We are witnessing an explosive growth of newly constructed pipelines to carry shale oil and natural gas. This is a tremendous opportunity for contractors looking for new markets to grow revenue. Because pipeline construction is happening in many areas for the first time in decades, for many contractors it is probably the first time they have worked a pipeline construction project. However, this is not the case for the owners of the pipelines. They are seasoned pipeline construction veterans who have been building pipelines for years. Their contracts reflect the battle scars of past disputes and shift as much risk as possible to the contractor.
Pipeline construction clearly involves a lot of digging. Where there is digging, there is the unknown of what lies in and below what is being dug. To address this risk, pipeline owners will include in their contract a differing site conditions clause. Generally, these clauses disclaim any warranty or representation as to what you will encounter once you start excavation and shift the risk to the you if what you encounter is different than what the contract (or bid) documents represented you should expect to encounter. When a differing site conditions clause like this appears in your contract, you cannot recover additional costs because you encountered conditions that you did not expect, like addition or different rock, soil, or (as the case below) existing pipeline crossings. (This is not typically the case for projects performed for the federal government )
El Paso Field Services v. Mastec North America, involved the construction of an underground gas pipeline. El Paso’s bid package showed only 280 “foreign crossings” (crossings of other existing pipelines along the proposed pipeline right of way) when there were actually 794. Mastec sought compensation for the additional costs associated with encountering the 594 additional crossing. The contract, however, contained several sections that broadly addressed differing site conditions and that shifted the risk entirely to Mastec causing the court to deny Mastec’s claim.
If pipeline construction is a new field for you, be aware of what your contract says about differing site conditions.