Unforeseen conditions: what the contract says about who pays
An excavator hits something the drawings did not show. Within a day the contractor is talking about a change order, and within a week there is a PCO on the owner's desk. The instinct on the owner's side is to assume that whatever is in the ground belongs to the owner.
That instinct is often right, but not always, and never automatically. The contract sets tests that have to be met before the cost moves to the owner. An owner who knows those tests can tell the difference between a genuine unforeseen condition and a contractor's estimating miss wearing the same label.
What the clause usually says
Under most AIA A201 based general conditions, there are two types of concealed or unknown condition. The first is a subsurface or otherwise concealed physical condition that differs materially from what the contract documents indicated. The second is an unknown physical condition of an unusual nature that differs materially from what is ordinarily found in work of that character. Both require prompt written notice, and both require that the condition be left undisturbed where possible until the owner and architect can observe it.
If the tests are met, the contract price and time are adjusted. If they are not, the contractor carries the cost. Check your contract, because owners sometimes modify this clause, and some public owners shift more risk to the contractor through geotechnical disclaimers or site investigation requirements.
The tests an owner should apply
Each PCO labeled unforeseen should be checked against four questions before the owner accepts the cause.
What did the documents indicate?
Pull the geotechnical report, the survey, and any existing conditions drawings that were part of the GMP documents. If the borings showed rock at eight feet and the contractor hit rock at eight feet, the condition was indicated. A contractor who priced the job as if there were no rock has an estimating problem, not an unforeseen condition.
Was it materially different?
Borings are samples. Conditions between borings vary. Rock at seven feet where the boring showed eight is not materially different. A buried fuel tank where the survey showed open ground is. The word materially carries a lot of weight, and disputes often turn on it.
Was notice given in time and was the condition preserved?
The clause requires prompt notice, often within fourteen days, and asks that the condition be left for observation. A contractor who removed the obstruction and sent a PCO a month later may have lost the right to an adjustment. That is a contract question, not a moral one, and the owner should at least know it exists.
What did the GMP assume?
Many GMP amendments carry qualifications about site conditions, allowances for rock or unsuitable soils, or contingency explicitly intended for subsurface risk. If the GMP carries a rock allowance, the first dollars of a rock condition go against the allowance, not against a change order. An owner who forgets the allowance pays twice.
A fictional example with two outcomes
Take a fictional $33 million public library built on a former rail yard. The geotechnical report noted fill of unknown composition across the site and recommended further investigation that the owner chose not to fund. The GMP carried a $150,000 allowance for unsuitable soils. During excavation the contractor found creosote treated timbers and contaminated soil and submitted a PCO for $420,000 as an unforeseen condition.
Outcome one: the owner accepts the cause, pays the full amount from owner contingency, and records nothing about the allowance. Outcome two: the owner applies the allowance first, reducing the change to $270,000, checks that notice was given within the window, confirms that contaminated soil is materially different from fill of unknown composition, and records the change as unforeseen with a note that the owner declined further investigation. The second outcome costs less and leaves a record the board can read.
Recording it so the record holds
An unforeseen condition entry in the owner's register should carry the discovery date, the notice date, the document that was supposed to indicate the condition, the allowance it was applied against if any, and the cause as the owner sees it. Most of this is a few fields. All of it is lost if the register only records the price.
Costwitness keeps those fields on the owner's side of the contract and ties the change to the allowance register and the contingency ledger, so the allowance is drawn before contingency is. The owner still decides whether the condition was truly unforeseen. The software makes sure the allowance is not forgotten.
What to check this month
- Read the concealed conditions clause in your agreement and note the notice period and any requirement to preserve the condition.
- List every allowance and contingency line in the GMP that relates to site conditions, with its remaining balance.
- For each open PCO labeled unforeseen, find the document that should have indicated the condition and write down what it says.
Questions on this
Does the contractor have to investigate the site before setting the GMP?
Most agreements require the contractor to visit the site and review available information, but not to perform its own subsurface investigation. Some owners add that requirement. Check your contract. The more investigation the contractor was required to do, the harder it is to claim a condition was unforeseen.
Who pays for the delay from an unforeseen condition?
If the condition qualifies, the contract usually allows a time extension and may allow extended general conditions. The amount and the rules for extended general conditions vary widely. Check your contract, and record the time claim separately from the cost claim so each can be reviewed on its own.
In the product
Change order register, Allowance register, Contingency ledger. Free tool: Change Order Exposure, Allowance Confidence Band.
Keep reading
Earlier: Coordination changes and MEP clashes: which fund they belong to. Later: From PCO to executed change order: the lifecycle owners should track. All articles on change orders.
See the cause register on a project like yours.
Thirty minutes on a call. The change order register with causes, the audit trail, and the notice clock, on a fictional project.