3rd Brazilian Congress on Tunnels and Underground Structures

International Seminar "South

American Tunnelling - SAT 2012“

Júlio César Bueno

General Aspects

Acts of Good

Employer

Third Party

Contractor

Acts of Good

Employer

Third Party

Contractor

Acts of Good

Employer

Third Party

Contractor

Acts of Good

Employer

Third Party

Contractor

Acts of Good

Employer

Third Party

Contractor

Acts of Good

Employer

Third Party

ContractorDesigner Subcontractor

Acts of Good

Employer

Third Party

ContractorDesigner Subcontractor

Acts of Good

Employer

Third Party

Contractor

DesignerSubcontractor

Acts of Good

Employer

Third Party

Contractor

International Approach: Two opposing views

The general rule: contractor’s liability If a contractor has promised - in unqualified terms - to construct a building or other structure for a lump sum price, no excuse for late performance or non-performance that the site conditions were worse than anticipated

–  Agreed price is all that the contractor is entitled to

be paid for doing so

–  The risk of adverse site conditions, whether they be known or latent, is with the contractor

The general rule: contractor’s liability US case law –  United States v Spearin (1918), 248 U.S. 132 “Where one agrees to do, for a fixed sum, a thing

possible to be performed, he will not be excused or become entitled to additional compensation, because unforeseen difficulties are encountered. Thus, one who undertakes to erect a structure upon a particular site, ordinarily assumes the risk of subsidence of soil.”

UK case law –  Bottoms v York Corporation (1892), Hudson Fourth

Edition, Vol 2 Table of Cases; Workshop Tarmacadam Co Ltd v Hannaby (1995) 66 Con LR 105, CA

The general rule: contractor’s liability If otherwise expected, contract should have an specific contractual release for the contractor

–  Unless a contract makes specific provision for a

contractor to be entitled to an extension of time for completion, additional compensation, or both, in the event of adverse conditions being encountered, the risk of those conditions will remain with the contractor

–  Clauses dealing with “force majeure” or

“exceptionally weather conditions” ARE NOT sufficiente as they ARE NOT to be considered the same as “unforeseen bad ground”

The general rule: contractor’s liability Enhancing the general rule’s application?

–  Contractor has knowledge of the site –  Contractor has inspected the site or “shall be

deemed to have inspected it” –  Contractor has satisfied itself on the form and nature

of the site, including the soil and subsurface How far can these provisions go?

–  Need to qualify reasonable knowledge or inspection –  Was the contractor really able to get to know the

site, inspected it and to be satisfied?

A contract rule: risk with the owner

Many standard forms give contractors extension of time and price increase in case of unforeseen ground conditions

–  ICE - Institute of Civil Engineers (clause 12)

–  NEC - Engineering and Construction Contract (clause 60.1)

–  FIDIC - International Federation of Consulting Engineers (clause 4.12, of the “new Red Book”)

A contract rule: risk with the owner In those standard forms, owner may be excluded from

liability when contractor “ought to have anticipated such conditions”

Such forms apply the concept of “imputed knowledge” in

opposition to “actual knowledge”

–  What site investigations an experienced contractor ought to have conducted?

–  What information an experienced contractor would have gleaned?

–  How an experienced contractor ought to have interpreted the information?

A contract rule: risk with the owner

In contrast, some US State legislatures provides a baseline of expected ground conditions and seek potential distinctions only

–  A “differing site condition” clause entitles the

contractor to additional time for completion and compensation

–  No need for inquiry on what site conditions the contractor ought to have anticipated

About the information provided to contractor

1)   Owner does not provide any information to contractor - “No Information System” 2) Owner provides information to contractor but does not

warrant the accuracy of such information –  “Disclaimer System”

3) Owner provides information to contractor and warrants

the accuracy and/or the completeness of such information –  “DSC System”

Disclaimer System

Some special considerations for public owners

–  Stenerson v City of Kalispell, (1981) 629 P.2d 773 Mont.

“Public entity either knew or should have known that the information would be relied on by bidders”

Is it fair to make such distinction?

DSC System

The owner may find that shifting risk to the contractor is not in the owner’s best interest –  In such a case, the owner may choose to accept the

risk of unforeseen site and subsurface conditions The owner may be taken to warranty contractually, either

expressly or by necessary implication, that the information provided to the contractor is accurate and should be followed –  Bacal Construction (Midlands) Ltd v Northampton

Development Corporation (1975), 8 BLR 88, CA

DSC System

Type I DSC –  Requires that there be an actual physical condition

encountered at the site that differs materially from the conditions indicated in the contract document

Type II DSC

–  Requires a variance between the site condition actually encountered and that which would be reasonably expected at the time the contract was made

DSC System

The applicability of the Spearin Doctrine in the USA

–  United States v Spearin (1918), 248 U.S. 132 “If the contractor is bound to build according to

plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications. (...) This responsibility of the owner is not overcome by the usual clauses requiring builders to visit the site, to check the plans, and to inform themselves of the requirements of the work.”

DSC System

Confront with UK case law

–  Under English law, an owner who provides plans or specifications to a contractor does not warrant that the work described in the plans and specifications is capable of being performed at all, or that is capable of being performed in a particular manner

–  Thorn v The Mayor and Commonalty of London (1876), LR 1 HL 120

DSC System

Misrepresentation

–  When erroneous information is provided to a tenderer, and the tenderer, in reliance upon it, enters into a building or engineering contract, there may be an actionable misrepresentation, sounding in damages

–  Possible distinction between innocent misrepresentation (an erroneuous statment) and a fraudulentmisrepresentation

Ground’s elements and related risk types

Information

Interpretation (subjective)

Information (objective)

Incorrect Incomplete

Ground’s elements and related risk types

Probability

Foreseen Unforeseen

Aparent Real

Specific issues in Brazil

Specific issues in Brazil

Importance of the management of the contract The day-by-day in opposition to the pacta sunt

servanda principle – Possible change in the allocation of

responsibility

Specific issues in Brazil The “theory of unpredictability” or “rebus sic stantibus clause” in the new Civil Code

– The absolute unpredictability concept

– Complete change in the conditions of the contract

– Extreme burdensome

– A clear benefit to the other party

Specific issues in Brazil

Continuous obligation of the parties to mitigate the risks during the contract

Simply allocation of risk does not prevent the

application of good-faith rules

“DBB” / “DESIGN-BID-BUILD”

“EPCM” / “ENGINEERING PROCUREMENT CONSTRUCTION MANAGEMENT”

“EC+P” / “EPC HÍBRIDO” / “SPLIT EPC”

“EPC” / “ENGINEERING PROCUREMENT CONSTRUCTION”

“EPC” / “ENGINEERING PROCUREMENT CONSTRUCTION”

Alianza

VALE

Contratado

Engineering

Procurement

Construction

VALE

Contratado2

Procurement

Engineering

Construction

Contratado1

VALE

Contratado2

Procurement

Engineering

Construction

Contratado1

VALE EPCMProcurement

Engineering

Construction

VALE Contratado Procurement

Engineering

Construction

DBB

EPCM

Split EPC EPC

O QUE É UMA ALIANÇA?

SOLUÇÃO DE CONFLITOS

Conclusion

Conclusions

Ground Risks, in the form of unforeseen geological and/or geotechnical conditions, are a serious factor in cost and schedule control on all major civil engineering projects

The amounts of money, involved in claims arising from

these geotechnical problems, is enormous and needs to be taken very seriously by financing agencies and all players in the construction industry

Conclusions

Inadequate site investigations rank as one of the major contributors to ground risk.

More realistic allocations of time and money have to be

made to these site investigation programs It is also important that geologists and geotechnical

engineers make more efficient use of the resources allocated for site investigation

Júlio César Bueno LL.M (Cantab) Ph.D (USP) Pinheiro Neto Advogados Rua Hungria, 1.100 São Paulo - SP 01455-000 Brazil Tel: +55 (11) 3247-8667 Fax: +55 (11) 3247-8600 E-mail: juliobueno@pinheironeto.com.br

Contact information