Differing Site Conditions and a Discontinued Specified Product
You administer a $1,800,000 firm-fixed-price contract for access control and CCTV at 40 branch sites over nine months. The contract incorporates a technical specification you drafted, which names one camera model. That model is discontinued by the manufacturer in month four. At 12 sites the contractor encountered asbestos-containing mastic behind existing wall panels. The contract contains a differing site conditions clause requiring written notice within seven days and an engineer's determination. The site survey you provided covered 8 of the 40 sites. The contractor gave notice at day 21 for 9 of the 12 sites and, at the other 3, abated and proceeded without notice. It now claims $240,000 and five weeks. The contract carries 5% retainage ($90,000) and liquidated damages of $2,000 per day, capped at 10% of the contract price. The contractor has stopped work at four sites pending agreement.
1. Assess the contractor's entitlement on the asbestos claim. What is defensible, what is not, and what would you do next?
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Treat this as an entitlement analysis, not a negotiation opening.
The clause. Differing site conditions normally covers conditions that differ materially from those indicated in the contract documents (Type I) or from those ordinarily encountered (Type II). The buyer-supplied survey covered only 8 of 40 sites. For those 8, the documents 'indicate' the surveyed condition and a contradiction is strong. For the other 32, the contractor has a weaker Type I argument but a possible Type II argument if asbestos is genuinely unusual for these buildings.
Notice. Twenty-one days against a seven-day requirement is late for 9 sites, and there was no notice at all for 3. Under most forms, late notice bars or reduces recovery to the extent the buyer was prejudiced - for example, loss of the right to inspect, direct the method, or verify quantity. Proceeding without notice at 3 sites is the weakest position of all: the contractor deprived you of the determination the clause provides for.
What I would do.
- Do not deny outright and do not pay in full. Make the engineer's written determination, site by site.
- Request a cost breakdown by site and an independent abatement estimate; verify the quantity of mastic and the unit rate.
- Accept in principle for the 9 notified sites subject to quantum; reserve your position on the 3 unnotified sites, arguing prejudice and failure to follow the clause.
- Consider the incomplete survey as a shared risk allocation issue - it is your document, and that weakens a hard-line denial.
A defensible outcome is roughly three-quarters of the claimed amount with a time extension supported by the actual delay on those sites, not a blanket five weeks.
2. The specified camera is discontinued. Who bears the cost of substitution, and how do you handle it contractually?
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The specification was buyer-drafted and named a specific model, so the burden sits mostly with the buyer - but the contractor is not free to substitute unilaterally or to gold-plate.
Analysis.
- Naming a single product in your own specification is close to a design specification. Its discontinuation is not a contractor defect; requiring a different product is a change to the contract.
- The contractor is entitled to an equitable adjustment for the substitution, but only for a product that meets the specified form, fit, and function. It is not an opportunity to upgrade at your cost.
- The contractor also has a duty to mitigate and, in many standard forms, a duty to notify promptly of a known or impending discontinuation. If the manufacturer's end-of-life notice existed and the contractor sat on it, question the time impact.
Contractual handling.
- Require a written proposal with at least two technically acceptable substitute models, unit prices, and schedule impact.
- Evaluate against the functional requirement, not against the brand.
- Issue a formal written modification with a not-to-exceed value before any installation of the substitute.
- Never allow a verbal or email 'go ahead' - that is how you convert a priced change into a constructive change claim later.
Also notify the manufacturer's successor-product position and update your specification template so future contracts use performance-based wording.
3. The contractor has suspended work at four sites. How do you manage time, liquidated damages, and retainage without escalating the dispute?
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Separate the three instruments. Mixing them turns a manageable commercial issue into a termination risk.
The suspension. Ask first whether the suspension is contractual: was it directed by you, or is it the contractor's own decision? A contractor that stops work without entitlement is exposed to liquidated damages. If your pending determination caused it, you may have granted an excusable delay by your own conduct. Get the reason in writing and respond in writing within the contractual time.
Liquidated damages. Do not waive them and do not brandish them.
- Establish the actual critical path effect - LDs attach only to delay attributable to the contractor on the critical path, and only for the period the owner is harmed.
- Assess concurrency: if the asbestos delay and the camera substitution both affect the same four sites, the contractor may owe nothing for that overlap.
- Keep LD assessment separate from the change negotiation. Using LDs as a set-off lever invites a disputes procedure and freezes the very work you need moving.
Retainage. Retainage is released against contractual milestones, not against settlement of claims. Say so explicitly so the contractor is not withholding performance to force release.
Sequence. Issue the determination on entitlement, direct resumption of work at the four sites under a documented reservation of rights, and set a single commercial meeting with a 14-day deadline for the priced change. Escalation to the contract's dispute tier is the fallback, not the first move.