Subsurface conditions and risk allocation Introduction he scope of this paper is to review and compare domestic and international standard form construction contracts (SFCC) with respect to subsurface conditions, to understand how risk is usually allocated, if the allocation is fair, and how risk should be allocated. Subsurface conditions are often thought of as, or associated with, the geological state of the ground below the earth’s surface. In the context of SFCCs, as is further evidenced by the interrelated structuring and classification of same, subsurface conditions are not necessarily limited to the preceding definition, and may include other subsurface conditions located below (or behind) the surface of existing structures, and are included as a subsection of concealed, unknown, or otherwise unforeseeable conditions. Notwithstanding that the latter definition is ostensibly broader than that related to geology, subsurface conditions within the framework of this paper will include other matters which are otherwise located below (or behind) the surface of existing structures; collectively referred to as the ‘Subsurface Conditions.’ A central theme amongst Subsurface Conditions is the general uncertainty with respect to the state of the Subsurface Conditions prior to the commencement of the work on a construction project, and the general propensity of the primary parties of a construction contract (the Owner, the Architect, and the Contractor) to attempt to allocate the associated risks to the other parties. “[W]e know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones.” - Donald Rumsfeld, February 12, 2002
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Standard form construction contracts, domestic and international The Canadian Construction Document Committee (CCDC)1, and the International Federation of Consulting Engineers (FIDIC)2, are the most widely recognized industry Organizations with respect to the production and use of SFCCs in Canada, and Internationally (located in 34 countries). The two SFCCs produced by the foregoing organizations referenced in this paper are as follows; 22 | CONSTRUCTION ECONOMIST | www.ciqs.org | Fall 2016
1. CCDC 2 – 2008 Stipulated Price Contract (CCDC 2); and 2. FIDIC Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (FIDIC Contract). Standard Form Construction Contracts in Canada The CCDC 2 is an SFCC between the Owner, and the Contractor that establishes a fixed price for the work associated with a construction project (pre-determined scope of work and construction schedule), irrespective of the Contractor’s actual cost of construction. The CCDC 2 is organized into an Agreement between Owner and Contractor, Definitions, and General Conditions of the Stipulated Price Contract (12 Parts). Part 6 Changes in the Work, GC 6.4 Concealed or Unknown Conditions, 6.4.1 states; “If the Owner or the Contractor discover conditions at the Place of the Work which are: 1] subsurface or otherwise concealed physical conditions which existed before the commencement of the Work which differ materially from those indicated in the Contract Documents; or 2] physical conditions, other than conditions due to weather, that are of a nature which differ materially from those ordinarily found to exist” CCDC 2 allocates the risk of Subsurface Conditions to the Owner (subject to the Subsurface Conditions not having been identified in the Contract Documents, therefore forming part of the Work). Part 6 Changes in the Work, GC 6.4 Concealed or Unknown Conditions, 6.4.2 states; “The Consultant will promptly investigate such conditions and make a finding. If the finding is that the conditions differ materially and this would cause an increase or decrease in the Contractor’s cost or time to perform the Work...will issue appropriate instructions for a change in the Work...” The Ontario Superior Court of Justice dealt with the issue of Subsurface Conditions in Inscan Contractors (Ontario) Inc. v. the Halton District School Board and Decommissioning Consulting Services Ltd. (Inscan v. Halton).4 Ultimately, the Court held that Concealed Conditions were the responsibility of the Halton District School Board (the Owner); however, the court applied an inherent onus on Inscan Contractors (Ontario) Inc. (the Contractor) to have been proactive in its discovery of Subsurface Conditions, as indicated below; To return to Table of Contents CLICK HERE
