Changed Conditions and the Construction Contract

A changed condition, or differing site condition, is one in which the contractor was unaware of or one that was not reasonably expected by the contracting parties at the time the contract was entered into. United States government contracts define changed conditions as “(1) subsurface, latent, or physical conditions at the site materially different from those indicated in the contract or (2) unknown physical conditions at the site of an unusual nature, differing materially from those ordinarily encountered and generally recognized as inhering in work of the character provided for in the contract.” Federal Acquisition Regulations, 48 C.F.R. § 52.236-2.

There are two categories of changed conditions, known as Type I and Type II changed conditions. Type I changed conditions characterize site conditions that vary materially from the conditions represented in the contract. For example, in John Arborio, Inc. v. State, 41 Misc.2d 145 (Ct. Cl. 1963), representations made in the contract documents did not represent the actual conditions of the project in which the contractor relied upon at the time the contract was signed. There, the contractor was led to believe that fill material in the amount of approximately 419,000 cubic yards would be needed for the project, only to later learn that only 67,775 cubic yards would be needed.

Type II changed conditions characterize site conditions that are a surprise, or not what would normally be encountered, and the contractor did not include specifications in the contract as to the surprise conditions. See generally  Reliance Ins. Co. v. County of Monroe, 198 A.D.2d 871 (4th Dep’t 1993).

However, in general contractors are not entitled to extra compensation for changed conditions, as a claim will only exist by express contract or when fraud or misrepresentation is present. See Weston v. State, 262 N.Y. 46 (1933) (where it was found that reimbursement is not required for increased expenses in the performance of a contract due to a mistake. When deception, inequality or inequity cannot be found, the parties will be bound by the terms of the contract). But if the changed and unknown site conditions so alter the contract so as to constitute a cardinal change then the entire contract may be voidable.

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