Associate Professor, University of South Australia

While carrying out construction works, a contractor may encounter unexpected adverse physical conditions at site which cause it to incur additional costs in carrying out the works and/or experience delay to the completion of the works. Such adverse conditions are, by nature, latent and most commonly encountered subsurface during excavation works with typical examples including contaminated soil, groundwater, hard rock and disused utilities.1 Such subsurface and latent conditions risks have been identified as amongst the most frequently occurring and troublesome risks on construction projects.2 Absent any express provisions to the contrary in the construction contract, the traditional common law position is that the contractor bears all the risk with respect to site conditions encountered on the basis that sanctity of contract requires parties to do what they have agreed to do, even if performance turns out to be much more difficult and expensive than originally supposed.3 In other words, the employer does not warrant that the site conditions will be suitable for building the contract works,4 but rather the contractor warrants it can build the contract works at the site. Placing all latent site conditions risk on the contractor, however, leaves tenderers with the commercially formidable task of trying to determine a suitable cost contingency to include in their tender prices