidesthatunforeseeablemeansnotreasonably foreseeablebyanexperiencedcontractorbythedateforsubmissionofthe Tender.19Itshouldbestatedhere,forreasonswhichwillbecomeapparent below, that the FIDIC Yellow Book contains the same provisions.20 Itisthusclearthatownerscouldindeed,ifdisposedtousecertaincontracts, signacovenanttotheeffectthattheytooktheriskofsufficiencyofthe informationtheysuppliedtothecontractor.Theseprovisionsoftwoofthe principalFIDICformscancreateaproblemforowners.Whilefavourably disposedtothecontractgenerally,theymightdecide(orbeadvised)thatthe ground risk allocation was not acceptable.FIDICs strong aversion toad hoc amendmentofitscontractscompoundstheproblem;itmaybeobservedthat thispositionisseenintheindustryaswhollyunrealistic,sinceFIDIC 16Grace v Osler (1911) 21 Man R 641 (CA Manitoba), page 688. 17Grace v Osler, note 16, page 688. 18 FIDIC Red Book: note 11. 19FIDIC Red Book, note 11, Sub-Clause 1.1.6.8. 20FIDIC, Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant and for Building and Engineering Works Designed by the Contractor (1st edition, 1999) (The Yellow Book). 8 contractsareinpracticefrequentlyamended,likeotherstandardform contracts. ItwasagainstthisbackgroundthattheAbuDhabigovernmentdecidedto review the FIDIC provisions for adoption as their standard form of contract for publicworks.Theresultsarehighlyilluminating,theAbuDhabiversionof the Red Book containing the following provision: 4.12Unforeseeable Physical ConditionsIfandtotheextentthattheContractorencountersphysicalconditions whichareUnforeseeable,givessuchanotice[totheEngineer],and suffersdelayand/orincursCostduetotheseconditions,theContractor shall be entitled to: (a)an extension of time for any such delay, if completion is or will be delayed,underSub-Clause8.4[ExtensionofTimefor Completion] and (b)payment of any such Cost, which shall be included in the Contract Price. Itisimmediatelyapparentthattheriskallocationhasbeenleftunamended after review. Bycontrast,thepost-reviewprovisionsoftheAbuDhabiversionofthe YellowBooksignificantlyalterthebalanceofriskallocationbetweenthe parties: 4.12Unforeseeable Physical Conditions TheContractorhashadanopportunityofinspectingthephysical conditions(includingthesub-surfaceconditions)andotherconditions, oforaffectingtheSiteandshallbedeemedtohavefullyacquainted himself with the same and to have obtained all necessary information as to risks, contingencies and all other circumstances which may influence oraffecttheexecutionoftheWorksortheirdesigninsofarasthe Contractor hasresponsibilityfor such design.No failure on the part of theContractortodiscoverorforeseeanysuchcondition,risk, contingencyorcircumstance,whetherthesameoughtreasonablyto have been discovered or foreseen or not shall entitle the Contractor to an increase in the Contract Price or to an extension of time Theofferingofcovenantsacceptinggroundconditionsriskwhichowners are supposed not to sign is not limited to FIDIC.At first sight, it may not be surprising that in its latest contract the Engineering Advancement Association ofJapan(ENAA)hasproducedanallocationofriskofunforeseensite conditions which could be unattractive to owners:35.1Unforeseen Conditions If, during the execution of the Works, the Contractor shall encounter on theSiteanyphysicalconditions(otherthanclimaticconditions)or artificial obstructions that could not have been reasonably foreseen at the dateoftheAgreementbyanexperiencedcontractoronthebasisof 9 reasonable examination of the data relating to the Works provided by the OwnerandofinformationtheContractorcouldhaveobtainedfroma visual inspection of the Site or other data readily available to it ...iftheContractordeterminesthatitwillinconsequenceofsuch conditionsorobstructionsincuradditionalcostandexpenseorrequire additionaltimetoperformitsobligationstheContractorshall promptly notify the Owner 35.2AnyadditionalcostandexpenseincurredbytheContractorto overcomesuchphysicalconditionsorartificialobstructionsshallbe paid by the Owner to the Contractor as an addition to the Contract Price 35.3IftheContractorshallbedelayedorimpededintheperformance oftheContractduetoanysuchphysicalconditionsorartificial obstructions the Time for Completion shall be extended 21 ENAAis,afterall,principallyacontractororganisationanditscontractsare generallyviewedinthemarket,atleastbyownersandtheiradvisors,as contractor-friendly.However, it should be recalled that this form continues to berecommendedforusebytheWorldBankasitsdesignandbuildformfor projects which it is funding. TheNewEngineeringContract,aformincreasinglyusedinternationally,22is another major example of a leading form of contract under which owners sign uptoasignificantlevelofgroundconditionsrisk.Thecompensationevents provisions of NEC3 contain the following: 60.1 The following are compensation events (12)The Contractor encounters physical conditions which oare within the Site oare not weather conditions and oan experienced contractor would have judged at the Contract Date to have such a small chance of occurring that it would have been unreasonable for him to have allowed for them. Onlythedifferencebetweenthephysicalconditionsencountered andthoseforwhichitwouldhavebeenreasonabletohave allowed is taken into account in assessing a compensation event. 60.2Injudgingthephysicalconditionsforthepurposeofassessinga compensation event, the Contractor is assumed to have taken into account: othe Site Information opubliclyavailableinformationreferredtointheSite Information 21Engineering Advancement Association of Japan, Model Form International Contract for Process Plant Construction (Turnkey Lump Sum Basis) (3rd edition, 2010). 22Engineering and Construction Contract (Institution of Civil Engineers, 3rd edition, June 2005) (NEC3).The authors are aware of usage in South Africa as well as on at least one major PFI project in the Middle East. 10 oinformationobtainablefromavisualinspectionoftheSite and ootherinformationwhichanexperiencedcontractorcould reasonably be expected to have or to obtain. 60.3IfthereisanambiguityorinconsistencywithintheSite Information(includingtheinformationreferredtoinit),the Contractorisassumedtohavetakenintoaccountthephysical conditions more favourable to doing the work.23

AlltheformsreferredtosofartheFIDICRedandYellowBooks,the ENAA Process Plant edition and NEC3 give the contractor an entitlement to time and money on account of unforeseen ground conditions.They treat it as an employer risk.The idea in Grace v Osler that owners would not sign such a covenant24 is simply not an accurate reflection of standard forms of contract in use today, if indeed it was ever accurate. However,itisnotamandatoryriskallocation.Referencehasalreadybeen made to the revised version of the Yellow Book produced by the government of Abu Dhabi.FIDIC itself also produces a principal form of contract which takesaradicallydifferentview.TheSilverBookcontainsthefollowing provisions relating to Unforeseeable Difficulties: Except as otherwise stated in the Contract: (a)TheContractorshallbedeemedtohaveobtainedallnecessary informationastorisks,contingenciesandothercircumstances which may influence or affect the Works (b)By signing the Contract, the Contractor accepts total responsibility forhavingforeseenalldifficultiesandcostsofsuccessfully completing the Works and (c)TheContractPriceshallnotbeadjustedtotakeaccountofany unforeseen difficulties or costs.25 Inadditiontoplacingthemainresponsibilityforobtaininginformationupon thecontractor,theSilverBookalsoseekstodenytheemployers responsibility for any information supplied to the contractor.26The Site Data provision contains the following: TheEmployershallhavemadeavailabletotheContractorforhis information,priortotheBaseDate,allrelevantdataintheEmployers possession on subsurface and hydrological conditions at the Site ... The Employer shall have no responsibility for the accuracy, sufficiency or completeness of such data ... 23NEC3: note 22. 24Grace v Osler: note 16. 25 FIDIC, Conditions of Contract for EPC/Turnkey Projects (1st edition, 1999) (The Silver Book), Sub-Clause 4.12. 26 FIDIC Silver Book, note 25, Sub-Clause 4.10. 11 TheGeneralDesignObligationsprovisionoftheSilverBookbasically reinforces this position: Any data or information received by the Contractor, from the Employer or otherwise, shall not relieve the Contractor, from his responsibility for the design and execution of the Works.27

Nevertheless,Sub-Clause5.1alsocontainsanimportantelementrebalancing therisk,oftenignoredbythemanycriticsoftheSilverBookspositionon ground conditions: However,theEmployershallberesponsibleforthecorrectnessofthe following portions of the Employers Requirements and of the following data and information provided by (or on behalf of) the Employer: (a)Portions, data and information which are statedin the Contract as being immutable or the responsibility of the Employer (b)Definitions of intended purposes of the Works or any parts thereof (c)CriteriaforthetestingandperformanceofthecompletedWorks and (d)Portions,dataandinformationwhichcannotbeverifiedbythe Contractor, except as otherwise stated in the Contract. TheFIDICSilverBookisadeeplycontroversialformofcontractfromthe pointofviewofcontractorsandtheallocationofgroundriskisperceivedas oneoftheprincipalreasonsforthis.Contractorsseetheseprovisionsas departurebetrayalmightnotbetoostrongawordfromFIDICsself-proclaimedpolicyofproducingfaircontracts,meaningthatrisksare allocated to the party best able to manage and bear them. An allocation of ground risk to the contractor in the Silver Book was seen by contractorsascompletelyinconsistentwiththoseintheRedandYellow Books: theSilverBookseeksgenerallytoallocatealltherisksinvolvedin thesuccessfulcompletionoftheWorkstotheContractor.Asaresult, the Contractor will, generally, bear the risk of encountering what would otherwise be Unforeseeable physical conditions in the other Books.28 ThereisnodoubtthatthebasicSilverBookallocationofgroundconditions riskissevereuponthecontractor.Toobtainacompleteviewofthis,itis necessary to view it in context.It has already been seen how the possibility of arebalancing,oratleastareductionintheburdenofriskonthecontractor, can be found in the latter part of Sub-Clause 5.1. Itshouldalsoberemarkedthatthislatterformofrelyuponinformation provisionisoftenfoundinbespokecontractsininternationalprojects:a reminder that the Silver Book is not completely at odds with market practice. 27 FIDIC Silver Book, note 25, Sub-Clause 5.1. 28Ellis Baker, Ben Mellors, Scott Chalmers and Anthony Lavers, FIDIC Contracts: Law and Practice (Informa, 2009), para 3.169. 12 Further, however much FIDIC might deplore amendment of its forms, the Abu DhabigovernmentsrevisionoftheYellowBookisademonstrationthatnot all parties are equally happy with the traditional FIDIC ground conditions risk allocation. FIDIChasrobustlydefendeditsSilverBookriskallocation.Christopher Wade,formerchairmanoftheFIDICContractsCommittee,ledthedefence.He made the point that employers on some turnkey projects are willing to pay more for certainty of price and completion date: the contractor is often asked to cover such risks as the occurrence of poororunexpectedgroundconditionsandthatwhatissetoutinthe requirement prepared by the employer actually will result in the desired objective.Ifthecontractoristocarrysuchrisks,theemployer obviously must give him the time and opportunity to obtain and consider allrelevantinformation.Theemployermustalsorealisethatasking serious contractors to price such risks will increase the construction cost and result in some contracts not being commercially viable.29 He also noted that employers in many countries had been altering the Red and YellowBookstotransferrisksfromemployertocontractor(as,forexample, theAbuDhabigovernmentsrevisedversionoftheYellowBook).He concluded:FIDIChasconsidereditbetterforallpartiesforthisneedtobe openly recognised and regularised.By providing a standard FIDIC form ofcontractforuseinsuchcontracts,theEmployersrequirementsfor more risk to be taken by the Contractor are clearly stated.30 He again emphasised: clearly the contractor will rightly increase his tender price to account for such extra risks.31 The view of contractors organisations was sharply different, in both substance andtone.TheEuropeanInternationalContractorsviewwasexpressedby Frank Kennedy at the same time as the Christopher Wade defence, specifically in relation to Sub-Clause 4.12: ThelanguageusedinthisSub-Clauseisuncompromisinginthe extreme and its scope and application are much more wide-ranging than anypreviousclausecoveringunforeseenconditionsItisdifficultto imagineaclausewhichwouldbemorethreateningtocontractorsand whichwouldleavethemmoreopentounscrupulousemployers contractors should beware! 32 29 Christopher Wade, FIDICs Standard Forms of Contract Principles and Scope of the four New Books [2000] ICLR 5, page 11. 30 Wade, note 29, page 11. 31 Wade, note 29, page 12. 32 Frank Kennedy, EIC Contractors Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects (The Silver Book) [2000] ICLR 504, page 513. 13 AgneSandbergofSkanskaalsogavetheviewofmajorcontractorsofthe unforeseeable adverse physical conditions provisions in the Silver Book. Someoftheaboverisksareformatterswithinthecontrolofthe employer and are therefore in contradiction with a fundamental principle of a fair contract. It is disappointing to realise that FIDIC is in the process of publishing a set of conditions that will be more unbalanced in terms of risk than any other design-build forms that I know of 33 GiventhattheFIDICcontractsarenotdraftedforuseinanyspecific jurisdiction,thequestionisnotmerelywhethertheallocationisfair,but whetheritisactuallyeffectiveandenforceable.Ithasbeensuggestedinat leastonemajorEuropeanjurisdictionthattheSilverBookallocationofrisk couldbeineffective.Kus,MarkingandStedinghaveexpressedstrong reservations about the position under German law: Accordingtosub-clause4.12thecontractorbearsriskforall unforeseeablegroundconditionsitisperfectlyinorderthatthe contractor, on the basis of this sub-clause, knows and has taken the risk, iftheemployerhasnotgivenhimanyinformationontheground conditions,andproblemssuddenlyariselaterThereasonwhythis risk-shifting is nevertheless ineffective under the German Standard Form ContractsActisthefactthatthecontractorisalsoresponsible[sub-clause5.1]inacasewheretheemployerhasprovidedhimwithan experts report on the ground conditions containing hidden errors which are not provable within the short tendering period.34 If German law is applicable by the choice of the parties or the rules of private international law if there is no (valid) choice in the opinion of the present authors [eight Sub-Clauses of the Silver Book, including 4.12 and5.1]arenoteffectiveundertheGermanStandardFormContracts Act.35 Contractual effect of allocation under English law Having considered the different mechanisms possible for different allocations ofrisk,itisnecessarytoconsiderwhattheireffectmightbe,giventhatthis will vary between jurisdictions, taking English law as a basis. UsingJulianBaileysclassification,36scenario1isofawarrantyof accuracy/completenessofsiteinformationbytheemployer.Ifexpress,this would normally be enforced at common law.In English law, such a warranty couldevenbeimpliedinexceptionalcircumstances,astheCourtofAppeal 33 Agne Sandberg , A Contractors View on FIDIC Conditions of Contract for EPC Turnkey Projects [1999] ICLR 47, page 50. 34 Dr Alexander Kus, Dr Jochen Markus and Dr Ralf Steding, FIDICs New Silver Book under the German Standard Form Contract Act [1999] ICLR 533, pages 538-539.35 Kus, Markus and Steding, note 34, page 549.36 See the main text to note13. 14 held in Bacal Construction v Northampton Development Corporation.37Such apossibilitymayalsoexistinUSlaw,althoughDougJoneshasdoubted whethersuchawarrantywouldeverbeimpliedintoanAustralianstandard form contract.38 Scenario2istheneutralsituationwheretheemployergivesneitherwarranty nordisclaimer.UnderEnglishlaw,inprincipletheriskofadversesite conditionsshouldremainwiththecontractorifthereisnocontractual provision to disturb the position. Inscenario3,thereisamisrepresentationbytheemployer.Apositive misrepresentationinsiteinformationsuppliedbytheemployercouldchange the risk allocation.The position is clearly stated by Keating: A statement offact by the employer asto the nature of the soil, or the site or the like is often made in the tender documents and is at that stage a representation.When the contract is signed, such statements are often expresslyincorporatedintothecontractthecontractormayseek damagesforbreachofcontract[or,inEnglishlaw,underthe Misrepresentation Act 1967].39 In scenario 4, there are express disclaimers of liability by the employer under the contract.As has been seen, Sub-Clauses 4.10 and 5.1 of the FIDIC Silver Bookcontainnorelianceclauses,purportingtodenythecontractorthe ability to rely on the information provided, or more specifically to exclude the employersliabilityforsuchreliance.WhileEnglishlawhastheUnfair ContractTermsAct1977andothercommonlawjurisdictionshavesimilar statutes, in principle such disclaimers should be effective to prevent contractor claims.This may not be so in civil law jurisdictions, such as Germany, if the provisions offend against statute. Insummary,itcanbesaidthatquestionsofallocationofriskforunforeseen ground conditions will depend upon: (a)contractual provision; and (b)the general law of the jurisdiction. The remaining part of this paper concerns situations where contract provisions havebeeninsufficienttopreventdisputesarisingastotheconsequencesof unforeseengroundconditions.Itspurposeistooffersomeinsightastothe nature and characteristics of ground conditions disputes. 37 Bacal Construction (Midlands) Ltd v Northampton Development Corporation (1975) 8 BLR 88 (CA), pages 100-101 (Buckley LJ). 38 Doug Jones, Force Majeure in Australian Construction Law [1995] ICLR 296, page 309. 39Stephen Furst QC and the Hon Sir Vivian Ramsey, Keating on Construction Contracts (9th edition, Sweet & Maxwell, 2012), para 6 022. 15 Ground conditions disputes: their nature and how they occur Fromtheearliesttimes,disputeshavearisenaboutunforeseenground conditions.Arecurringfeatureintheearlycasesismaterialsuppliedbythe employer on which the contractor has relied, or claims to have done so. InMunrovBognorUrbanDistrictCouncilthespecificationforasewage works contained the following words: A borehole has been sunk upon the site, and it has been ascertained that thetopeighteenfeet40ofthesubsoilconsistsofsomewhatwetvery loose sand and clay and below this depth the strata is of stiff clay.41 Thecontractorsclaimforfraudulentmisrepresentationwasbaseduponthe allegationthatnosuchboreholehadeverbeensunk.InTradeIndemnityv WorkingtonHarbourandDockBoard,inaprojectfordockenlargement works,thecontractmadethecontractorwhollyresponsibleforobtaining groundconditionsinformation.42Despitewarningsthattheirpricefor excavation was too low,the contractors won thecontract on the securityof a performancebond.Thecontractorsallegedthattheyweremisledbya representativeoftheemployerabouttrialholeresults,whichrevealedthe presenceofwater,andthebondguarantorssoughttorelyonthistoresist payment.LordAtkinpointedoutthatthecontractorwasnotentitledtorely upon any such representation, even if made. Groundconditionscaseshavecontinuedtooccurintothemoderneraandin all the major common law jurisdictions, at least.While ground conditions are notthesameeverywhere,andthelegalpositionincontractandatlawmay vary, the basic ground conditions questions are similar. Modern examples AmodernAustraliancase,AbigroupContractorsvSydneyCatchment Authority, shows the recurrent theme of contractor complaints about employer information onground conditions; the outcome was attributable toAustralian statute.Work on a spillway at the Warragamba Dam encountered a significant delayanddifficulty,duetotherocklevelbeingsubstantiallylowerthan indicated in the Authoritys specifications.The Concept Design had shown a high rock level and a small amount of excavation and replacement required (24,300 cubic metres). TherocklevelwasinfactmuchlowerthanthatindicatedbytheConcept Design drawings and in the result 204,518cubic metres had to beexcavated andreplaced,anexcessofover180,000cubicmetres.Thecontractor succeededinobtainingafindingfromthecourtthattheAuthorityhadbeen 40 A little less than six metres. 41 Munro v Bognor Urban District Council [1915] 3 KB 167 (CA), page 168. 42 Trade Indemnity Co v Workington Harbour and Dock Board [1937] AC 1 (HL), page 15. 16 guiltyofamisrepresentationandofmisleadinganddeceptiveconductunder the Trade Practices Act, entitling the contractor to damages.43 In the Hong Kong case of Mitsui the client (the Hong Kong government) gave limited geological information to Mitsui (the contractor) in relation to a water supplyworksproject;muchoftheinformationcouldnotbeobtainedor verifieduntilexcavationtookplace.Intheend,theengineerexercisedhis powertograntanextensionoftimeof784daysonatwo-yearcontractto compensatefortheextratimerequiredtocopewithgroundconditionsin executing the tunnel excavation and lining works. Thecontractorsactionsoughtanadjustmentofratestocovertheadditional sumsexpended.Thebillofquantitieshadallowed40tonsofsteelfor supports,comparedwitharequirementasexecutedof2943tonsand275 metresofliningmaterial,comparedwitharequirementasexecutedof2448 metres. Thecourtheldthatthegovernmentestimatesbasedonthegeological information had been wildly wrong and that the contractor would be entitled tofurtherfinancialreliefundercontractualprovisionswhichthecourt criticised for their imprecision.44 Ground conditions and other claims It should, of course, be recalled that not all unforeseen ground conditions cases concern contractors progress and cost claims. In Mirant Asia-Pacific Construction (Hong Kong) v Ove Arup, the basis of the disputewasallegationsofdesignernegligence.45Theownerssuedtheir consultantengineersinrespectofnegligentfoundationdesigninthe constructionofacoal-firedpowerstationatSualinthePhilippines,which failed because of the strength and composition of the rock sub-soil.The court heldthatthedesignwoulddependuponassumptionsastotheground conditionsandthatthedesignerswereunderadutytoverifythegeological conditions on which these assumptions were based, which they had not done. InEnertragvSea&LandPowerandEnergy,theTechnologyand Construction Court held that the failure of the erection of a weather mast in the North Sea as part of a wind farm project was due to the defendant contractors inadequateadviceonsub-seasoilconditionsandconsequentinappropriate installation.46 InCo-operativeGroupvJohnAllentheemployerbroughtanactionagainst consultants in relation to their design work, following attempts to treat a layer ofverysoftclaybyvibrocompactionandstabilisationwork.Theoutcome was significant differential settlement and sloping floors.The test applied was 43 Abigroup Contractors Pty Ltd v Sydney Catchment Authority [2007] NSWSC 220. 44 Mitsui, note 14, page 8. 45 Mirant Asia-Pacific Construction (Hong Kong) Ltd v Ove Arup and Partners International Ltd [2004] EWHC 1750 (TCC). 46 Enertrag (UK) Ltd v Sea & Land Power and Energy Ltd (2003) 100 Con LR 146 (TCC). 17 the reasonable skill and care exercised by the designers and the action failed in this respect.47

A case study Theauthorshaveencounteredthegroundconditionsissuefrequentlyintheir MiddleEastandNorthAfricapracticeandthefollowingcasestudyisan example of a dispute from that region. Theprojectwasalargepetro-chemicalfacility,includingamainsitewith dimensionsof20kmby17km.Theareaofthemainsitewhichwasthe subject of the dispute was approximately 4km by 4km.A site survey had been undertakenonbehalfoftheemployerfiveyearspreviously,involvingfive cores on the dispute siteand two just outside it.The survey was provided to all tenderers. ThesurveyreferredtoStandardAasthestandardusedforthecoresamples: on encountering of resistance greater than X, further weight added to assist penetration of earth for core samples.The report concluded:CoresamplingundertakentodepthofXm.Onanalysis,nohardrock waspresentonsiteatdepthofXm.Inouropinion,noheavyrock equipment is necessary; backhoes and light excavators are sufficient for any excavation. The tenderers were allowed to inspect the site and prior to the final tender, the contractor whose tenderultimately succeeded took eightfurther core samples in the dispute site area. The contract contained the following provisions:oAllsiteinvestigationreportsprovidedbytheOwnerarefor informationonlyandcaninnowayberelieduponbythe Contractor; oTheContractoracknowledgesthatithasundertakenitsownsite investigations to ascertain the relevant site conditions; oTheContractorisentitledtoaChangeOrderwhereground conditions encountered are unforeseeable. Within the first month of work, the contractor encountered hard rock on 90% oftheareaneededforfoundationexcavationwithinthedisputepartofthe main site.The equipment brought in by the contractor could not cope with the conditions actually obtaining.The contractor submitted a claim for 14 months of additional time for delay and in excess of $50 million of extra cost, which it alleged resulted from the unforeseen ground conditions. Initially, the contractor seemed to have a strong claim.However, as the claim became a dispute and the full documentation was reviewed by the legal teams and experts, a fuller and different picture began to emerge. 47 Co-operative Group Ltd v John Allen Associates Ltd [2010] EWHC 2300 (TCC). 18 In particular, two points proved to be of crucial significance.First, the initial report (shown to all tenderers) and the contractors own report both contained clearindicationsofthepresenceofhardrock,fromthenumberofblows requiredtopenetratethesub-surface.Second,itbecameapparentthatthe contractors report had been based on the use of a standard of testing different from that required in the invitation to tender. Thepicturewhichemergedwasthatthefailuretoadheretothetesting methodologyandthefailuretointerpretthereportinformationhadbeen crucialinthecontractorsassessmentoftheposition.Thissignificantly weakened the contractors case in the disputeresolution process which ithad initiated. Conclusions At the time of preparing and negotiating the contract, the allocation of ground riskneedstobeconsideredindetail.Itisnotsufficienttoacceptstandard formprovisionswithoutreflectionontheirappropriatenesstotheprojectin question.Specifically,thequestionmustbeaddressedastowhetherthe contractor is to be entitled to make a claim for unforeseen ground conditions, along the lines of the FIDIC Red Book, or a version thereof.48Moreover, part ofthisconsiderationwillbeidentifyingdocuments(ifany)whichthe contractor is expressly entitled to rely upon, with the result that the contractor will be able to get time and/or money relief if the information is inaccurate or incomplete. Alternative models of risk allocation may need to be reviewed.The employer may wish to transfer the majority of the ground risk to the contractor, as under the FIDIC Silver Book.49The question as to the appropriateness of this model has a number of elements.The employer will need to be confident of finding a contractor with the capability to execute the project successfullyand who is prepared to accept this risk burden.The employer will also need to be aware of,andwillingtoaccept,theimplicationsintermsoftimeand(especially) cost of such an allocation. Ground conditions provisions, like all risk allocation, are a matter ofcontract negotiation.However, the outcome will be determined not only by bargaining strength,marketconditionsandthenegotiatingskillsofthepartiesandtheir presentations.Regard must also be had to theapplicable law of the contract.UnderEnglishlaw,intheabsenceofexpressprovision,theriskisgenerally bornebythecontractor,buteveninthecommonlawjurisdictionsitmaybe possibletoobtainreliefthroughanimpliedwarrantyoraclaimfor misrepresentation, if the facts will support it. Itcannotbeassumedthatallriskallocationswillbeeffectiveinall jurisdictions.Inthecivillawjurisdictions,statutemayhaveanimpacton enforceability of wholesale risk transfer such as under the Silver Book, and at 48FIDIC Red Book: note11. 49 FIDIC Silver Book: note25. 19 the claim stage the possibility of a force majeure claim by the contractor must be taken into account, which would be virtually unthinkable at common law. Eventhemostsuccessfulnegotiationsandthedraftingofappropriate provisions cannot prevent all disputes.Disputes about cost, time, defects and professionalliabilityarisedespitetheexistenceofcontractscoveringthe groundconditionsissue.Ifadisputedoesarise,itneedstobemanagedpro-actively.Thefactsneedtobeanalysedfullyandearlyandrecordedin correspondence,relatingcloselytothecontractualallocationofriskandthe general law. Allofthesefeaturescanbesaidtoapplytocontractualprovisionsand disputesconcerninggroundconditionsinanyjurisdiction.Itistheauthors experience that the issue is particularly keenly negotiated and contested in the Middle East and North Africa region. Ellis Baker MA LLM, solicitor, is a partner and head of the Construction and Engineering Practice Group at the London office of global law firm White & Case; he is also lead author of FIDIC Contracts: Law and Practice. MichaelTurriniBALLB,solicitor,isapartnerintheDohaofficeof White & Case. Ellis Baker, Michael Turrini and Society of Construction Law 2013 Theviewsexpressedbytheauthorsinthispaperaretheirsalone,anddonot necessarilyrepresenttheviewsoftheSocietyofConstructionLawortheeditors.Neither the authors, the Society, nor the editors can accept any liability in respect of anyuse to which thispaperor any informationor viewsexpressed in itmaybe put, whether arising through negligence or otherwise. 20 The object of the Societyis to promote the study and understanding ofconstruction law amongst all those involved in the construction industry MEMBERSHIP/ADMINISTRATION ENQUIRIES Jill Ward The Cottage, Bullfurlong Lane Burbage, Leics LE10 2HQ tel: 07730 474074 e-mail: admin@scl.org.uk website: www.scl.org.uk