Jan/Feb 2012

COMMUNITIES: PRIVATE PRACTICE
For the Client—Expect the Unexpected

Clients want certainty, but projects are fraught with unforeseen circumstances and changed conditions.

BY JOAN HOWELL OSBORNE, ESQ.

Clients routinely want as much certainty as they can get, with their expectations of results for their projects and especially with the budgets for those projects. They also want to finish their project on schedule, as they are very aware that delay and maintaining a budget are inimical to each other. Delays are typically the result of encountering unforeseen circumstances or changed conditions on projects, especially projects involving renovation or additions to existing buildings or facilities.

Unforeseen circumstances are those conditions that were not reasonably anticipated based on the contract documents. Differing site conditions are conditions that are different than those represented in the contract documents. Examples may clarify. The need to remove asbestos first uncovered and identified during construction is generally considered an unforeseen circumstance, as would be the existence of an unidentified underground tank or vault. The types of footings and depths of same, if different than shown in the documents for existing conditions, would represent a differing site condition. Changes in the market (i.e., labor costs, materials costs), economic circumstances of the contractor, and changes to conditions caused by weather, are not unforeseen circumstances or changed conditions that are considered owner-assumed risks.

Pricing Projects
The process of pricing out a project involves assumptions about what will be encountered while completing the work and that the contract documents accurately depict the work required. In that regard, new construction involves less risk to the owner and the contractor regarding changed conditions and unforeseen circumstances than renovation or additions to existing structures.

The age of an existing structure and availability of documentation, especially as-built plans that accurately reflect existing conditions, will play a very large role in whether unforeseen circumstances or differing site conditions are encountered on a project. Clients should undertake an exhaustive search to determine whether they have adequate information on existing conditions when any such project is contemplated. Absent existing drawings, during the design phase clients should carefully evaluate the feasibility of destructive analysis of existing conditions for purposes of determining what they are.

Reducing Uncertainty
Clients who wish to expand or renovate an existing facility encounter difficulties in authorizing destructive analysis to determine existing conditions for the simple reason that they need to use the building without disruption as long as possible. Additionally, there can be a substantial lag time between the phased design work and actual construction. Accordingly, opening up parts of the facility prior to the commencement of construction can leave the building in a state of "partial demolition" for a considerable period of time.

Despite the disruption, the client may wish to undergo this inconvenience, in order to avoid costly delays during construction. Ultimately, reducing uncertainty about the cost of construction and avoiding delay in the delivery of the completed structure are better handled on the front end of the project. Clients who understand that they ultimately bear the risk for unforeseen circumstances and differing site conditions will be able to better plan for the actual project costs, and their expectations will be better satisfied. Incurring the expense of additional investigation of existing conditions at the front end of a project lessens the likelihood that there will be delays and additional costs during construction. Further, a contractor who encounters such conditions is likely to aggressively try to recoup the associated costs, and any other costs it has incurred that can be linked to the result of such unknown conditions.

Accordingly, the idea that a client can potentially save on total project costs by inserting a clause requiring a contractor to inspect a project site before bidding, coupled with restricting the scope of work of its designers by limiting investigation of existing conditions, is unrealistic and increases the risk of delay and cost overruns. Estimating the cost of various preconstruction investigations of existing conditions is likely to be much more accurate than estimating the risk and cost of as-yet-unknown delays and changes to the work during the construction, as well as costs involved in redesign that may become necessary when unexpected conditions are encountered.

Avoiding Disputes
Traditional lump-sum contracting forces contractors to commit to certain outcomes at the time of the greatest uncertainty. Clients who reduce the uncertainty by authorizing the scope of necessary investigative services at the design end also reduce the possibility that the contactor's uncertainty will translate into cost overruns. As part of the professional services offered by the engineer, the client should be educated to make a fully informed decision on what reasonable investigation is necessary, after the engineer has had the opportunity to evaluate the completeness and accuracy of the information on existing conditions. Doing so will also reduce the risk that claims and disputes will end up in litigation with the attendant legal expense, and consequential expenses resulting from same.

Joan Howell Osborne, Esq., is of counsel for Hoagland, Longo, Moran, Dunst & Doukas LLP in New Brunswick, New Jersey. She practices primarily in the area of defense of professional malpractice claims, focusing on multiparty construction related claims involving architects, engineers, surveyors, and landscape architects.