Relying on Federal law, Colorado Court holds that a court may award an equitable adjustment that is less than a contractor’s unexpected increased costs when it finds that the contractor shares responsibility for the increase.

When unanticipated site conditions are discovered during a construction project, who is responsible for the increased costs?  Including an equitable adjustment provision in a contract can be an effective way to distribute the risk of unanticipated site conditions.  In Colorado there is much Federal law addressing the use of equitable adjustment provisions in contracts, but Colorado state courts have been silent until now.

The Colorado Court of Appeals recently addressed the issue of equitable adjustment provisions in Parker Excavating, Inc. v. City and County of Denver (October 2012).  Parker was hired to construct a dam and signed a contract with an equitable adjustment provision.  The provision stated that an adjustment in the contract price would be allowed in the event that an “uncovered” condition caused an increase in cost.

The City paid Parker an additional sum to compensate for the increased cost after muck was discovered at the site, but it was not enough to cover all of Parker’s additional costs, so Parker sued for the remainder.  The district court found that Parker’s costs had increased by $2,373,679, but reduced Parker’s award to $1,650,000 finding that Parker shared some of the responsibility for failing to discover the unanticipated muck.  Parker appealed, contending that the trial court was wrong to award it equitable relief rather than legal damages, and that the court should have awarded Parker the full amount of its increased excavating costs.

The Court of Appeals affirmed, finding that the plain terms of the contract provided for a fair adjustment to the contract price to account for increased costs caused by unanticipated site conditions (thus, the essence of the remedy Parker sought was equitable).  Since no Colorado appellate court had reviewed an award of an equitable adjustment for unanticipated site conditions, the court addressed Parker’s assertion that it should have been awarded the full amount of its increased costs under Federal law.  Federal courts have found that the amount of equitable adjustment may be reduced to account for a contractor’s shared responsibility.  Finding that Parker should have conducted its own core sampling, the court affirmed the reduced award.

The lesson for both owner and contractor is that Colorado courts may now award an equitable adjustment that is less than a contractor’s increased costs in order to account for the contractor’s share of responsibility, and may look to Federal cases in that area for guidance.