Metcalf and the Differing Site Conditions Clause:  A Win for Government Contractors

MetcalfIn a significant victory for contractors, the Federal Circuit recently reaffirmed the meaning and purpose of FAR 52.252-3, Differing Site Conditions (APR 1984) — and rejected contractual language interpreted by the Government as limiting the clause. As many contractors know, it is not uncommon for federal agencies to try to effectively write the Differing Site Conditions clause out government contracts by discouraging contractors from relying upon representations of subsurface conditions in the solicitation. Solicitations, for instance, may inform contractors that bidders should make their own determinations regarding subsurface conditions, or that information is “for informational purposes only.” In such cases, the Government has argued that, due to the inclusion of such disclaimer language, contractors assume all risk about site conditions based on their investigation and design responsibilities and thus cannot rely upon initial government subsurface reports. Such clauses are particularly problematic for contractors because, despite such language, federal agencies usually still expect contractors to submit bids without including contingencies in their bids.

In Metcalf Construction Co, v. United States, the Federal Circuit rejected the government’s contention, as previously accepted by the U.S. Court of Federal Claims, that broad disclaimer language in requests for proposals (RFPs) and construction contracts negated a contractor’s right to rely upon government subsurface reports and avert bearing the risk for any errors in the report. Metcalf Construction Co. v, United States, 742 F.3d 984 (Fed. Cir. 2014). In Metcalf, the contractor, Metcalf Construction, received a contract to build 212 housing units on a Marine base in Hawaii for the U.S. Navy. Pre-bid documents supplied by the Government provided test information regarding soil conditions on the site. When Metcalf began site preparation, it discovered that the soil was not as represented in the bid documents; it was unstable and toxic. Despite substantial extra costs incurred to remediate the soil, the Government refused to reimburse Metcalf for such costs—and Metcalf filed suit. The U.S Court of Federal Claim rejected Metcalf’s claims, holding that Metcalf should not have relied upon the Government’s pre-bid soil reports; according to the court, the government’s pre-bid information was nullified by (1) the RFP provision stating that the report was for preliminary information only; and (2) the contract term requiring Metcalf to conduct an independent soil investigation after award.

The Federal Circuit, however, rejected the conclusions of the U.S. Court of Federal Claims and ruled in Metcalf’s favor. The Federal Circuit found that the contract documents at issue—despite requiring the contractor to conduct a soil investigation after award and stating that the Government’s pre-bid report was for preliminary information only—did not adequately warn the contractor that (1) it could not rely on the government’s soil representations about soil conditions and (2) bore the risk of any error in the report. Instead, the Federal Circuit held that the “natural meaning of the representations was that, while Metcalf would investigate conditions once the work began, it did not bear the risk of significant errors in the pre-contract assertions by the government about surface site conditions.” Metcalf, 742 F.3d at 996. Notably, the Federal Circuit also held that the “for preliminary information only” disclaimer language within the soils report could not be interpreted to hold the contractor responsible if the preliminary information turned out to be inaccurate.

Further, the Federal Circuit also held that FAR 52.236-2, Differing Site Condition (APR 1984) exists precisely to remove from the bidder at least some of the risk of these subsurface conditions. Instead of requiring contractors to increase their bid prices so as to insure against the risk that the pre-bid information may contain errors, the Differing Site Conditions clause allows parties to deal with actual subsurface conditions after work begins and more accurate information about the conditions is discovered.

The Federal Circuit’s decision is a significant victory for contactors and should make it easier for them to prevail on differing site conditions claims against the Government. Regardless of whether the Government includes disclaimer language in its government contracts, such language does not necessarily mean that the risk of differing site conditions has shifted entirely to the contractor.