Perhaps the greatest risk in a federal construction project is the risk of the unknown. This is especially true in the case of a fixed price project where the majority of the risk is on the contractor who has agreed to do the job for a fixed price, which generally includes all known and unknown risks of performance. This narrative, however, has some relief in that the parties understand that there will, at times, be truly unforeseeable circumstances that even the most prudent contractor could not have reasonably prepared for.
Accordingly, all fixed-price construction contracts with the federal government include Federal Acquisition Regulation (“FAR”) 52.236- , the Differing Site Conditions (“DSC”) Clause, which provides for an equitable adjustment of the cost and time required for construction when (1) subsurface or latent physical conditions at the site differ materially from those indicated in the contract, or (2) unknown physical conditions at the site of an unusual nature differ materially from those ordinarily encountered, and the contractor meets specified notice requirements. The DSC Clause seeks to reduce and/or eliminate bidding contingencies by shifting the risk of qualified unanticipated subsurface conditions to the government.
The Two Types of Differing Site Conditions
The DSC Clause contains two distinct types of DSCs. The first, known as a Type I DSC, covers unexpected natural or man-made conditions that materially differ from conditions indicated in the specific contract. The second, known as a Type II DSC, covers unexpected natural or man-made conditions that materially differ from conditions normally expected in similar work. Unexpected natural conditions can include things such as unexpected subsoil composition, while man-made conditions can include things such as unknown utility lines. One note to be aware of is that weather and acts of God that take place during performance of a contract do not constitute DSCs.