Illinois: Differing Site Conditions Under the Illinois’ Public Construction Contract Act
The Illinois General Assembly enacted important new legislation entitled the Public Construction Contract Act during its December 1999 veto session in an effort to promote competition among contractors and save the taxpayers of Illinois significant construction dollars on public construction contracts.
Illinois’ Public Construction Contract Act (P.C.C.A.) requires that public construction contracts, between local units of government and a contractor for improvements that exceed $75,000.00, contain a differing site conditions clause. The differing site conditions clause establishes an administrative procedure at the contract level for the resolution of disputes when the physical condition of the improvement site: (a) is materially different than that indicated in the contract; or (b) is unknown or unusual and is not ordinarily encountered when performing the type of work covered by the contract.
Upon discovery of a differing site condition, and before further disturbing the physical condition of the site, the contractor must notify the owner in writing if it is going to seek an adjustment to the contract. The owner must determine if the physical condition would cause an increase in the contractor’s costs or time. If the owner determines that there will be an increase in costs or time, that determination will be put in writing and become part of and modify the original contract. A contractor cannot make a claim for additional costs or time because of a physical condition unless he or she has given the owner the required advance notification.
In carrying out construction work, a contractor sometimes encounters circumstances at a site that had not been foreseen. Unanticipated physical conditions may have an effect on the cost of completing the work and/or the amount of time needed to complete the project. Examples include the discovery of illegal underground dumps, old foundations, and unexpected soil or rock conditions. The P.C.C.A. provides an administrative process at the contract level for adjusting the contract price due to the discovery of the unforeseen conditions. The P.C.C.A. further reduces the risks associated with unforeseen conditions and reduces the cost of some projects because contractors will not have to add contingencies to cover possible unexpected circumstances. Taxpayers will not have to pay for contingencies that may never happen. Also, the administrative process offered by the P.C.C.A. leads to better relations among contracting parties and reduces the risk of litigation.
Past Historical Perspective and Law on Differing Site Conditions
In the early days of contracting, public owners typically provided no subsurface information to bidders. The entire risk of adverse subsurface and latent conditions was, therefore, allocated entirely to the bidder. Such a contract procurement philosophy forced contractors to cover their risk by putting large contingency sums in their bids. Eventually governmental bodies recognized that the inclusion of contingency sums in the contract price caused them to pay windfalls to contractors when troublesome conditions were not encountered. Drafters of government contracts sought a means of inducing the contractors to eliminate contingency funds from their bids.
Contractors, too, have a keen interest in this historical problem. Particularly in underground construction or in the renovation of existing buildings, bidders cannot predict unseen conditions without the benefit of intrusive investigation. Typically, contractors only have a few days or weeks to perform cost estimates and submit their bids. This does not provide sufficient time for the contractor to perform its own investigation. This problem also can be aggravated because projects are frequently within public rights-of-way or on private property. Private property owners and governmental bodies do not permit numerous prospective bidders to perform soil borings, dig holes or tear out walls on their properties. Moreover the costs of such investigations would be passed on to the project owners in the bid prices. Such a practice would be expensive and duplicative, since the owners pay for subsurface investigations during the design phase.
Under Illinois case law prior to the enactment of the P.C.C.A., a contractor had no basis for a claim under the contract if it encountered subsurface conditions or latent conditions that materially differed from the conditions indicated in the contract documents. Before this new legislation, a contractor could only assert a cause of action for misrepresentation or a breach of the implied warranty of accuracy and sufficiency of the plans and specifications or come up with some other creative theory of liability.
Why Illinois Enacted the P.C.C.A.
Unfortunately, many public agencies and their consulting engineers have failed to understand the history, purpose and benefits of the differing site conditions clause. Public agencies and their consulting engineers incorrectly believed that the clause produced too many claims and unwarranted windfalls for the contractor. As a result, they refrained from including the clause in their contracts. This practice fostered the evils that the clause was designed to overcome: high contract prices across the board and litigation over misrepresentation of subsurface conditions. In public agency projects taxpayers foot the cost for this misunderstanding and bad practice.
Illinois’ P.C.C.A. was enacted in an effort to make differing site conditions clauses part of the contracts between governmental agencies and contractors carrying out large improvement projects. The P.C.C.A. precludes windfalls, because the contractor only receives extra compensation if it actually encounters troublesome conditions that materially differ from the conditions indicated by the owner in the contract. This result is logical and fair to all parties because, if the owner initially had accurately indicated the correct conditions to the bidders the bid prices would have been higher to reflect the more difficult working conditions.
The P.C.C.A. provides that it does not limit the rights or remedies otherwise available to a contractor or the governmental entity under any other law or statute. The term “contractor” does not apply to architects, professional engineers and surveyors. Otherwise, the term refers to an individual or entity that contracts with a governmental entity to improve real property or perform or manage construction services. The term “governmental entity” refers to a county, city, township, village, public educational institution, or any political subdivision thereof. Lobbying efforts on the part of the state, the County of Cook, and the Metropolitan Water Reclamation District were successful in excluding these public bodies from the P.C.C.A. However, IDOT, the Capital Development Board and the Department of Natural Resources currently utilize a differing site conditions clause in their contract documents. Home rule municipalities also may exempt themselves from the statute. The term “improvement” includes but is not limited to all or any part of any building, structure, erection, alteration, demolition, excavation, clearing, grading, filling, landscaping, trees, shrubbery, driveways and roadways on real property.