Latent conditions clause: when the ground is not as expected

Sample clause

an earthworks and civil contract between Lilly Pilly Estates, a fictional land developer, and Wirra Civil, a fictional contractor, for a 40 lot residential subdivision near Toowoomba, Queensland

19. Latent Conditions 19.1 Latent Conditions means physical conditions on or near the Site, including subsurface rock, groundwater, contamination and buried services but excluding weather, that differ materially from those a competent contractor should reasonably have anticipated at the date of its tender, having regard to the Site Information and a reasonable inspection of the Site. 19.2 Wirra Civil must give written notice to the Superintendent within 5 Business Days of becoming aware of a Latent Condition and, where practicable, before the condition is disturbed. 19.3 The notice must describe the condition, how it differs from what was anticipated, and the additional work, time and cost Wirra Civil expects. 19.4 The Superintendent must, within 5 Business Days of the notice, direct how Wirra Civil is to deal with the condition. 19.5 The additional work is valued as a Variation, and Wirra Civil is entitled to an extension of time for resulting delay. 19.6 Wirra Civil is not entitled to any amount for costs incurred more than 5 Business Days before the notice was given.

Sample wording, not legal advice.

Variants

What to negotiate

• What site information can be relied on

  Principals often provide geotechnical reports while stating they give no warranty about them. Contractors want to rely on the reports as the baseline for what was reasonably anticipated. The negotiation usually lands on reliance on the factual data, such as borehole logs, but not on the consultant's interpretation, with the contractor still expected to make a reasonable inspection.

• Notice deadlines

  Short notice periods protect the principal, who wants a chance to inspect and redesign before money is spent. Contractors accept notice but resist time bars that extinguish a claim entirely for a late notice. A common compromise limits recovery to costs incurred after notice, as in the sample, rather than losing the claim outright.

• Contamination and asbestos

  Contamination and hazardous materials carry cost, programme and regulatory consequences out of proportion to their volume. Contractors want them expressly treated as latent conditions whatever the site information said. Principals may accept that, but require the contractor to stop work, secure the area and follow the legal process for handling asbestos before claiming.

• Weather and the definition

  Most clauses exclude weather, since it is not a physical condition of the site. Contractors in wet regions sometimes seek to include groundwater brought up by rain events. The definition matters more than the remedy, because a narrow definition quietly moves most of the risk back to the contractor whatever the valuation clause says.

The risk of leaving it out

Without a latent conditions clause, a contractor on a lump sum generally carries the risk of unexpected ground or hidden conditions, because it promised to complete the work for the price. Principals pay for that too, through higher tenders carrying contingencies and through disputes arguing that the site information amounted to a warranty.

Three ways to allocate the risk

Owner bears means the contractor prices the expected conditions and is paid for the difference, which suits projects with good investigations and lowers tender prices. Contractor bears means the contractor prices a contingency and absorbs the difference, which suits design and construct work where it controls the investigation. Shared risk sets an allowance or a cap beyond which the owner pays, which suits residential and small commercial jobs where rock, fill or old services are likely but their extent is not. The Australian Standard general conditions have generally taken the first approach, subject to notice.

Victorian payment claims and hazardous materials

Latent conditions interact with other laws. In Victoria, the security of payment legislation keeps certain amounts, including claims arising from latent conditions, out of a statutory payment claim, so they have to be pursued under the contract. Where the condition is asbestos or another hazardous material, the work health and safety laws decide how it is handled and by whom, and the contract clause decides only who pays and how much time is allowed.

Where it sits in a generated document

A generated civil or building contract numbers the latent conditions clause next to the variations and extension of time clauses, so its valuation can simply point to them. The notice period and any allowance quantities are written in as content. The document does not cite security of payment or safety legislation, so any statement in a draft about how a latent condition claim is paid in a particular state should be checked.

Documents that carry this clause

Electrical contractor agreement with a licence clause and staged paymentsElectrical work is the one trade where the paperwork at the end matters as much as the work, because without the certificate the installation is not signed off. This agreement ties the last payment stage to that certificate and sets the progress claim deadlines the payment legislation actually uses.Landscaping contract template with a plant schedule and an establishment periodA garden build is two jobs in one: construction that is finished when it is finished, and planting that is only finished three months later. This contract prices the construction in four stages, lists every plant with its pot size and quantity, and holds the landscaper to a 90 day establishment period for anything that dies.Quotation template priced trade by tradeCopperfield Bathrooms quotes Alana Reid $34,780 including GST for a full bathroom renovation at 14 Selwyn Street, Hawthorn. Eight trades are priced as separate lines, the tiles are a provisional sum, the job runs four weeks from 5 October, and the payment schedule takes 10 per cent on acceptance, 50 per cent when tiling is done and 40 per cent at practical completion.

Questions people ask