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Geotechnical Baseline Reports in the FIDIC Emerald Book – a fair allocation of ground risks?

Monday 27 June 2022

Credit: annavaczi/Adobe Stock

Emilio Linde-Arias
Exponent, London
elindearias@exponent.com

Juan Perri
Exponent, Oakland
jperri@exponent.com

Osinachi Nwandem
Aelex, Lagos
onwandem@aelex.com

Construction projects such as transport infrastructures or buildings are built on or in the ground, requiring adequate characterisation of subsurface conditions, design of temporary and permanent systems, and appropriate means and methods for construction. Adverse ground conditions can have a significant impact on these construction projects. Addressing the impact might require complex technical solutions and lead to delays. They can also lead to a rise in onerous claims and disputes between designers, contractors, owners and occasionally third parties, such as neighbouring property owners.

Ground-related delays are frequent and costly. Chapman1 (2012) estimates that 17 to 20 per cent of projects are delayed due to ground problems. These problems relate to the inherent uncertainty of the geological and geotechnical conditions, and the behaviour of the ground during construction. Field investigations are routinely carried out during the design stage to reduce the uncertainty related to the ground conditions. However, in many instances, it is not possible or economically feasible to implement the physical investigations due to site constraints such as geographical impediments or access restrictions.

Several attempts have been made to turn geological and geotechnical risks into a risk that forms part of the contract. The most common is to include specific contract clauses in the general conditions or general provisions of a contract. Even so, these clauses are often too general to represent a specific allocation of risks.2

The Geotechnical Baseline Report (GBR) was developed in the United States with the intent of avoiding and resolving ground-related disputes. A GBR is a ‘contract document that sets out realistic contractual assumptions regarding the anticipated subsurface conditions’.3

During the past decade, the GBR has become gradually more common in construction contracts, especially for underground works. In May 2019, the International Tunnelling Association presented a new FIDIC standard form of contract for underground works (the Emerald Book). The Emerald Book includes the GBR as a compulsory contractual document, with the purpose, among other things, of setting out a risk-sharing mechanism.

This paper will outline the performance of the physical conditions clauses, assess the past performance of the GBR and will discuss the benefits and potential challenges of the GBRs in the Emerald Book.

Ground risk allocation in standard forms of contract

Most standard forms of contract prevalent in the construction industry include ground risk clauses that try to share the burden of unexpected adverse ground conditions among the parties.

The US Federal Acquisition Regulation allows for relief to the contractor for ‘physical conditions which differ from those indicated in the contract or unknown physical conditions of an unusual nature, which differ materially from those ordinarily encountered’.4

Most standard forms of contract in the US recognise different site conditions (DSC) through clauses with similar wording. These clauses recognises two types of DSC, which are referred to as Type I and Type II (Type III involves hazardous and/or toxic waste but is not discussed in this paper). In the US, the Code of Federal Regulations (CFR) describes these conditions as:

‘(1) subsurface or latent physical conditions at the site which differ materially from those indicated in this contract, or (2) unknown physical conditions at the site, of an unusual nature, which differ materially from those ordinarily encountered and generally recognized as inhering in work of the character provided for in the contract.’5

Most standard forms of contract prevalent in the construction industry include ground risk clauses that try to share the burden of unexpected adverse ground conditions among the parties.

Under Clause 12 of the Institute of Civil Engineering (ICE) Conditions of Contract,6 the contractor is entitled to relief from the encountering of physical conditions or obstructions which could not ‘reasonably have been foreseen by an experienced contractor’.

Similarly, Sub-Clause 4.12 of the FIDIC Red and Yellow Books provides that ‘if the Contractor encounters physical conditions which the Contractor considers to be unforeseeable and that have an adverse effect on the progress of the Works’, the contractor is entitled to an extension of time and payment of such cost. The Red and Yellow Books further provide that the ‘Engineer may take account of any evidence of the physical conditions foreseen when submitting the tender’, which is an invitation to state clearly what were the assumptions made.

Sub-Clause 4.12 of the FIDIC Silver Book 2017 places the risk entirely on the contractor. The validity of this clause in view of the applicable statutory law has been questioned in some civil law countries.

In Nigeria, Clause 64 (g) of the Nigerian General Conditions of Contract for the Procurement of Works (GCC 2011) defines a compensation event to include circumstances where:

‘ground conditions are substantially more adverse than could reasonably have been assumed before issuance of the Letter of Acceptance from the information issued to Tenderers (including the Site Investigation Reports), from information available publicly and from a visual inspection of the Site’.

Clause 64 (g) of the GCC 2011 further describes a compensation event to include instances where ‘the Engineer gives an instruction for dealing with an unforeseen condition, caused by the Employer’.

Similarly, Clause 60 of the New Engineering Contract (NEC) 20057 classifies unexpected ground conditions as a compensation event provided that: ‘an experienced contractor would have judged at the Contract Date to have such a small chance of occurring that it would have been unreasonable for him to have allowed for them’. In other words, the burden of proof relates not to the unforeseeability but to the probability of the ground conditions in question (hence the term ‘small chance of occurring’).

In summary, all the above clauses, with the exception of DSC Type I, demand the contractor to prove the unforeseeability of the different site or physical conditions.

The definition of unforeseeable conditions is open to interpretation and is a common source of disputes. The interpretation of foreseeability has been extensively discussed in literature.

The definition of unforeseeable conditions is open to interpretation and is a common source of disputes. The interpretation of foreseeability has been extensively discussed in literature. Cushman and Tortorello (1992) defined an unforeseen ground condition as a physical condition other than the weather, climate or another act of God discovered on or affecting the construction site that differs in some material respect from what was reasonably anticipated.8 Abrahamson (1979) stated that:

‘The mere fact that some risk of meeting the conditions was foreseeable can hardly be enough, since an experienced contractor will know that anything can happen, particularly in work underground. It is suggested that a claim is barred only if an experienced contractor could have foreseen a substantial risk.’9

Abrahamson’s view is that a physical condition can be deemed as foreseeable only if an experienced contractor would consider the risk of it being encountered as ‘substantial’. Furst et al (2012)10 also criticised the foreseeability test, stating that ‘determining whether a condition could reasonably have been foreseen habitually gives rise to the greatest difficulty of interpretation’. The probabilistic approach applied under the NEC has been described as being ‘wide off the mark in practical terms’.11

Interpretation of foreseeability by the courts

The pertinent case law shows that courts apply varying interpretations regarding the question whether or not a physical condition can be considered foreseeable:

CJ Pearce & Co Ltd v Hereford Corporation12

The dispute related to the installation of a pipe which had been obstructed by a 100-year-old sewer at an ‘approximate’ location different to the one shown on a map supplied to the contractor. The witnesses for both parties agreed that the contractor should have expected to encounter the sewer ‘approximately’ 10–15 feet on either side of the specified line. The contract was based on an Institution of Civil Engineers (ICE) form. The court ruled that the uncertainty in the location of the sewer was foreseeable and that the contractor should have made provisions for this uncertainty. Therefore, the contractor was not entitled to extra payment on the basis of an adverse physical condition and artificial obstruction.

Compagnie Interafricaine De Travaux v South African Transport Services13

In this South African case, a long tunnel designed with a minimal amount of ground investigation was expected to have 2 per cent of length with poor rock mass quality. The design report stated the following warning: ‘Variations from the predicted conditions may be encountered, or fault zones, due to circumstances which could not reasonably have been foreseen particularly in areas of geological contact or faults’. Furthermore, ‘the interpretations given in no way absolve the Contractor from making his own assessment, or fault zones, due to circumstances which could not reasonably have been foreseen’.

Clause 2(b) of the contract allowed for claims for ‘adverse sub-surface conditions which in the opinion of the engineer could not reasonably have been foreseen’. During the construction, 35 per cent of the ground encountered was classified as very poor. The Appellate Division of the Supreme Court of South Africa held that, given the lack of information at tender and the vast difference, the contractor was entitled to compensation.14

The decision in Compagnie’s case implies that the foreseeability is not binary, in the sense of being a question of anticipating the presence or absence of a type of soil or ground. Rather, the foreseeability is the amount or extent in which the ground in question is expected to be encountered. The ruling also considered the difficulties faced by the contractor in making its own interpretation or investigation at the tender stage. The court held that:

‘The Mountain report, together with the core samples, were virtually the only sources of scientific information available to Spie-Batignolles at the time of tender and it did not have the opportunity to make an independent investigation of its own.

[The Contractor] should have made some allowance for the predictions being overly optimistic and thus built a safety margin into its tender [...] but it seems to me to be unlikely that any such allowance would have come anywhere near to bridging the gap between the Mountain predictions and actuality.’

Humber Oil Terminals Trustee Ltd v Harbour and General Works (Stevin) Ltd15

The dispute related to the collapse of a barge during lifting due to an unusual condition of the soil under stress. The contract was based on an ICE form. In this case, the unforeseeability was not related to the type of soil, which was as anticipated. Rather, the unforeseeability was related to the ground’s behaviour when subjected to forces. The Court of Appeal held that the unusual behaviour of the ground was an unforeseeable physical condition as described in clause 12. This decision implies a wider interpretation of what constitutes a physical condition.

Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar16

In this case, the Gibraltar Government engaged Obrascon Huarte Lain (OHL) to design and construct a road close to the airport based on the FIDIC Yellow Book. The Government of Gibraltar subsequently terminated the contract due to the delays caused by the remediation works in the contaminated ground. The presence of contaminated ground as a result of military activities was known from the outset of the project. However, the site investigation showed that the contaminated ground was not distributed uniformly, and large areas were free of contamination. Mr Justice Akenhead, and later Lord Justice Jackson in the Court of Appeal, dismissed OHL’s claim. In particular, Lord Justice Jackson held that an experienced contractor would make its own assessment of all available data, and that ‘the contractor cannot simply accept someone else’s interpretation of the data and say that is all that was foreseeable’, and furthermore has to ‘make provisions for a possible worst case scenario’ as well as ‘make a substantial financial allowance within the tendered price’.

an experienced contractor would make its own assessment of all available data, and that ‘the contractor cannot simply accept someone else’s interpretation of the data and say that is all that was foreseeable’

Lewis argues that one of the principles that flow from this case is that a contractor who appreciated a risk, in this case of contaminated land, would price its tender based on the worst-case scenario.17

Van Oord UK Ltd & Anor v Allseas UK Ltd18

The defendant, Allseas UK, was the principal contractor responsible for undertaking both offshore and onshore construction of gas pipelines in the Shetland Islands in Scotland. The claimant, Van Oord, was engaged as the sub-contractor to carry out the procurement, supply, construction, and installation of pipelines. The contract, with conditions matching FIDIC Red Book,19 contained Article 12.2.3, which provided that:

‘should contractor during the performance of the work encounter subsurface conditions different from those described in the contract documents, and which an experienced contractor could not reasonably have been expected to foresee [...] which substantially modifies the Scope of Work [...] Then the Contractor [...] shall be entitled to request a change order’.

During the excavation, more peat layers than expected were encountered. This delayed the completion of the works. The claim was rejected by Mr Justice, who stated that ‘every experienced contractor knows that ground investigations can only be 100 per cent accurate in the precise locations in which they are carried out. It is for an experienced contractor to fill in the gaps and take an informed decision as to what the likely conditions would be overall’.

The judge confirmed the inherent uncertainty of ground investigations and ruled consistently with the Obrascon case that the contractor should have undertaken its own assessment of the ground conditions.

PBS Energo AS v Bester Generacion UK Ltd20

This recent case concerned the extent and depth of the presence of asbestos in the site for a biomass energy plant to be located in the UK under a FIDIC Silver Book contract. This form places the risk of unforeseen site conditions on the contractor. However, in this contract, Sub-Clause 17.3 regarding the employer’s risks was amended to include: ‘occurrence of any event of Unforeseeable Difficulties’.

In the same contract, unforeseeable difficulties were defined as: ‘difficulties and cost, which the Contractor acting with Good Industry Practice could not reasonably foresee, especially events of Force Majeure, occurrence of Employer’s Risks and any other unforeseeable difficulties as expressly stated in the Contract’.

The court questioned the clarity of the amended clause and also limited the relevance of the existing factual information by ruling that: ‘It is not enough therefore for PBS to point to the discovery of asbestos in more granular detail than previous reports had suggested. It must show that the asbestos discovered was unforeseeable.’

Therefore, the court expected the contractor to conduct a risk assessment based on the existing data, similarly to the decision of the court in the Obrascon and Van Oord cases.

A careful study of the court decisions in the aforementioned cases confirms that the foreseeability of adverse ground conditions is interpreted based on any knowledge scientifically and technically available to the contractor at the time of tendering. Also, one may conclude that the contractor is expected to approach ground uncertainty by pricing the worst-case scenario in its tender.

Geotechnical Baseline Reports in the FIDIC Emerald Book

The FIDIC Emerald Book tries to resolve the ambiguity of the foreseeability by including the Geotechnical Baseline Report as part of the contract documentation. Sub-clause 4.12 of the Emerald Book defines unforeseeability as ‘all subsurface physical conditions not addressed in the GBR’.

The GBR has been listed as the sixth most important document out of the 12 contract documents listed in clause 1.5 of the Emerald Book. The GBR is defined in the Emerald Book as the report

‘that describes the subsurface physical conditions to serve as the basis for the execution of the Excavation and Lining Works, including design and construction methods, and the reaction of the ground to such methods’.

The Guidance for the Preparation of Tender Documents under the Emerald Book explicitly indicates that ‘the GBR sets out the allocation of the risk between the parties for such subsurface physical conditions’.

The theoretical principles of the administration of the GBR are straightforward. The document sets a baseline with a range of contractually agreed (foreseeable) ground conditions. The risks relating to the conditions being different from those described in the GBR (unforeseeable) are allocated to the employer. In the so-called Schedule of Baselines, the contractor will include its estimation of the production rates for the ground types presented in the GBR. The risk of the production rates for a given set of baselined parameters is allocated to the contractor, since Sub-Clause 13.8 allows for an automatic adjustment of time for completion and costs for physical conditions which are outside the limits of the GBR.

The GBR is often specific to a construction method. In other words, a mechanised tunnel and a drill-and-blast tunnel would have different GBRs (or a single GBR would need to explicitly develop both possibilities) for the same ground. Therefore, the employer’s reference design should be detailed enough to propose a construction method that can be used to set out the baseline statements in the GBR, and also for the tenderers to prepare the Schedule of Baselines.

The complexity of preparing a Geotechnical Baseline Report

The GBR in infrastructure projects, first adopted in the 1970s in the US, has since been employed in numerous underground projects, especially in the US. Although the principles behind these documents are relatively simple, their application in practice is more complex. 

Essex21 noted in his guideline for the preparation of GBRs that lack of clarity, precision and conciseness in the baseline statements have constituted one of the most common problems regarding GBRs (eg, use of terms such as ‘may’ or ‘frequent’). This type of language is, in part, due to the variability of the ground that leads to the use of fuzzy language when communicating uncertainties, thereby resulting in possible different interpretations and risk perceptions.22 When appropriate, this language should be avoided in a GBR.

The authors of the Emerald Book acknowledge this problem and therefore recommend the use of ‘quantitative terms [...] to the extent practicable’. However, quantification does not come without its own problems. The guideline in the Emerald Book suggests that ‘parameters shall have the ability to be confirmed by the physical condition encountered to reduce ambiguity’. The Emerald Book equally suggests that ‘the parameters contained in the GBR shall focus on ground behaviour or ground response rather than geologically oriented parameters’.

Another uncertainty relates to the assessment of the combined effect of several ground properties on the ground behaviour. For example, two variations in rock properties can have opposite effects (stronger and more fractured than in the GBR) in the excavation rate. This effect of combined ground properties on ground behaviour could result in disputes related to adjustments under Sub-Clause 13.8 of the Emerald Book. 

Finally, Essex also highlights that many GBRs include conservative baselines to limit claims.23 Hatem24 too suggests that GBR authors frequently seek to protect themselves from potential professional liability implications. The Emerald Book guidance for GBRs acknowledges this issue by recommending that ‘the Employer should avoid establishing an overly conservative [GBR]’ and ‘the Employer is advised to provide realistic statements’.

Discussion

Although it is too early to assess the performance of the GBR under the Emerald Book, previous experiences and the literature suggest that GBRs are not a panacea, given the complexity of the task and the problems which have been formulated in the literature. Consequently, if not properly drafted, the benefits of the GBR may be diminished.

the employers need to decide on a project-by-project basis whether the GBR is the appropriate strategy for the allocation of ground risks.

First, a GBR needs to be based on a thorough ground investigation as required by the Guidance for the Preparation of Tender Documents. According to the Emerald Book guidance, the GBR must include ‘a sufficient range of information commensurate with the size, nature and complexities of the project’ and ‘interpretations based on experience and other sources of information’. However, major underground projects are sometimes located in remote areas where access to carry out a sufficient site investigation is difficult and costly. The employer should consider if other types of risk allocation are more adequate to that context.

Regarding the widespread use of fuzzy baseline statements, the technical authors should understand the purpose of the GBR and choose appropriate language.

As to the criticism of GBRs establishing conservative baselines, the employer must be informed of the consequences of ‘optimistic’ or ‘conservative’ interpretations. The baseline statements should be in line with the risk appetite of the employer, and its understanding of the cost a contractor would consider in its bid (eg, a likely higher bid price if the GBR describes overly pessimistic conditions compared to what the data supports).

A third issue relates to the difficulty of finding baseline parameters that can be measurable and monitored during construction, and that can also be linked to the design and the data obtained during the ground investigation stage. Even under optimal conditions, there is a risk of a disconnection between the parameters described in the GBR and the information and data that can be obtained during construction.

Some of the difficulties discussed in the paper can only be surmounted if the employer allocates sufficient resources, not only to investigate the ground, but to prepare a GBR by a multidisciplinary team (technical and commercial) that understands the implications of the document. Other difficulties are inherent to the preparation of the GBR and the employers need to decide on a project-by-project basis whether the GBR is the appropriate strategy for the allocation of ground risks.

Notes

1 T Chapman, ‘Geotechnical risks and their context for the whole project’ (2012) ICE Manual of Geotechnical Engineering - Volume I Geotechnical Engineering Principles, Problematic Soils and Site Investigation, 59–72.

2 A Muir Wood, ‘Ahead of the face’ 2004 Harding Lecture (London: British Tunnelling Society) pp 0–20.

3 R J Essex, Geotechnical Baseline Reports for Construction, Geotechnical Baseline Reports for Construction (American Society of Civil Engineers, 2007).

4 FAR (1984) Differing Site Conditions. Federal Acquisition Regulation www.acquisition.gov/content/52236-2-differing-site-conditions#i1048797 (accessed 14 July 2019).

5 48 CFR s 52.236-2 - Differing Site Conditions.

6 Institute of Civil Engineering, ICE Conditions of Contract (7th ed, Thomas Telford Services, 1999).

7 Institute of Civil Engineering, NEC3: Engineering and Construction Contract (ECC) (Thomas Telford Services, 2005).

8 R F Cushman and D R Tortorellon, Differing Site Condition Claims (Wiley Law Publications, John Wiley & Sons, Inc, 1992).

9 M Abrahamson, Engineering Law and the I.C.E. Contracts (E & FN Spon, 1979).

10 S Furst et al, Keating on Construction Contracts (9th ed, Sweet & Maxwell/Thomson Reuters, 2012).

11 See n 2 above.

12 [1968] 66 LGR 647.

13 [1991] ZASCA 16; 1991 (4) SA 217 (AD); [1991] 2 All SA 155 (A).

14 D Lewis, ‘Unforeseen ground conditions’, A paper given to members of The Society of Construction Law Hong Kong (2016, 160).

15 [1992] 59 BLR 1.

16 [2014] EWHC 1028 (TCC).

17 See n 14 above.

18 [2015] EWHC 3074 (TCC).

19 E Zoppis, Contract conditions for ground risk under the 1999 FIDIC suite of contracts: A critical review (2016, King’s College).

20 [2020] EWHC 223 (TCC).

21 R J Essex, Geotechnical Baseline Reports for Construction, Geotechnical Baseline Reports for Construction (American Society of Civil Engineers, 2007).

22 M Van Staveren, Uncertainty and Ground Conditions: A Risk Management Approach (Butterworth-Heinemann, 2006).

23 See n 21 above.

24 D J Hatem, ‘Geotechnical baselines: Professional liability implications’ (1998) Tunnelling and Underground Space Technology, 13(2), 143–150.

Emilio Linde-Arias is a managing engineer at Exponent in London and can be contacted at elindearias@exponent.com.

Juan Perri is a principal engineer at Exponent in Oalkand and can be contacted at jperri@exponent.com.

Osinachi Nwandem is a senior associate at ǼLEX in Lagos and can be contacted at onwandem@aelex.com.