On a construction project, it is common to find hidden conditions, but who bears the financial and schedule burden? Barring a specific provision in the contract, the burden will likely be deduced from other provisions, any applicable exclusions and qualifications, and the surrounding facts and circumstances. Many contracts have provisions that suggest that you have completely investigated the site, confirmed compliance with all laws and building codes, and have accounted for all such conditions in your price and schedule. Having a provision like this in your contract makes it difficult to assert a claim for unknown or hidden conditions.

An example a “hidden conditions” clause would be:

“The Subcontractor has carefully examined the Contract Documents, the Project site, soil conditions, and the adjacent areas, the weather and climate conditions, has conducted any tests and investigations it deems necessary, and confirms to Contractor that it can perform the Work for the Contract Price and Schedule in full compliance with all applicable laws, rules and building codes.”

One of the first things you can do to address this issue is to include and expand on your list of exclusions and qualifications that are part of your bid, proposal, estimate and ultimately the contract. This list should have those specific considerations, assumptions, and limitations that make up your price, scope and schedule.

For example, if your bid assumes that the trusses have no rot or termite damage and do not need to be replaced, saying so specifically is important.

Next, consider adding language that outlines a procedure on what to do when hidden conditions are discovered. Typically, this will include some type of notice and opportunity to investigate followed by the submission of a claim to be evaluated.

An example of “what to do when hidden conditions are discovered” would be:

“The Contractor shall promptly, upon discovery, and before any such conditions are disturbed, notify the Owner in writing of latent physical conditions differing materially from those indicated in the Contract Documents or differing materially from those ordinarily encountered and generally recognized as inherent in work of the character provided for in this Contract. The Contractor shall, at Owner’s direction, promptly investigate the conditions. If Owner finds that such conditions materially differ thereby causing an increase or decrease in the Contractor’s cost or schedule, an equitable adjustment shall be made.”

Keep in mind that if you have upstream commitments for notice and opportunity to investigate, you should pass those obligations down-stream to your subcontractors and vendors.

We hope this helps you understand the construction contracting process a little better. If you have questions about your contract, send us an email or give us a call. And make sure to check out our other free tools and our weekly podcast.