December 2021 – Law and Civil Engineering

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Known Conditions Adversely Affecting the Project Must be Disclosed

by Eugene Bass

A contractor on a City canal improvement project incurred extra costs and was delayed in the performance of the work because of requirements that were imposed by regulatory agencies of which the contractor was not aware. The City, however, was aware of the requirements and had not disclosed them to the contractor before bidding… Because of the City’s concealment and nondisclosure, the contractor could not and did not address the potential impact of the restrictions in it’s bid. When the bids were submitted and the contract was awarded, neither the contractor nor its subcontractors contemplated the delays that subsequently occurred arising out of the nondisclosures.

The undisclosed facts were that certain of the materials from the project would have to be treated as hazardous wastes and would require special disposal. In addition, work on the project had to be suspended from April 1 to September 30. This caused the contractor to have to perform work during the rainy season.

Before the bids were submitted, the City was aware that regulatory agencies intended to impose restrictions on the disposal of excavated material and on project access. However, the City not only ignored the restrictions in designing the project and preparing project plans and specifications, but concealed information about the restrictions from bidders.

The City argued that a contract provision requiring a contractor’s compliance with requirements of project permits issued by regulatory agencies absolved the City of any liability for damages resulting from concealment or nondisclosure of relevant information. The City contended that the permits disclosed the agencies’ intent to impose restrictions on disposal of excavated material and on access to the project, and the contractor’s examination of the permits would have revealed the adverse affect of the restrictions upon the cost and time required to complete the project.

The court disagreed and noted that under general principles of contract and tort law, a party who conceals or fails to disclose material information to another is liable for fraud. In the public construction contract context, however, the conduct of a public agency which would otherwise amount to a tortuous misrepresentation is treated as a breach of contract. The underlying theory is that providing misleading plans and specifications constitutes a breach of the implied warranty of correctness.

The contract provision in this case did not specifically direct bidders to examine the permits issued by the regulatory agencies. Moreover, no reason appears to have compelled them to do so. Despite the City’s awareness that various regulatory agencies intended to impose restrictions on the project, the City’s plans and specifications did not include any provision regarding the anticipated difficulties resulting from the restrictions. Moreover, the bidding documents provided by the City failed to contain any warning about the adverse conditions contractors were likely to encounter. Since the City bore responsibility for obtaining the project permits, bidders were reasonably entitled to assume the City would inform them of any permit requirements or restrictions adversely affecting their ability to perform work on the project.

This article is intended only to provide general information regarding legal issues. It is not to be relied upon for legal advice. Contact your attorney for advise and guidance on general and specific legal issues.



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