Federal Circuit Court of Appeals Denies Contractor Recovery Because Alleged “Differing Site Condition” Did Not Exist at Time of Contract Award.

Olympus Corp. v. United States,
98 F.3d 1314, 1996 U.S. App. LEXIS 27509 (U.S. Fed. Cir., Oct. 23, 1996)

 Standard “Differing Site Conditions” clause in Government contract requires, as a condition to recovery under that clause, that the alleged differing condition which serves as the basis of the claim must have existed at the time the contract was executed.

Olympus Corp. (“Contractor”) entered into a construction contract with the United States (“Government”) to pave the yard of an engine plant owned by the United States Army. The contract included the standard Differing Site Conditions clause set forth in Federal Acquisition Regulation (“FAR”) § 52.236-2 (1995). After the Contractor received its notice to proceed, another independent Government contractor accidently caused an oil spill in certain trenches in the yard which contaminated the soil and prevented the Contractor from paving. Thereafter, the plant employees went on strike, picketing the entrances to the plant and preventing the Contractor from accessing the plant yard.

The Contractor timely notified the Government regarding the delays caused by both the contamination and the strike and requested a time extension and price adjustment. The Government granted the entire time extension requested, but granted only a small portion of the $108,000 claim for additional costs. The Contractor filed the present lawsuit seeking to recover all of its additional costs.

The Contractor relied exclusively on the contract’s Differing Site Conditions clause as the basis for its entitlement to recovery. In essence, the Contractor claimed that both the contamination and the strike were differing site conditions, unforseen at the time the contract was executed, which entitled it to recover its increased costs. The Government moved for summary judgment arguing that to recover under the Differing Site Conditions clause, the alleged differing condition must have existed at the time the contract was executed. The Court of Federal Claims granted the Government’s motion for summary judgment and the Contractor appealed.

In affirming the lower court, the Federal Circuit Court of Appeals reviewed the history and underlying purposes of the Differing Site Conditions clause and concluded that although the clause is a risk shifting device, it does not shift the risk of all unanticipated adverse site conditions from the Contractor to the Government. The primary purpose of the clause is to foster more accurate bidding by encouraging contractors not to inflate their bids to include the costs of assessing possible adverse subsurface conditions. In light of this purpose, the court held that only those risks related to conditions existing at the time of bidding are shifted to the Government. The court also noted that a reasonable and prudent contractor would have been familiar with this long standing limitation on the Differing Site Conditions clause to cover only those conditions that existed at the time the contract was executed.

In addition to the temporal limitation regarding the alleged differing site condition, the court also noted that the Differing Site Conditions clause applies only to “physical” conditions at the work site, and not to actions of third parties which deny a contractor access to the work site, such as the soil contamination and strike in the present case. The court denied the claim in its entirety because the Contractor relied on no other provisions of the contract to impose liability for its increased costs on the Government.

 

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