February 7, 2008

Court Of Appeals Gives Lengthy Analysis Of Changed-Conditions Claims

By Tim Gordon

URS Group, Inc. v. Tetra Tech FW, Inc. (Colo. App. 2008)

The Colorado Court of Appeals addresses in detail the elements of, and defenses against, a Type-I differing site conditions claim.

URS was the winning remediation subcontractor for a U.S. Army cleanup project managed by Tetra Tech FW, Inc. (TTFW).  After beginning demolition, URS encountered problems removing the foundations, and claimed that the conditions encountered were not as represented in the request for proposal.  So URS submitted a contract change notification, seeking $9,166.925 in additional costs.  TTFW rejected the claim, and URS sued.

Following a bench trial, the trial court found in favor of TTFW on URS’s differing site conditions claim, reasoning that URS’s recovery was barred by the fact that URS entered into a fixed price contract.  The trial court did, however, award URS some damages on other claims.  URS appealed the trial court’s denial of its differing site conditions claim, and the Court of Appeals reversed.  Under the parties’ subcontract and applicable government contracting law, in order to recover on a Type-I differing site conditions claim, a contractor must prove that:

the conditions indicated in the contract differ materially from those actually encountered during performance; the conditions actually encountered were reasonably unforeseeable based on all information available to the contractor at the time of bidding; the contractor reasonably relied on its interpretation of the contract and contract-related documents; and the contractor was damaged as a result of the material variation between expected and encountered conditions.

The Court of Appeals analyzed and rejected TTFW’s assumption-of-risk argument, and TTFW’s argument that URS should have reviewed certain drawings not referenced in the request for proposal prior to submitting its bid.

Additionally, the Court of Appeals addressed, but could not resolve, TTFW’s argument that URS’s claim should be barred for failure to provide timely notice of its claim.  Because the issue of notice would require a remand and findings by the trial court, the Court of Appeals set forth some of the applicable standards with respect to proper notice, including:  the purpose of giving timely notice; the proposition that notice need not be given again for the same recurring issue; the proposition that the notice requirement can be waived if the government had actual or constructive notice; and the proposition that a claim can only be barred if the lack of notice prejudiced the government.

Finally, the Court of Appeals held that URS could maintain a claim for negligent misrepresentation based on the allegedly incorrect bidding information in the request for proposal, and that the economic loss rule would not bar such a claim since it is based on pre-contract conduct.

This opinion should be read in conjunction with the Court of Appeals’ decision in Specialized Grading v. Goodland (Colo. App. 2007), wherein the Court held that a subcontractor can maintain a quantum meruit claim against the general contractor based on the general contractor’s failure to have the site ready as promised.

Read slip opinion

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