Author
David Kinlan Kinlan Consulting Pty Ltd
In the past decade, there have been noteworthy advances in case law with respect to adverse physical conditions as well as the development and use of digital ground models that have become more widespread. This article looks at the development and changes in risk profiles that may result due to these two developments.

A decade ago, I co-authored an article in Terra et Aqua (Autumn 2005) titled ‘Adverse Physical Conditions and the Experienced Contractor Test’. The article examined the relationship between site inspection, foreseeability and adverse physical conditions and their incorporation in standard contracts and their evolution over the years. The article also looked at site investigation techniques and the issues arising due to incomplete or inaccurate data.

In marine infrastructure contracts, adverse physical conditions are physical conditions that could not be readily identified by the contractor at the time of tender.

What constitutes adverse physical conditions?

To recap from the original article, in marine infrastructure contracts, adverse physical conditions are physical conditions that could not be readily identified by the contractor at the time of tender. When a contractor encounters an adverse physical condition during the execution of the project, they may be entitled to an extension of time or additional payments. The inclusion of an adverse physical conditions clause in most standard forms of contract is to reallocate the risk for the consequence of encountering such unforeseen adverse physical conditions from the contractor to the employer. The rationale for this approach is that the employer only pays for those conditions actually encountered and does not have to pay any contractor’s price contingency for conditions that may not be encountered.

The definition of ‘unforeseeable’, as stated in the Federation Internationale des Ingenieurs-Conseils (FIDIC) Red and Yellow Book (1999), is ‘not reasonably foreseeable by an experienced contractor by the date for submission of the tender’. Some examples of adverse physical conditions are shown in Figure 1.

Figure 1

Extract from Adverse Physical Conditions and the Experienced Contractor (Kinlan, 2014).

Experienced contractor test

In determining whether a condition is adverse and unforeseen, the ‘experienced contractor test’ is applied. Variations of the principle of a ‘test’ can be found in many standard form construction contracts. Essentially, it is a comparison of what adverse physical conditions were encountered and whether they differ materially from those which could reasonably have been foreseen by an experienced contractor. The marine construction industry has a significant risk profile when compared to the wider sections of the construction industry. The CRUX Insight 2020 investigation of 131 infrastructure projects worldwide confirms a nexus of entrenched causation factors behind disputes. Notably, restrictions on access to worksites and unforeseen physical – typically ground conditions being key infrastructure claims.

At the time of the author’s original article in 2010, there was very little guidance in the way of case law, literature and publications on the vexing issue of the risk allocation for foreseeability of adverse physical conditions in marine infrastructure projects. John Uff QC reported in 2012, ‘It is indeed unfortunate that there is virtually no authority on the application of this difficult test.’ Contract users were left to fend for themselves when it came to the nuances of how site inspection, foreseeability and the entitlement to claim for adverse physical conditions interacted and to what extent they interrelated.

Figure 2

Gibraltar with its original runway crossing.

Contract developments in the intervening years

Luckily, time does not stand still both in the development of contracts and applicable case law as well as reporting on such matters. There is much more reporting of disputes now and claims have been taken to the courts and the decisions are made public for industry participants to consider. A key issue for the marine infrastructure industry remains the type and quality of the available geotechnical information.

In 2016, FIDIC released the Form of Contract for Dredging and Reclamation Works, Second Edition, known industry-wide as the FIDIC Blue Book. In the notes for guidance, which at 19 pages is longer than the contract itself, it states in particular, that the employer should supply the following information: Soils information: good quality and adequately distributed information on soils to be dredged, disposed of (including disposal areas), used as reclamation materials and underlying the proposed reclamation area. A detailed investigation should be carried out before going out to tender.

It goes on to state: When considering the time allowed for tendering and when considering the time and cost of carrying out site investigations, particularly marine investigations, the employer should note that in their own interests, compliance with this requirement is strongly advised.

A key issue for the marine infrastructure industry remains the type and quality of the available geotechnical information.

It is the authors’ observation that these sort of recommendations are either not fully acted on or are given lip service as the lack of good quality and adequately distributed information on the site make-up still give rise to disputes. However, case law over the past decade has shown that the contractor should not just accept blindly the information it is given and totally rely on it to the exclusion of its own independent assessment.

Court cases over the past decade

This article examines two decisions of the English Technology and Construction Court in 2014 and 2015, firstly Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028; [2014] BLR 484 (Obrascon) as well as Van Oord UK Ltd and SICIM Roadbridge Ltd v Allseas UK Ltd (OSR), in which the court applied the experienced contractor test. In addition, in 2011 there was also an Australian case on the application of the obligation to inspect the site, being the Supreme Court of New South Wales’ decision in Walton Construction Pty Ltd v Illawarra Hotel Company Pty Ltd NSWSC 534 (Walton).

Obrascon case

The Obrascon case in 2014 has been widely reported on. It involved a contract (using FIDIC’s 1999 Yellow Book) for the design and construction of a tunnel under the runway of the Gibraltar airport.

Obrascon brought an adverse physical condition claim when the Government of Gibraltar terminated their contract. Obrascon claimed the extent and amount of contaminated materials was not reasonably foreseeable by an experienced contractor at the time of tender.

Figure 3

Total E&P UK Laggan-Tormore gas field development. Photo © Total

The site investigation report contained a number of borehole log and trial pit results, which indicated ‘made ground’ (i.e. man-made ground) of varying depths between 1.0 m and 5.4 m, and non-uniform soil contamination results.

In their claim for unforeseen adverse physical conditions, Obrascon relied on details in the environmental statement provided in the tender documents, which estimated that the work would require removal of some 10,000 m3 of contaminated material. Obrascon claimed that the removal of much more contaminated material than that described in the environmental statement was not foreseeable. When rejecting Obrascon’s claim, Justice Akenhead stated: ‘The contractor cannot simply accept someone else’s interpretation of the data and say that is all that was foreseeable.’

Akenhead noted that an experienced contractor would not limit itself to the soil investigation report and volume of contaminated material in the environmental statement. Rather a contractor would have referred to the environmental statement containing references to the history and various historical maps (including the contaminated land desk study showing ‘earthwork rifle butts’ present in 1869 along the tunnel alignment), and foreseeably there would have been lead within the made ground.

Similarly, he referred to aircraft fuelling activities on the site for over 70 years and the location of a previous fuel farm and oil pipes close to the works, with such information leading experienced contractors to have appreciated that there ‘could well be’ hydrocarbon or other oil derivatives in the soil.

Akenhead stated that if these factors were coupled with the tender requirement to allow for 10,000 m3 of contaminated material, in his judgment, any experienced contractor tendering for the works would foresee that there would or at least could realistically be substantial quantities of contaminated material, and that the allowance of 10,000 m3 was only a ‘say’ figure. In terms of quantities, Akenhead did not put a precise figure on what should have been foreseen, but commented that it would be ‘very substantially above 10,000 m3’.

Akenhead determined that an experienced contractor would have not just blindly accepted the volume of contaminated material mentioned in the environmental statement but would have also looked at the history of the site. The site had previous been a runway, a fuel farm and a rifle range and the material to be excavated was all made ground. Therefore, an experienced contractor could reasonably expect considerable contamination at the site and therefore made a greater allowance in removal of such material.

With respect to the estimate of 10,000 m3 of contaminated materials contained in the environmental statement, Akenhead stated that this was one person’s interpretation of the data and tenderers were bound to take that assessment into account, but they remained under a duty to make their own independent assessment of the physical conditions likely to be encountered.

OSR case

This particular case refers to the claimants, a joint venture (JV) formed by Van Oord UK Ltd and Sicim Roadbridge Ltd (together OSR), which made an adverse physical conditions claim against Allseas UK Ltd. The claim was brought in the name of the JV but only concerned the onshore work element in respect of the gas export pipeline, carried out by the civil partner, Sicim Roadbridge Ltd (Sicim). Allseas was the head contractor for construction of gas pipelines for a gas field development that formed part of the Total Laggan-Tormore gas field development at Sullom Voe in the Shetland Islands, Scotland.

The proposed route of the gas export pipeline onshore was from the Shetland Gas Plant on the north-western coast to Firths Voe on the eastern coast. The total length of the gas export pipeline onshore was ~5.7 km.

Sicim contended that it originally intended to construct part of the pipeline by forming an 8-metre-wide stone road and laying the pipe in a trench excavated into the adjacent untreated ground. OSR claimed that because peat was encountered at greater depths than it could reasonably have foreseen, it was obliged to build a 13.5-metre-wide stone embankment and lay the pipe within the embankment.

Sicim relied on a Mackintosh probe survey report. The Mackintosh probe is a test used to measure the depth of soft soils, including peat. The report was not a contract document. It showed similar depths of peat along the pipeline, varying up to 2 m in depth. Sicim claimed that in cases where the actual conditions were different to the survey results, it was entitled to an adverse physical conditions claim under the subcontract.

Increasingly, both employers and contractors are turning to digital ground models to aid them in their understanding of their particular site and its unique characteristics.

The head contractor had also carried out precontract trial pit logs, which showed peat at various depths at various locations, with some of greater depth than the Mackintosh survey. Shortly after the contract was concluded the head contractor provided a full topographic and geophysical survey, including a resistivity survey, the results of which were consistent with the pre-contract trial pit information.

With respect to the requirement that subsurface conditions must be different from those described in the subcontract documents, Justice Coulson found that the only subcontract documents that referred to the subsurface conditions were the contract drawings, the purpose of which was to identify the path of the pipeline. However, the drawings also referred to ‘the approximate depth of peat strata’ and showed many areas of peat greater than 1 m or 1.5 m, and an area of peat 140 m in length of depth between 3 m and 5 m. Coulson concluded the subsurface conditions were not different from those described in the contract documents and therefore, Sicim’s adverse physical conditions claim failed.

Coulson rejected the supposition that Sicim was entitled to treat the Mackintosh report as a type of ‘guarantee’. Further stating that it is a matter for contractors’ judgment as to the extent to which they rely on the information, referring to the decision in Obrascon, and as a matter of common sense that ‘every contractor knows that ground investigations are only 100% accurate in the precise locations in which they are carried out, and that it is for an experienced contractor to fill in the gaps.’ Coulson added that it was reasonable to take an informed decision as to depths greater than 1.5 m in depth.

Walton case

There is an Australian case that is noteworthy, this being Illawarra Hotel Company Pty Ltd (Illawarra) and Walton Construction Pty Ltd (Walton). Illawarra entered into a contract for Walton to carry out the renovation and refurbishment of its hotel. A number of matters were referred for determination by a referee one of which was on account of variations to the scope of work.

One of Walton’s variations concerned the unexpected discovery of a deep void in the foundation to the floor slab, which required the construction of a suspended floor slab, rather than a slab on ground, as indicated on the drawings. The referee found that the void was an unforeseen condition under the terms of the contract. Illawarra challenged the referee’s finding on this issue.

Justice Einstein set out the terms of the contract that had an adverse physical conditions clause similar to that in the FIDIC contract suite, and was of the view that the provision did not require an investigation of all potential aspects of physical conditions on the site, but is limited to an inspection of the site and its surroundings. He was of the view that what is reasonable in terms of inspection of the site is to be informed by the degree of information otherwise available to the tenderer, which in this case, included the engineering drawings prepared by Illawarra’s structural engineer, depicting a slab on ground. Illawarra’s evidence was that Walton inspected the site, but did not get under the building and inspect the subfloor conditions, since they believed that the architect and the engineer would have done this, resulting in the selection of the slab on ground design.

Einstein found that Walton did precisely what was required, examined the drawings and inspected the site, and that the drawings did not show the void, rather, to the contrary. He concluded that an experienced contractor would not expect to find physical conditions in the nature of the void, having regard to the very drawings that the adverse physical conditions clause requires a contractor to examine.

Einstein, in referring to Walton, was of the view that an experienced contractor’s inspection of the site is to be ‘informed by the degree of information otherwise available to the builder’. Einstein reasoning that he considered an experienced contractor would not have accessed below the building and inspected the subfloor conditions, in light of having examined the employer’s drawings showing a slab on ground.

How such a decision would be interpreted for a marine infrastructure project throws up some interesting points. The author considers that this particular contractor’s failure to fully ‘inspect’ is inconsistent with the terms of most adverse physical conditions clauses such as in FIDIC (1999 Red and Yellow Book) clause 4.10, which specifies as an independent requirement that the experienced contractor shall, to the same extent as the contractor, ‘be deemed to have inspected and examined the site, its surroundings and other available information’, with the term ‘surroundings’ not containing any limitation as to distance. The author submits that the decision in Walton should not therefore be relied upon by contractors as authority for the principle that the experienced contractor test does not involve a complete and thorough inspection of the entire site and its surroundings, and that ‘surroundings’ in a marine environment, whether immediate or in the area, need to be considered when assessing the likelihood of encountering adverse physical conditions.

Figure 4

Vertical geological section of the metro tunnel at Sydney harbour. Aquares resistivity survey data has been inserted into the project IDGM allowing vertical sections to be exported to GIS/CAD, Google Earth, Augmented Reality and holographics.

With respect to ‘other available information’ mentioned in FIDIC (1999 Red and Yellow Book) it should be readily available and not buried away somewhere in an inaccessible archive. In the NEC4 ECC contract (2017) under clause 60.2 when judging physical conditions, it refers to ‘publicly available information referred to in the site information’ as well as ‘other information which an experienced contractor could reasonably be expected to have or to obtain’. So, for the latter, the contractor may have information that the employer may not have provided, which has a bearing on the expected physical conditions at the proposed site.

When the tenderer compiles all the available data it needs to make sense of it all in order to make an assessment of the likely physical conditions and materials that may be encountered. Increasingly, both employers and contractors are turning to digital ground models to aid them in their understanding of their particular site and its unique characteristics.

Geomodels and digital ground models

Geomodelling is the applied science of creating computerised representations of the Earth’s crust based on geophysical and geological observations and physical sampling of materials both on and below the surface. A geomodel is the numerical equivalent of a three-dimensional geological map complemented by a description of physical properties of the ground in the area of interest. Geomodelling was developed with main applications to oil and gas, and mining fields as well as the study of groundwater aquifers and ore deposits.

The spin-off from the use of geomodels in the resource industry was their development and application in other fields such as civil engineering where various proprietary digital ground model software has been developed. Many geological survey organisations worldwide have started to implement varying software systems and methodologies to facilitate a migration, from a 2D paper-based survey to a 3D digital service provider of geoscientific information. Rapid advances in gaming technology has enabled a renaissance in digital ground modelling and particularly in 3D visualisations. A Digital Ground Model (DGM) is a three-dimensional, mathematical representation of the landform and all its geological features, stored in a computer database. A DGM is extremely useful in the design and construction process, as it enables easy and accurate determination of the coordinates and elevation of any point and together with referenced boreholes and samples allows an assessment of the likely soil or rock types that may be encountered between sample locations.

The DGM is formed by integrating a hydrographic survey of the surface with geophysical methods and sampling points under the seabed (using borehole log data and sample testing), and using appropriate algorithms to process these points to represent the surface being modelled.

Figure 5

Borehole and geophysical data combined (Verhoef, 1997).

Geophysical methods are broadly broken into quantitative and qualitative methods. Quantitative geophysics are reflection based seismic methods. They are used to define depth to layer, but cannot be used to resolve quality variation between or within layers. Qualitative geophysics, usually seismic refraction or resistivity methods, are used to define structural variation in the geology at a site. Refraction methods do not readily resolve the level and depth of structures or complex geology due to technical limitations. Anot her approach relies on resistivity methods that are designed to quickly acquire large volumes of high-resolution data about the structural geology over a large area. These advanced geophysical methods are digital and allow for determination of thickness and depth of geological layers as well as layer and intra-layer information from the one sensor. Sensor intervals are better than one per second make it possible to collect large volumes of high-resolution data in a short period of time. The objective is to understand subsurface complexities in detail at a site, which makes it possible to then target boreholes to illuminate any observed geological anomalies.

Advanced geophysical methods

Over the past decade, advanced resistivity technology has been improved upon which enables the capture of high-resolution quantitative and qualitative information about the strata under a site. Quantitative data includes depth and thicknesses of sub-bottom structures. Qualitative data includes type of sediment; sand, silt or clay and rock characteristics such as fresh or weathered. High resolution combined quantitative and qualitative data is extremely useful as an aide for successful project planning. With this information project planners and engineers have a complete picture of the existing subsurface environment. This allows designs to take into account subsurface structures such as weathered and unweathered rock outcrops or buried river valleys to considerably reduced dredging and construction costs.

Site investigation boreholes are critical for the acquisition of engineering data about a specific soil and rock types, but fall short when used to infer geological structures.

Advanced geophysical methods are defined as geophysical methods with capabilities to acquire both quantitative and qualitative information of the subsurface, presented in a georeferenced 3D model to integrate all sorts of other information including bathymetry, boreholes, Standard Penetration Test, side scan sonar, seismic, infrastructure and 3D surfaces (e.g. top of rock). The accuracy and resolution of advanced methods however, varies widely with outcomes dependent on the resolution and data sampling density. Site investigation boreholes are critical for the acquisition of engineering data about a specific soil and rock types, but fall short when used to infer geological structures.

Utilising only boreholes as a primary data source to derive the entire project site’s structural setting is problematic for two reasons. Firstly, as point source data, the geologist has very little geological context to assist in the understanding and classification of, particularly deeper, layers as they relate to a project site. Secondly, and most importantly, it is not statistically possible to demonstrate that a sampling pattern has adequately sampled all the materials that may be present on a project site.

The latter is a problem inherent in the marine infrastructure industry whereby borehole locations are not targeted but may be randomly chosen or even restricted due to budget constraints. There is little in the way of guidance or recommendations as to borehole sampling patterns and spacing.

The publication ‘Geotechnical and Geophysical Investigations for Offshore and Nearshore Developments’ (Kinlan, 2005) recommends the scope of geotechnical investigation for dredging as shown in Figure 6.

Figure 6

Typical scope of geotechnical investigation for dredging.

The publication contains the caveat: More boreholes or (P)CPTs may be required near anomalies or near discontinuities in the soil layering, especially if a type of rock or soil is present that cannot be excavated, raised or transported with the proposed dredging equipment, or if another high risk is involved.

In Obrascon, with reference to boreholes, Justice Akenhead made the following remark: ‘Most civil engineering tenderers are aware that boreholes and trial pits only sample what is within the 100 mm or 150 mm tube or 2 or 3 m2 trial pit. Particularly in made or contaminated ground, it is difficult to extrapolate what may lie between the boreholes and pits. It is easier to extrapolate in relation to the natural ground profiles of the underlying soil or rocks.’

Modern DGM practice is increasingly seen as essential for marine infrastructure planning and asset management.

As Justice Coulson stated in the OSR case: ‘Every experienced contractor knows that ground investigations can only be 100% accurate in the precise locations in which they are carried out. It is for an experienced contractor to fill in the gaps and take an informed decision as to what the likely conditions would be overall.’ It is precisely the ‘gaps’ and extrapolation between borehole locations and the degree of variation between these data points that need to be assessed and to which the experienced contractor test will apply.

Conclusion

The use of DGM is proving invaluable in the assessment of a project site. Modern DGM practice is increasingly seen as essential for marine infrastructure planning and asset management. Advanced remote sensing, sophisticated digital data acquisition and management tools that are now available, compared to just a decade ago, help to reduce the risk of unforeseen adverse physical conditions that cause delay and significantly increase the cost of marine infrastructure projects. Advanced digital geophysics provides a reliable source of 3D data that can be integrated into an integrated ground model to provide engineers with a digital tool to manage and control risks relating to unforeseen and adverse physical conditions.

This has become ever more relevant given the development in case law and the Obrascon and OSR court cases have developed the concept of the experienced contractor test to a new level. These cases have shown that an experienced contractor at tender stage cannot simply limit itself solely to an analysis of the geotechnical information contained in the pre-contract site investigation report and the underlying sampling.

The statement in the OSR case that, ‘it is for an experienced contractor to fill in the gaps and take an informed decision as to what the likely conditions would be overall’, sets the basis for the test as to what should be reasonably expected from an experienced contractor. The contractor has the burden of satisfying the experienced contractor test on the balance of probabilities and cannot solely rely on the employer’s site data alone as a sort of guarantee, and this is implicit from the decisions of Obrascon and OSR.

Increasingly, potential tenderers will be expected to interrogate the available source data. If there is any perceived lack of geotechnical data between boreholes, they could use (as part of their site ‘inspection’) geophysical resistivity methods that are designed to acquire large volumes of high-resolution data about the structural geology over the project area. This can be completed in a matter of days. It has to be said however, that the employer is best placed to do this at pre-tender phase and provide the geophysical information it obtains to all tenderers rather than multiple tenderers carrying out such an exercise. It should be noted that the requirement to have ‘inspected’ the site is a lesser standard than a requirement to ‘examine’, ‘verify’ or ‘investigate’ the site so contractors should be cautious if such wording is used in any contract.

Lastly, in the event of anticipated complex geotechnical conditions on a marine infrastructure project, employers may consider the recommendation in FIDIC’s Blue Book (2016) note for guidance on addressing the foreseeability of those conditions by using a Geotechnical Baseline Report (GBR) as a reference. A GBR would set out what the expected ground conditions on a project will be and in effect create a specification for the anticipated conditions. In the event of the project running into difficulties due to unforeseen adverse physical conditions, the GBR can be used to decide if the conditions were really unforeseeable and or fall within the conditions expected at the site.

Summary

In the past decade, there have been noteworthy advances in case law with respect to adverse physical conditions as well as the development and the use of digital ground models that have become more widespread. Advanced digital geophysics provides a reliable source of 3D data that can be integrated into an integrated ground model to provide engineers with a digital tool to manage and control risks relating to unforeseen and adverse physical conditions. This has become ever more relevant given the development in case law and the Obrascon and OSR court cases, which have developed the concept of the experienced contractor test to a new level. The contractor has the burden of satisfying the experienced contractor test on the balance of probabilities and cannot solely rely on the Employer’s Site Data alone as a sort of guarantee, and this is implicit from the decisions of Obrascon and OSR.

Author

David Kinlan

David is a Marine Contracts Manager with 35 years of experience in the global maritime and civil engineering industry as a consultant specialising on contract appraisals, contract administration, preparation of variations, claims and adjudication of payment disputes. Author of the book Adverse Physical Conditions and the Experienced Contractor, David is a registered adjudicator in Queensland, Australia under security of payment legislation.

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