Should Geotechnical Baseline Reports be the Universal and Exclusive Contractual Basis for Subsurface Conditions Risk Allocation?
Geotechnical Baseline Reports (“GBRs”) are a critically important mechanism intended to clearly, objectively, effectively and contractually allocate subsurface conditions risk between Owner and Contractor in Design-Bid-Build (“DBB”) projects. (Sanders & Eagles 2017; Hatem & Corkum 2010; Hatem & Gary 2020).
The GBR is intended to provide a reasonably comprehensive scope of statements that articulate in clear and objective terms selective physical subsurface conditions reasonably anticipated to be encountered in the performance of the work. The expectation is that the baseline statements (“Baseline Statements”) in the GBR will be derived from project-specific subsurface investigations, site data, and ground conditions evaluations, characterizations, tests, and analyses, all of which typically are compiled in a variety of factual reports, such as a Geotechnical Data Report (“GDR”).
Realistically, not all physical subsurface conditions can be encompassed within the scope of the GBR Baseline Statements.
The Baseline Statements constitute an important component and operate in the context and implementation of the differing site conditions (“DSC”) or other contractual risk allocation provisions of the Contract Documents. The provisions of many Contract Documents expressly provide that in instances in which particular subsurface conditions are addressed in the GBR Baseline Statements those statements are the exclusive and sole source for the evaluation and determination of DSC claims.
CENTRAL QUESTION: GBR UNIVERSALITY AND EXCLUSIVITY OR NOT
A central question, however, is how should risk allocation be evaluated and determined for subsurface conditions not addressed in GBR Baseline Statements?
In those circumstances, should subsurface conditions risk allocation be evaluated and determined by (primary, or default) resorting to other available non-GBR portions of the Contract Documents, such as the GDR? Alternatively, does the absence of any relevant Baseline Statements in the GBR presumptively, automatically, or impliedly, provide the basis for DSC recovery entitlement. The latter alternative approach will be referred to as “GBR Universality/Exclusivity.” These two contrasting alternative approaches to subsurface conditions risk allocation in circumstances in which the GBR does not include relevant explicit or inferential Baseline Statements as to particular subsurface conditions raise a number of significant issues and implications for all project participants. Notably, a relatively surprising number of Contract Documents for major subsurface and tunnel projects do not explicitly, clearly, or effectively, address this central question, or adopt these or any other particular alternatives.
GBR: Universality/Exclusivity Approach
Under this approach, the GBR is the sole (or singular) contractual source and basis for (a) all subsurface conditions risk allocation and (b) the evaluation and determination of all DSC claims. No other portion of the Contract Documents (or Site Data) may be considered or has contractual risk allocation relevance.
This approach is explicitly adopted in the FIDIC Emerald Book.
The FIDIC Emerald Book
Par. 4.12, “Unforeseeable Physical Conditions,” is the contractual risk allocation provision applicable to subsurface physical conditions. That provision, in substance, allocates to the Owner the risk of “Unforeseeable” subsurface physical conditions if those conditions “will have an adverse effect on the progress and/or increase the Cost of the execution of the Works ….”
The Term “Unforeseeable” is defined in Par. 1.1.101 as meaning a subsurface physical conditions “not reasonably foreseeable by an experienced contractor … [and] [n]otwithstanding the foregoing, all subsurface physical conditions described in the GBR are deemed to be foreseeable, and all subsurface physical conditions outside the scope of conditions defined in the GBR are deemed to be Unforeseeable”. The latter phrase certainly strongly implies, if not prescribes, the universality and exclusivity of the GBR for risk allocation of subsurface physical conditions and DSC evaluation/determination.
The Notes to the Emerald Book define the GBR “as the single contractual source of risk allocation related to subsurface physical conditions” (The actual definition of the GBR states, in part, that “[t]he GBR sets out the allocation of the risk between the Parties for … subsurface physical conditions.”).
The Guidance for the Preparation of Tender Documents and Annexes, in Par. 4.3, states: “The GBR contains the only contractual definition of what is assumed to be encountered in defining the contractual allocation of the risks for subsurface physical conditions…” Appendix A (“The Geotechnical Baseline Report”) to the Emerald Book repeats most of the preceding statements and characterizations as to the GBR.
Notably, one commentator has distinguished the “sole or single source,” or universal and exclusive, characterization of the GBR in the Emerald Book from the description of the GBR in the ASCE Gold Book (Essex 2007); the latter of which qualifiedly defines the GBR as the “single source document where contractual statements describe the geotechnical conditions anticipated (or to be assumed) to be encountered….” (Gillion et al. 2019). The ASCE Gold Book approach allows that other portions of the Contract Documents may be considered for subsurface conditions risk allocation and DSC evaluation/determination purposes for conditions not included in GBR Baseline Statements.
GBR: Non-Universality/Exclusivity Approach
In the GBR Non-Universality/Exclusivity approach, the GBR is a preeminent and the highest priority contractual basis for subsurface conditions risk allocation as to the specific conditions selectively addressed in the GBR Baseline Statements. Depending upon specific contractual terms – the GBR may be the sole source or exclusive basis for risk allocation and DSC evaluation/determination as to the particular conditions addressed in those Baseline Statements.
However as to those conditions not addressed in the GBR, indications as to those conditions contained in other portions of the Contract Documents may provide a source and basis for evaluating and determining subsurface conditions risk allocation and DSC entitlement.
This GBR Non-Universality/Exclusivity approach was adopted on London’s Crossrail project. On that project, the Contract Documents established two distinct, independent and mutually exclusive classes of “unforeseen ground condition” triggers for potential DSC recovery entitlement. One class applied to subsurface conditions addressed in GBR Baseline Statements; and the other class applied to conditions not addressed in GBR Baseline Statements. (Davis 2017).
The ASCE Gold Bookadopts this approach.
GBRs: Contractual and Risk Allocation Framework and Significance
The GBR Baseline Statements constitute an important component in the implementation of the DSC or other subsurface conditions contractual risk allocation provisions of the Contract Documents. The GBR typically has status as a Contract Document and operates within the general framework of other foundational risk allocation provisions of the Contract Documents that explicitly allow for an equitable adjustment for certain encountered subsurface conditions including those specifically addressed in the Baseline Statements. Typically, those provisions allow the opportunity for an equitable adjustment for subsurface conditions encountered that differ substantially or materially from the reasonable tender expectations of the Contractor. The GBR Baseline Statements typically will selectively and objectively define the trigger and balance for risk allocation under the contractual DSC provision as to the specific subsurface conditions explicitly or inferentially1 addressed in those Baseline Statements.2
Standard contractual risk allocation provisions for subsurface conditions, in general terms, variously prescribe that DSC entitlement be evaluated and determined based on a comparison between (i) encountered conditions and (ii) an entitlement standard as to conditions that should have been reasonably anticipated at tender (“Conditions Entitlement Standard”).3 Basically, these various contractual provisions share the need to evaluatively compare the conditions encountered with the specified Conditions Entitlement Standard in order to determine entitlement to a DSC equitable adjustment.4
Contracts define the Conditions Entitlement Standard in various ways. For example, most of the International Federation of Consulting Engineers (“FIDIC”) standard agreements and the New Engineering Contract (“NEC”) utilize a Conditions Entitlement Standard of “unforeseeability”. The US federal government and most state DSC contract provisions utilize a Conditions Entitlement Standard articulated as a substantial and material difference between encountered conditions and those reasonably indicated in the Contract Documents.
- Conditions Entitlement Standard: Unforeseeability: This Conditions Entitlement Standard requires that a Contractor prove that the encountered conditions were unforeseeable; specifically, not reasonably foreseeable by an experienced Contractor at tender based principally upon (but not limited to) “Site Data”, as defined in the Contract Documents. This Conditions Entitlement Standard is utilized in the NEC standard contracts and in most FIDIC standard contracts (with the notable exception of the Emerald Book).
- Conditions Entitlement Standard: Substantial and Material Difference From Indications in the Contract Documents: The application of this Conditions Entitlement Standard requires the assessment of (a) the definition of what constitutes the “Contract Documents”, (b) what are the relevant “indications”; and (c) whether the qualitative and comparative evaluation of encountered conditions represents a substantial and material difference from the contractual indications. At a minimum, GDRs and other factual reports typically are included in the definition of the “Contract Documents”.5
In circumstances in which a GBR is not prepared and included in the Contract Documents, DSC entitlement typically depends upon the investigation, evaluation and determination of various factors and considerations, such as:
- What reports, data, or other information are included in the definition of “Contract Documents”?
- Were the claimed DSCs explicitly or implicitly indicated in the Contract Documents?
- Was the Contractor entitled to rely upon indications as to the relevant subsurface conditions contained in the Contract Documents or in other available information (e.g., Reference Documents) in planning and pricing the work?
- Were the Contractor’s and/or Owner’s interpretations as to anticipated subsurface conditions reasonable?
- Were the subsurface conditions actually encountered substantially and materially different from those conditions indicated in the Contract Documents, as reasonably understood, interpreted and evaluated?
- Were the Contractor’s interpretations and expectations as to subsurface conditions consistent with those of a reasonably prudent and experienced contractor?
- Did the Contractor reasonably rely upon the relevant indications in the Contract Documents in pricing and planning the work?
- Were the claimed impacts (cost or time) caused by the DSC, as distinct from other, unrelated causes?
These factors and considerations (and others) are typically and necessarily at issue – and often in serious contention – in the context of disputes involving DSC entitlement. Those factors and considerations, and their determinations inherently involve subjective and judgmental evaluations and perspectives that are subject to often highly variable and differing evaluations, opinions and judgments, rendering risk assessments as to dispute outcome significantly unpredictable and, hence risky and contentious.
The GBR is intended to establish objectively and clearly defined selective and specific articulations – the Baseline Statements included in the GBR scope – -as to certain subsurface conditions reasonably anticipated to be encountered in the performance of the work based upon the evaluation and interpretation of available site data (typically compiled in a GDR). The cost and time associated with the encountering of the baselined subsurface conditions are expected to be included in the Contractor’s contract price. Should subsurface conditions be encountered that are substantially and materially different from the baseline conditions, the Contractor may be entitled to an equitable (cost and/or time) adjustment if the former conditions actually caused an increase in the cost and/or time for the performance of the work.
At least, that is the theory underlying GBR purpose and role in the contractual risk allocation regime for subsurface conditions.
During the formative and early implementation phases of GBRs, there was significant interest and attention in the underground industry to several important questions, principally focused on the scope and preparation of GBR content and Baseline Statements, such as:
- Should the Baseline Statements be based upon subsurface data?
- Which (among several) subsurface conditions should be addressed in Baseline Statements?
- To what degree should constraints be placed on interpretations and evaluations of data in developing Baseline Statements?
- To what degree, and subject to what limits, should Owner risk and/or funding availabilities, risk appetites, procurement and other strategic considerations influence the articulation of Baseline Statements?
- What are the guidelines for writing the GBR Baseline Statements clearly and objectively?
- What are the roles and responsibilities of the Owner in establishing the parameters underlying the GBR Baseline Statements?
These – and related – questions may be classified as internal in character, meaning focused on the internal content of, and articulation of GBR Baseline Statements.
It is fair to say that significantly less, if any – meaningful, attention was placed on considerations – external to the GBR, such as:
- How does the GBR align with, or relate, in prioritization or otherwise, to other portions of the Contract Documents that impact or influence subsurface conditions risk allocation?
- More specifically, how does the GBR affect the implementation, and the evaluation and determination of subsurface conditions disputes under contractual DSC clauses?
- If the GBR does not address (explicitly or implicitly) specific subsurface conditions that are addressed in other available site data or reports, such as the GDR, do the latter apply in the context of DSC disputes involving those non-baselined subsurface conditions?
Despite their value and salutary objectives in improving subsurface conditions risk allocation, GBRs themselves increasingly in the last decade have been the subject of direct and collateral controversy in the theaters of DSC disputes. In one theater, the controversy centers on issues internal to the GBR, i.e., the scope and selection of subsurface conditions addressed in the GBR Baseline Statements, and the articulation definitiveness and clarity of those statements. In another theater, the controversies center on issues external to the GBR, i.e. how does the GBR relate to other portions of the Contract Documents in the evaluation and determination of subsurface conditions risk allocation. Another theater involves professional liability claims by the Owner or Contractor against the Engineer-author of the GBR involving allegations of standard of care departures in the preparation of the GBR.
GBR UNIVERSALITY/EXCLUSIVITY, DESIGN AND CONSTRUCTION METHODOLOGICAL APPROACHES: BROADER RISK ALLOCATION CONSIDERATIONS
GBR Universality/Exclusivity involves considerations and dimensions broader than the boundaries as to what is more narrowly understood as subsurface conditions risk allocation.
Effective subsurface conditions risk allocation necessarily involves interactions, interrelationships and interdependencies among (a) the evaluation of reasonably anticipated subsurface conditions and their behaviors during construction operations, (b) the parameters and suitability of design of permanent project works, and (c) design and implementation of means, methods and equipment selections and procurements in the construction of the project.
The degree to which the GBR should address those interactions, interrelationships and interdependencies factors is the subject of differing opinions and perspectives in the underground industry. That said, for the very most part, few deny the significant impact, validity and influence of those factors on effective subsurface conditions risk allocation.
Some of the basic questions raised by these interactions, interrelationships and interdependencies in the context of the GBR universality/exclusivity subject, are:
- Should the GBR define or prescribe design parameters, bases, criteria or standards?
- Should GBR Baseline Statements be predicated upon specific (explicit or implicit) assumed or required design parameters, bases, criteria or standards?
- Should the GBR prescribe or constrain design or implementation of particular construction means and methods, and equipment selections, or include Baseline Statements explicitly or implicitly based on assumptions, constraints, or requirements in those respects?
The Emerald Book contemplates that the GBR may include Owner-prescribed design requirements and/or provisions obligating the Contractor to be responsible for design of the permanent or temporary Works. (Emerald Book, ¶5.1). Regarding this provision, one commentator has stated:
“To the extent that the Contractor is responsible for the design or the Works, it is incumbent upon him to scrutinize the Employer’s Requirements and the GBR and, if he finds an error, to give a formal notice to the Engineer… If, in turn, the Contractor is merely responsible for the execution and completion of the work, he is not supposed to scrutinize the GBR.” (Kuenzle 2021)
Appendix A is clear in stating that the GBR is to be “used to design the work, [and] plan and equip the excavation process…” (Emerald Book, 85). Further, Appendix A states that “[d]esign parameters may be included in the GBR, or alternatively, excluded from the GBR and included in the Employer’s Requirements.” (Emerald Book, 89). Appendix A also states:
“Should the GBR be silent on a particular physical or behavioral condition, or if the Contractor requires additional basis for a design-related parameter or assumption, information in the GDR may provide a supplemental basis for interpretation. Such interpretation by the Contractor shall have to be agreed by the Engineer in order to become contractual ….” (Emerald Book, Appendix A, ¶4).
Based on Appendix A to the Emerald Book, it has been stated:
“As to content, the GBR requires disclosure of geological and geotechnical information describing the subsurface physical conditions. This information is designed to serve as a basis for the execution of the Excavation and Lining Works, including the relevant descriptions, data, information and warnings of anticipated physical and behavioral conditions, design and construction methods, and the likely reaction of the ground to such methods. The GBR is also required to include parameters that will assist to convey and highlight key project constraints such as ground and groundwater conditions.” (Vickery 2019).
The Emerald Book provides that information contained in the GDR and the Contractor’s interpretation thereof may be utilized in the limited and conditional circumstances in which “an alternative construction method for the Excavation and/or Lining Works is agreed between the parties, and if the GBR is silent on one or more parameters that are relevant to such alternative method; and, in such circumstance “reference shall be made to the GDR to integrate or amend the GBR accordingly.” (Emerald Book, Appendix A, ¶4.10.3). However, the utilization of the GDR in those limited and conditional circumstances does not detract in any respect from the fundamental rule that the GBR is the sole contractual basis for the evaluation and determination of risk allocation for subsurface conditions. (Kuenzle 2021; Vickery 2019; Gillion et al 2019).
The structured and defined respective interactive roles of the GBR and GDR, provide the basis for a contention that GBR Baseline Statements constitute an implied warranty that the project as designed is constructible in the anticipated baselined subsurface conditions. A fair question is whether such a contention is realistic, sensible, and fair given the Contractor’s typical roles and responsibilities for construction means and methods and equipment selection and procurement and the influence of the latter upon constructability and suitability of permanent works designs in specific subsurface conditions. (Reilly 2021; Del Nero 2012; Hatem 2018; Hatem 2020; Hatem & Gary 2020).
The Emerald Book further contemplates that the GBR will be predicated on the evaluation of subsurface conditions, and that Baseline Statements will be articulated based upon specific ((explicit or implicit) expectations, parameters, or requirements as to permanent works design approaches or construction methodologies. As one commentator has stated: “…[T]he design concept chosen by the Employer and the GBR amounts to an interpretation of the expected subsurface physical conditions adapted to the preferred risk allocation selected by the Employer.” (Vickery 2019).
The Notes to the Emerald Book reinforce the interrelationship between the design approach and construction methodologies underlying the GBR content and the subsurface conditions risk allocation articulated in the Baseline Statements, as follows:
“The Geotechnical Baseline Report or GBR is defined as the single contractual source of risk allocation related to subsurface physical conditions to the Parties. Equally important to the physical conditions of the ground, the GBR addresses the reaction of the ground to excavation and support under the contractually agreed construction methodology. All subsurface physical conditions not addressed in the GBR shall be considered Unforeseeable. The risks arising out of the foreseen properties of the ground, obstacles and adverse reaction to the excavation and ground support processes are assigned to the Contractor, as well as the production rates and cost of performing the Works under the same conditions. Conversely, the risks arising out of unforeseen physical conditions of the ground, obstacles, and adverse reaction to the excavation and ground support processes are allocated to the Employer, warranting extension of time and/or reimbursement of cost to the Contractor.”
As such, there is a basic contractual question as to how the GBR relates to other provisions of the Contract Documents defining, prescribing or limiting design parameters or approaches, or construction methodologies. The answers to this and related questions are relevant to assessing the effectiveness of decisions as to the approaches to GBR Universality/Exclusivity.
Should the GBR have a role in defining, specifying, prescribing, or constraining design parameters, bases, requirements or approaches, or construction methodologies?6 Can the GBR effectively and realistically address subsurface conditions risk allocation without considering such design and construction issues? Could there be circumstances in which the GBR universal and exclusive status as to subsurface conditions risk allocation explicitly or implicitly extends beyond that sphere and influences – perhaps even displaces – other provisions of the Contract Documents that are intended to more primarily specify design approach and construction methodology issues? Do GBR statements as to design and construction approaches or requirements provide the basis for contentions that those statements constitute implied warranties as to the suitability or adequacy of those approaches or requirements in the anticipated subsurface conditions? What are the appropriate boundaries between the GBR content and other portions of the Contract Documents in addressing design and construction approaches, specifications and requirements?
These are important questions that should be considered in determining the contractual interrelationships among (a) GBR content, (b) the risk allocation role of the GBR Baseline Statements, and (c) how that role relates to expectations or definitions of design parameters and construction methodologies, whether stated in the GBR or elsewhere in the Contract Documents. The failure to address these and related interrelationship questions frequently underlie many disputes on major subsurface projects. (Hatem 2021).
GBR UNIVERSALITY/EXCLUSIVITY: IMPLICATIONS FOR PROJECT PARTICIPANTS
The clarity, consistency and fairness as to the GBR Universality/Exclusivity issue and reconciliation of the GBR with other portions of the Contract Documents have important implications for all project participants, notably the Owner, the Contractor and the Engineer.
Under a GBR Universality/Exclusivity approach, the Owner may expect that the GBR Baseline Statements will be sufficiently, adequately and reasonably articulate and comprehensive either as to (a) an embracing scope of the probable and reasonably anticipated subsurface conditions and/or (b) a specific, more limited and particular scope of subsurface conditions of special or elevated interest or concern to the Owner and especially as needing to be priced within the Contractor’s tender. Assuming those expectations, it is important that the Engineer’s drafting of the GBR and consultations with (and approvals of) the Owner as to GBR scope and content be consonant with the Owner’s risk appetites or sensitivities and funding availabilities, and be accomplished a manner consistent with the professional standard of care.
An Owner adopting the GBR Universality/Exclusivity approach, should recognize that available site data, tests or analyses, including the GDR may not be contractually relevant or considered in the evaluation and determination of DSC claims involving subsurface conditions that are not explicitly or inferentially addressed in Baseline Statements.
Under the GBR Universality/Exclusivity approach, an Owner should recognize the elevated risk that a Contractor may explicitly or impliedly expect presumptive or automatic DSC recovery entitlement if subsurface conditions are encountered that are not (explicitly or inferentially) addressed in the GBR Baseline Statements.
GBR Universality/Exclusivity: Elevated Implied Warranty Risk
In some instances, a Contractor may assert a claim involving encountered subsurface conditions based on the legal theory that the Owner breached implied warranties in that the encountered conditions were materially different from those (explicitly or inferentially) indicated in the Contract Documents and, as such, the project design is not constructible or suitable in those conditions. These implied warranty claims may be combined with more conventional claims based on contractual DSC risk allocation provisions. In the latter, combined claim situation, the better view is to place primary, if not exclusive, reliance on whether the claim has merit under the express contractual DSC provision, as distinct from implied warranty theories.7
The Owner risk of implied warranty claims, however, is elevated in the context of the GBR Universality/Exclusivity approach. More specifically, in that approach, a Contractor may be more inclined to contend that by explicitly (or even inferentially) including GBR Baseline Statements pertaining to certain subsurface conditions and not others, the Owner impliedly (and potentially expressly) warranted that, the Contractor reasonably should not expect or foresee that conditions not included in Baseline Statements would not be encountered.
Under the GBR Universality/Exclusivity approach, an Owner may be subject to elevated risk of Contractor “implied warranty” claims, i.e., if a subsurface condition was not (explicitly or inferentially) addressed in the GBR, that “omission” constitutes an implied warranty from the Owner either that no other or different conditions will be encountered or, if that occurs, the Contractor will be entitled to an equitable adjustment. In some instances, a Contractor’s position as to GBR universality as to reasonably expected subsurface conditions may extend beyond the notion of implied warranty. More specifically, a Contractor may contend that the failure of the GBR to address a particular (or reasonably inferable) subsurface condition, constitutes an express warranty that no other subsurface conditions will be encountered and, should that occur, the Contractor will be automatically entitled to an DSC equitable adjustment for all resultant cost and time impacts.8
Under the GBR Universality/Exclusivity approach, the Contractor should be expected to include in its tender pricing and contingencies associated with planning and executing the work (including means/methods and equipment selections) and reasonably required by the Baseline Statements included in the GBR.
In a GBR Non-Universal/Exclusivity approach it reasonably should be expected that a Contractor’s tender pricing would include the performance and other costs (“performance costs”) associated with encountering the subsurface conditions indicated in (a) the Baseline Statements and (b) data or other relevant information contained in the GDR or other portions of the Contract Documents for conditions not addressed in the GBR. Under conventional theory, the Contractor would not carry contingency for performance costs that reasonably may qualify for an equitable adjustment opportunity available under the Contract Documents.
In the GBR Universality/Exclusivity approach it reasonably should be expected that a Contractor’s tender pricing and contingency would include the performance costs associated with encountering the subsurface conditions addressed in the GBR, but potentially not for any of the subsurface conditions otherwise indicated in Site Data or other relevant information contained in Contract Documents, including GDR.
The GBR Universality/Exclusivity approach places significant emphasis on the need for (more or less, depending upon Owner preferences, strategies, directions and decisions) comprehensiveness in scope and clarity and consistency in the articulation of the Baseline Statements. In that approach, the risk allocation understandings of both the Owner and the Contractor will predominantly be based on the achievement of those GBR drafting objectives. As such, the ability to realize those understandings necessarily depends upon the comprehensiveness and clarity of the GBR Baseline Statements. Both the Owner and the Contractor may foster unrealistically heightened expectations as to both the GBR content and articulations given their emphasis and centrality in the GBR Universality/Exclusivity approach. Those expectations may elevate the professional liability risk of engineers who prepare GBRs. That said, perfection is not the governing standard for the evaluation of the Engineer’s preparation of the GBR; the Engineer is expected to meet the professional standard of care.
For discussions as to the professional standard of care and professional liability implications for the Engineer in the preparation of GBRs, see Hatem (1996), Hatem & Corkum (2010) and Hatem & Gary (2020).
Questions For Industry Participants
There are important subsidiary questions for all project participants presented by the GBR Universality/Exclusivity approach:
- What if anything are the roles and contractual status of factual reports (e.g. the GDR) as to (a) subsurface conditions risk allocation and (b) DSC evaluation/determination?
- May either the Owner or the Contractor rely upon information contained in such factual reports in defending or supporting a DSC claim?
- Who (Owner, Engineer) determines the scope of the subsurface conditions (and related subjects) addressed in the GBR Baseline Statements?
- Does this approach place greater responsibility of the Engineer-author of the GBR to (a) comprehensively inform the Owner as to the scope of conditions to be addressed in the GBR; (b) assure that Owner judgments as to GBR scope and Baseline Statements articulation balance (risk sensitivity, avoidance of undue optimism or conservatism) are prudent, and realistically and fairly grounded in available data; (c) clearly, consistently and unambiguously articulate the baselines; and (d) explicitly correlate baseline articulations – especially those relating to behavioral conditions – with specific and clear assumptions as to contemplated construction means, methods and equipment selections.
- How does the professional standard of care apply in the GBR Universality/Exclusivity Approach to Engineers who prepare GBRs?9
- Does the GBR Universality/Exclusivity approach foster and encourage Contractor (implied warranty) claims to the effect that if a condition is not baselined in the GBR, the omission constitutes a warranty that the condition will not be encountered and, if encountered, that the Contractor will be (automatically, more or less?) entitled to a DSC equitable adjustment?
- Does the GBR Universality/Exclusivity approach elevate the risk of professional liability claims against the Engineer who prepared the GBR?
- How should Engineers who author GBRs anticipate and proactively manage risk of professional liability under this approach in the GBR drafting and preparation process?
- How do, or should, the answers to some of these questions vary in the context of Design-Build, Progressive Design-Build and CM/GC?10
- Will the GBR Universality/Exclusivity approach cause Owner to direct that GBR scope and Baseline Statements be all-inclusive and overly-expansive so as to capture in the Contractor’s price maximum risk assumption for subsurface conditions and thereby significantly reduce the Owner’s potential need to pay equitable adjustments (above contract price) for DSCs?
- Given the lack of relevance of the GDR in the evaluation and determination of DSC disputes in the GBR Universality/Exclusivity approach, will Owner’s increase the use of disclaimers and non-reliance as to the GDR?
- Will the frequency of DSC claims and disputes under the GBR Universality/Exclusivity approach, result in increased Owner disappointments GBR utilization, and with the preparation and articulation of Baseline Statements contained in the GBR, as well as more disputes with Contractors and an increase in professional liability exposure for GBR authors?
To superficially state that the answers to some of these questions are or should be stated in the Contract Documents, will prove, in many instances, to be inconclusive; in reality, contracts, rather than providing the definitive answers will often merely provide a platform for a positional debate between the Owner and Contractor as to the perceived correct answers to the questions.
GBR UNIVERSALITY/EXCLUSIVITY: A CALL FOR GUIDELINES
Insufficient attention and analysis have been provided in industry guidelines to these issues and implications as to the GBR Universality/Exclusivity approach. Contract terms often do not provide the clarity required as to how the GBR is intended to relationally function in DSC evaluation in the context of subsurface conditions indications contained in other relevant or potentially relevant portions of the Contract Documents, especially as to conditions not addressed in the GBR.
This lack of contractual clarity – especially in the absence of clear industry guidelines – provides the foundation for Contractor “defective GBR” and “implied warranty” claims when the Contractor is denied a DSC equitable adjustment remedy because the claimed DSC was not addressed in the GBR. Alternatively, the lack of clarity and guidelines frustrates Owners who sense they are prejudiced in, or even precluded from, defending a DSC claim based on non-GBR indications otherwise contained in the Contract Documents, including the GDR.
Some Owners, and some Engineer-authors of GBRs may perceive the issue of whether to use a GBR as an “all or nothing” decision; i.e., if a GBR is utilized it must be the sole or singular source or contractual basis for all subsurface conditions risk allocation and DSC evaluations/determinations. That conclusion would be genuinely unfortunate and serve to retard the salutary objectives and advantages of GBRs and their expanded and improved utilization.
The time is ripe and opportune to confront the GBR Universality/Exclusivity issue. Although there are not many, if any, published papers, articles or other accounts on any experience with the Emerald Book approach, actual utilization of that approach11 may increase. The ASCE Gold Book is presently undergoing a 3d edition update to be published in 2022 as The ASCE Platinum Book. The forthcoming publication of Geotechnical Baseline Reports – A Good Practice Guide by the Construction Industry Research and Information Association (CIRIA) provides another opportunity for the issuance of timely guidelines on this subject. These publications – depending upon their final phraseology and characterization of the GBR – will likely contribute – potentially in a significantly influential way – to the discussion on this fundamental question: Should the GBR be the universal and exclusive contractual basis or source for subsurface conditions risk allocation and DSC evaluation and determination (i.e., the Emerald Book approach); or may and should other factual reports (e.g. the GDR) be considered for those purposes in circumstances in which the GBR is silent as to the encountered conditions forming the basis of a DSC claim?
GBRs serve a critically important and salutary role in promoting and facilitating clarity, objectivity and fairness in implementing contractual risk allocation provisions for subsurface conditions. That said, there is room for improvement, particularly in the context of issues and concerns as to GBR Universality/Exclusivity. All project participants involved in the design and construction of tunneling and other major subsurface projects would benefit from industry discussion, deliberation and promulgation of guidelines.
- An abbreviated version of this article was published in the December 2021 edition of Tunnel Business Magazine.
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Hatem, D.J. and Gary, P. 2020. Public-Private Partnerships and Design-Build: Opportunities and Risks for Consulting Engineers, 3d ed., American Council of Engineering Companies, Washington, D.C., USA: 457-458; 487-496; 519-541.
Kuenzle, J. 2021. Differing Site Conditions and Dispute Avoidance under the FIDIC Emerald Book for Underground Works, RETC: 42-44.
Reilly, J. 2021. TBM Procurement Within Contract Award Processes, TunnelTalk.com.
Sanders, D. and Eagles, C. 2017. Zen and the Art of Geotechnical Risk Allocation, Journal of the Canadian College of Construction Lawyers, 207.
Vickery, P. 2019. The Emerald Book Sees the Light of Day, Building & Construction Law Journal, 35(4): 268-278.
- Kuenzle, J. 2021. Differing Site Conditions and Dispute Avoidance under the FIDIC Emerald Book for Underground Works, Rapid Excavation and Tunneling Conference.
- For an excellent discussion of the role of the GBR in the contractual risk allocation process, see Zoppis, E., The Ground Risk Under Contracts and Geotechnical Baseline Reports, 15 No. 2 Construction L. Int’l 41 (June, 2020). One of the earliest discussions of a geotechnical baseline concept – characterized as “Ground Reference Conditions” may be found in CIRIA Report 79, Tunneling – Improved Contract Practices, published in May 1978.
As a general principle, in the U.S. and other common law systems, the Contractor assumes the risks and all associated cost and time impacts associated with subsurface conditions, unless the Owner contractually agrees to share those risks. Hatem, D.J. and Gary, P. 2020. Public-Private Partnerships and Design-Build: Opportunities and Risks for Consulting Engineers, 3d ed., American Council of Engineering Companies, Washington, D.C., USA: Ch. 12, ¶12.3.2; J. Bailey. May 2007. What Lies Beneath: Site Conditions and Contract Risk, Society of Construction Law 137; Circo, C. 2020. Contract Law in the Construction Industry, Routledge Taylor & Francis Group: P. 102. Conversely, under most civil law regimes, the Owner retains subsurface conditions risk. The common law and civil law approaches to subsurface conditions risk, therefore, are “significantly different.” Wiesner, W. July 2021. The Austrian Contract Form OENORM B 2003 For Underground Works: A Well-Established Alpine Predecessor of the FIDIC-ITA Emerald Book, The International Construction Law Review Vol. 38, PT.3, p. 360, 362; Bailey, J. 2019. International Perspectives on Unforeseen Site Conditions, The International Construction Law Review, Vol. 36, p. 5; Lewis, D. September 2016. Unforeseen Ground Conditions, The Society of Construction Law Hong Kong.
DSC and other contractual subsurface conditions risk allocation approaches are perceived differently in the two comparative legal systems. In the common law systems, those contractual approaches are appropriately regarded as sharing Contractor risk with the Owner. In the civil law system, those contractual approaches, conversely, are appropriately regarded as sharing Owner risk with the Contractor.
- IFor background discussion as to the purpose and application of various contractual approaches to subsurface conditions risk allocation, see Abernathy, T. and Chambers, R. Sept. 2000. Changed Conditions, Edition II, Construction Briefings, No. 2000-9; 4A Bruner & O’Conner Construction Law ¶¶14:45, 14:46, 14:47, 14:48; Hatem, D.J. and Gary, P. 2020. Public-Private Partnerships and Design-Build: Opportunities and Risks for Consulting Engineers, 3d ed., American Council of Engineering Companies, Washington, D.C., USA: Ch. 12, ¶12.3.2; Bailey, J. May 2007. What Lies Beneath: Site Conditions and Contract Risk, Society of Construction Law 137; Bailey, J. 2020. Construction Law, Vol. 111, 3d. ed. (London), ¶¶8.39 – 8.53; G. Smith. 2016. Latent Conditions and The Experienced Contractor Test, The International Construction Law Review, Vol. 33, 390; Beyers, J. September 2018. Unforeseen Site Conditions – Should the Contractor Expect the Worst and Hope for the Best, SCL North America – 8th International Society Construction Law Conference; Circo, C. 2020. Contract Law in the Construction Industry Context, Routledge Taylor & Francis Group, London: pp. 38-42, 101-104; J. Ike Isaacson, Geotechnical Baseline Reports, Breakthroughs in Tunneling Short Course, September 13, 2021 (Benjamin Media).
- The specific and explicit characterizations of Owner-furnished data, tests, evaluations, and reports (such as the GDR) regarding subsurface conditions as having the status of “Contract Documents” or merely “Reference Documents”, and the use of (general and specific) disclaimers and negation of any reliance rights on any such Owner – furnished materials will likely have a material impact on risk allocation for subsurface conditions. See J. Cibinic, J. Nagle, R. Nash. 2016. Administration of Government Contracts, Chapter 5, pp. 447-48 (5th ed.); Hatem, D.J. & Corkum, D.eds. 2010. Megaprojects: Challenges and Recommended Practices, Chapter 17, ¶5.0 (ACEC); Hatem, D.J. and Gary, P. 2020. Public-Private Partnerships and Design-Build: Opportunities and Risks for Consulting Engineers, 3d ed., American Council of Engineering Companies, Washington, D.C., USA: Ch. 12, ¶12.3.2, pp. 452-64; MacEwing, J., Responsibility for Site Conditions in the Context of Owners’ Disclosure of Information: Contractors’ Risks and Rights, 2015 J. CAN. C. Construction Law 43, 45-49.
- Hatem, D.J. and Gary, P. 2020. Public-Private Partnerships and Design-Build: Opportunities and Risks for Consulting Engineers, 3d ed., American Council of Engineering Companies, Washington, D.C., USA: Ch. 12, §12.3.2, pp. 487-88. See Dispute Review Board Recommendation, SR 520 East Transit & HOV Project, Dispute No. 1 – Wall 4B – 24 QPGL Design Parameters, June 20, 2013 (provisions of the GBR or other portions of the Contract Documents do not constrain the ability and obligation of a Design-Builder’s EOR “to make its own interpretations and draw conclusions with respect to the character of the geotechnical materials and their impact on the Work and to perform additional explorations and testing to supplement the information provided in the Contract Documents”).
Hatem, D.J. and Gary, P. 2020. Public-Private Partnerships and Design-Build: Opportunities and Risks for Consulting Engineers, 3d ed., American Council of Engineering Companies, Washington, D.C., USA: Ch. 12, ¶12.4.3, pp. 523-28, and footnotes 302-05; Bruner & O’Connor on Construction Law, ¶14.28. Even in countries following the common law approach to subsurface conditions risk allocation, see note 3 supra, there are nuanced legal distinctions and principles that could produce different legal risk allocation results. More specifically, both the U.S. and the U.K. recognize the common law approach to subsurface conditions risk allocation. That said, in the U.S. legal system there is general recognition of implied warranty obligations of the Owner, under which the Owner impliedly warrants the suitability of the permanent work design in the anticipated subsurface conditions. Hatem, D.J. and Gary, P. 2020. supra, ¶12.3.2. The UK does not recognize any such implied warranty obligation of the Owner. See Bailey, J. 2019. International Perspectives on Unforeseen Site Conditions, The International Construction Law Review, Vol. 36.
A critical issue is the extent to which, if at all, the U.S. implied warranty principle may legally override the otherwise governing common law principle that the Contractor is responsible for the risk of subsurface conditions (unless that risk is explicitly and contractually shared with the Owner). The better view is that explicit contract provisions, including any relevant explicit or other disclaimers, should control over any implied warranty principles. Many states and the federal government recognize the implied warranty obligation under which an Owner (typically in DBB) who furnishes mandatory and prescriptive design details or specifications directing and constraining the Contractor in what and how to construct, impliedly warrants to the Contractor that those design details or specifications are accurate, appropriate, achievable and suitable for utilization in the construction of the project work.
Breach of the implied warranty obligation is somewhat akin to a DSC remedy in the sense that responsibility is determined on a no-fault basis, i.e., if the design details or specifications are defective (i.e., unconstructable or otherwise unsuitable for the intended purpose) and the contractor is able to causally link and demonstrate that it detrimentally relied upon the defective design details or specifications and reasonably incurred (direct or indirect) costs as a result of that reliance, the Contractor would be entitled to an equitable adjustment remedy. The Contractor need not prove wrongful conduct, misrepresentations, or negligence of the Owner or any of its design or other specialized consultants. Since the implied warranty breach and remedy are legally implied, typically there are no general conditions or other terms of the Contract Documents that prescribe any requirements or constraints on the remedy, such as the notice or proof requirements typically governing in the DSC contractual context.
Thus, the DSC contractual procedural preconditions (e.g., notice), proof requirements and equitable adjustment limitations are more stringent and constrained than the legal requirements for proving and recovering for a breach of implied warranty.
There is a point of potential convergence between (a) contractual entitlement for a DSC and (b) breach of an implied warranty obligation, in the subsurface conditions context. Courts and other dispute resolvers have had to struggle whether in certain factual contexts the contractual DSC and implied warranty remedies are mutually exclusive; or whether a Contractor can simultaneously or successively pursue recovery on both those independent legal grounds so long as it does not obtain a double recovery. The better reasoned judicial decisions hold that the Contractor is limited to the contractually-express DSC remedy and should not be allowed to circumvent the explicit procedural and substantive proof contractual requirements for DSC entitlement by characterizing and simultaneously (or successively) pursuing recovery for the same (or similar) alleged losses predicated upon the independent but less prescribed and constrained breach of implied warranty obligation.
In King County v. Vinci Construction, 364 P3d 784 (Wash. App. 2015), the Contractor claimed a Type 1 DSC (soils conditions were materially different that indicated in the Contract Documents and that the frequency of transitions between soil pipes was higher than indicated in the GBR) claim. In that case, prior to the trial, the Court dismissed a portion of the Contractor’s DSC claim (based on frequency of soil type transitions).
On appeal, the Court of Appeals ruled that the Type 1 DSC claim was properly dismissed as the Contract Documents did not specifically indicate frequency of transitions in soil types; no “baseline” was provided as to number of frequency of transitions.
The Court of Appeals rejected the Contractor’s implied indications contention in ruling that “… the Contract Documents contained no indication, express or implied, as to the number of transitions”. Significantly, the Court further ruled that the evidence provided no support for the contractor’s contention that it relied – whether reasonably or not – on any “contract indications when preparing its bid” or that the contractor retained during bid any engineers or experts “to analyze the locations and expected frequency of transitions … based on the County’s data.” The Court further noted that the contractor was repeatedly asked for evidence “establishing the contractor’s reliance on a particular estimate of the frequency of soils transitions” and in response the contractor “produced no such evidence”. The Court concluded that the Contractor” failed to satisfy its burden of proof that the Contract Documents indicated the frequency of transitions … and that [the Contractor] reasonably relied on those indications when tendering its bid.”
 In the pending appeal of Washington State Department of Transportation v. Seattle Tunnel Partners, Court of Appeals, State of Washington, No. 54425-3, Reply Brief, 4-12-21, the Contractor’s position is that the failure to affirmatively disclose or indicate subsurface conditions in any portion of the Contract Documents, but particularly in the GBR, provides the basis for DSC entitlement. The Contractor’s position is that the Contract Documents, in particular, the GBR, must affirmatively disclose all subsurface conditions and the failure (or “omission”) to do so in the GBR, constitutes an affirmative representation that no conditions would be encountered other than those conditions explicitly or affirmatively addressed in the GBR (or not substantially or materially different from conditions indicated in the GBR). Put another way, because the GBR addressed certain subsurface conditions, and not other conditions, the Contractor contends that it had the reasonable right to expect that the latter conditions would not be encountered and, if that occurred, a DSC would presumptively exist entitling the Contractor to an equitable adjustment.
In effect, the Contractor is contending that it had a reasonable right to expect that the GBR addressed all relevant and anticipated subsurface conditions and the failure of the GBR to do so constitutes a representation that a non-addressed (or non-baselined) condition would not be encountered.
- Hatem, D.J. and Gary, P. 2020. Public-Private Partnerships and Design-Build: Opportunities and Risks for Consulting Engineers, 3d ed., American Council of Engineering Companies, Washington, D.C., USA: Ch. 12, ¶12.4.3.
- Hatem, D.J., Improving Risk Allocation on Design-Build Subsurface Projects, Tunnel Business Magazine (June 2020); Transportation Research Board, Guidelines for Managing Geotechnical Risks in Design-Build Projects, NCHRP Research Report 884 (September, 2018); Essex, R., Hatem, D.J., Reilly, J., “Alternative Delivery Drives Alternative Risk Allocation Methods, “North American Tunneling Conference, Washington, D.C., 24-27 June, 2018; N. Munfah, Controlling Risk of Tunneling Projects Implemented by Alternative Delivery Method, Society for Mining, Metallurgy & Exploration (2019); S. Kramer, Alternative Project Delivery & Lessons Learned, Breakthroughs in Tunneling Course, Benjamin Media (September 2021); D.J. Hatem, Subsurface Conditions and Design Adequacy Risk Allocation in Design Build: Dynamics, Interactions and Interdependencies, Tunnel Business Magazine, October 2018; and D.J. Hatem, Rethinking and Recalibrating Design-Build, December 2020 Design and Construction Management Reporter (Donovan Hatem LLP).
- W. Wiesner, The Austrian Contract Form OENORM B 2203 For Underground Works: A Well-Established Alpine Predecessor of the FIDIC – ITA Emerald Book, The International Construction Law Review Vol. 38, p. 360 (2021).