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Contract terms key to success of unexpected ground condition claims

Recent rejection of claims over unexpected ground conditions by the Technology and Construction Court gives a robust interpretation of applicable notice provisions, according to legal advisor CMS.

The case arose when Van Oord and Sicim Roadbridge, working as OSR, brought a £10M claim against Allseas after it was subcontracted to carry out onshore and offshore works for the laying of gas pipelines in the Shetland Islands in 2011. However, a court decision yesterday determined that OSR must repay £1.3M to Allseas.

OSR was engaged to carry out the procurement, supply, construction, installation and testing of the pipelines, plus certain onshore works. Delays and disruption to the onshore element of the work due to deeper than expected peat led to the claim over unforeseen ground conditions.

According to CMS, key questions arose about how the sub-contract should operate in relation unforeseen ground conditions and the accompanying notices provisions. “The court rejected the majority of OSR’s claim and took a robust approach on both points,” says the company.

OSR’s claim was based on the peat being encountered at greater depth than identified in pre-contract documentation supplied to it than it could reasonably have been expected to foresee. As a result, OSR claimed increased costs due to the change in construction technique needed.

However, the subcontract between OSR and Allseas stated that “OSR accepted all responsibility for having properly evaluated all costs and contingencies for successfully performing the works and that it would bear all and any consequences resulting from its improper evaluation”.

CMS said that there was “a carve-out to this for sub-surface conditions where OSR could rely on contract documents to a certain extent. Subject to that carve-out, OSR undertook to make no claims or requests for change orders based on its reliance on AUK supplied information and data. The carve-out for sub-surface conditions allowed additional time and money to be claimed for conditions affecting the scope of the work and/or the completion date, provided OSR could demonstrate it could not be foreseen by an experienced contractor”.

The court rejected the claim on a number of points. Firstly, the excavations were covered by a lump sum in the subcontract and the methodology was chosen by OSR. The other issue was that the pre-contract documents were not actual contract documents and the court ruled that they were not documents that OSR could rely on. The court concluded that overall, OSR failed to prove that the ground conditions could not reasonably have been foreseen by an experienced contractor.

The court also noted that OSR had failed to give notice to Allseas regarding the issues related to ground conditions within the periods stated in the sub-contract.

Commenting on the outcome, CMS has said: “Ground conditions claims continue to present difficult and complex issues, especially for contractors. It is critical for contracting parties to have a full understanding of who is taking the risk for what and on the basis of what documentation.

“Evidencing a claim for unforeseen ground conditions is not always straightforward. This case shows how the court may want to consider everything from tender pricing to expert evidence and everything in between.” 

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