Unforeseen ground conditions and notice provisions are two old chestnuts in the construction and engineering sector. Much time can be spent arguing about the reasonable foreseeability of ground conditions encountered and how strictly notice provisions around claims should be operated. A recent decision from the Technology and Construction Court has considered both points and provides a useful case study for parties considering such claims. The court’s robust interpretation of the applicable notice provisions is particularly striking.
Van Oord UK v Allseas UK
Total E&P UK appointed Allseas UK (“AUK”) to carry out onshore and offshore works for the laying of gas pipelines in the Shetland Islands. AUK in turn engaged Van Oord UK and Sicim Roadbridge (together "OSR"), to carry out the procurement, supply, construction, installation and testing of the pipelines, plus certain onshore works.
After completion, OSR brought a claim for £10 million against AUK in relation to the onshore element of the works. Much of this related to delay and disruption arising from unforeseen ground conditions. 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.
Foreseeability of ground conditions
OSR’s claim for unforeseen ground conditions centred on peat being encountered at greater depths than had been identified in some of the pre-contract documentation supplied to it or - so OSR had alleged - that it could reasonably have been expected to foresee. As a result, OSR claimed that the method of carrying out the work had to change, increasing the costs and time required.
The sub-contract between OSR and AUK 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. 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 (having examined the contract documents and any other available data). The court roundly rejected OSR’s claim for unforeseen ground conditions. The key reasons were:
- The excavations required for the works were covered by a lump sum in the sub-contract and the methodology for the excavations was a matter for OSR, nobody else. There was nothing in the sub-contract entitling OSR to additional monies depending on how they chose to carry out those excavations. Where the sub-contract had envisaged (but had not restricted) a particular methodology, this was in fact the methodology OSR had ended up using. Therefore it was impossible for OSR to claim extra monies for a design change, when the parties and the documents had always envisaged the work might well be carried out in the way it in fact was.
- Some of the pre-contract documentation as to peat levels which were supplied to OSR were not “contract documents” and so did not fall within the documents OSR could rely on. Plus, in the earlier case of Obrascon the TCC and later the Court of Appeal had taken the approach that an experienced contractor at tender stage would not simply limit itself to an analysis of the geotechnical information contained in the pre-contract documents, which was said to be simple common sense by any contractor in the field.
- OSR’s claim that it had priced for excavation and related works based on the pre-contract information could not be supported. There was no link among the pre-contract information and OSR’s rates, prices and lump sum quotation. The relevant lump sums in the sub-contract came directly from OSR’s original quotation, provided long before it had been supplied with the pre-contract information. This undermined the entire basis of the claim.
- Overall OSR failed to prove its allegation that the ground conditions could not reasonably have been foreseen by an experienced contractor. Interestingly neither side called expert evidence to show what an experienced contractor could reasonably have expected to foresee. This was in part because there was agreement that deeper peat was found than had been identified in some of the pre-contract documentation supplied to OSR. Although the court said this was not itself fatal to the claim, the absence of expert evidence meant OSR relied on factual witnesses who claimed they would not have foreseen the deeper peat. Where the credibility of those factual witnesses was doubted by the court (as it was here), it meant that an important element of the ground conditions claim was inevitably weakened.
If these reasons were not enough, the court also held that OSR’s claim failed at the outset because it had not complied with the notice provisions in the sub-contract.
The change order provisions in the sub-contract (which applied to ground conditions claims) required two notices to be given within 5 and 12 days of the occurrence of any relevant event:
“CONTRACTOR shall issue such request for CHANGE ORDER to COMPANY within a maximum of five (5) days of the occurrence of any such event. CONTRACTOR shall prepare at its own cost and, within twelve (12) days (or any other mutually agreed period of time) from the occurrence of such event, submit to COMPANY an evaluation of all its consequences with fully substantiated supporting documents, failing which and notwithstanding any other provisions of the CONTRACT, CONTRACTOR shall not be entitled to any claim based on the occurrence of such event. …”.
The unforeseeable ground conditions were discovered on 11/12 October 2011 and OSR did not give any notice to AUK until 19 October. On these timings the court found that even if it had considered the ground conditions to be unforeseeable, OSR’s claim was out of time. It appears therefore that the court considered both the 5 and 12 day notices to be conditions precedent, despite the “failing which”language quoted above having only been used in the sentence dealing with the 12 day notice.
The court also took a robust approach to the content of OSR’s notice. The court concluded that the notice was not sufficient to support OSR’s claims for additional costs because it was primarily directed to an extension of time and did not refer to the change order clause. This was despite OSR’s notice stating:“Also we wish to advise you that any additional costs incurred, which are your responsibility under the Agreement, we will be seeking reimbursement under the appropriate Articles”. The court may therefore have required a specific reference to the change order clause in order for the notice to be valid (something which is typically not required for a valid claim notice).
Time limits in notice provisions under construction contracts are common. For example clause 20.1 of the FIDIC red book requires the contractor to give notice as soon as practicable and in any event no later than 28 days after becoming aware of the delay event. Similarly clause 61.3 of NEC3 has an 8 week time period for notification.
In applying notice provisions the courts have recognised that the strict application of notice requirements could prevent an otherwise strong claim. In the first instance decision in Obrascon the TCC found that clause 20.1 of the FIDIC red book was a condition precedent to a claim, but that time only started running from when the contractor knew or ought reasonably to have known of the event giving rise to the claim.
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.
Notice provisions are another area to consider carefully. In OSR’s case, given the ambiguity in the sub-contract over the consequences attaching to the initial 5 day notice and OSR’s catch-all reference to the appropriate sub-contract clauses, the court seems to have moved away from the more sympathetic approach taken in Obrascon. Such a strict interpretation emphasises the ever present need for contractors to be very organised in operating their contracts. An essential part of that is making sure that notices are drafted properly and issued timeously.