Unforeseeable physical conditions (UPC) are latent, hidden, or subsurface realities that could not reasonably be anticipated at the time of tender. They may include unexpected soil profiles, underground obstructions to adverse groundwater conditions. Construction contracts are priced and scheduled on a pre-tender assessment, which is usually based on limited or imperfect data. As a result, UPC can fundamentally disrupt project assumptions, leading to delay, cost escalation, and disputes. UPC sits at the heart of construction risk. The central question is “who bears the consequences when ground reality diverges from contractual assumptions?”
This note examines the treatment of UPC under FIDIC as a benchmark for risk allocation and contrasts it with the evolving position in Indian jurisprudence. A separate note will address recommendations for drafting UPC clauses in Indian contracts.
Under the Red Book (RB) and Yellow Book (YB), the risk of unforeseeable physical conditions (UPC) is shared between the Employer and the Contractor. Risk allocation begins with the Employer providing all relevant data regarding sub-surface, hydrological, and environmental conditions to the Contractor (1). Although verification of the data is not mandatory, a Contractor is deemed to have inspected the site and considered all risks before submitting the bid (2). The risk lies with the Employer, if conditions are unforeseeable (not reasonably foreseeable by an experienced contractor) at the time of tender (1999) or by the Base Date (2017). However, despite UPCs, the Contractor is responsible for completion of work. Consequently, the Employer is liable to grant Extension of Time (EOT) and, Cost for the work undertaken, provided notice is given. (3)
In Obrascon Huarte (4), and Van Oord (5), the Court held that the experienced contractor must independently assess site data using its expertise and “make a reasonable assessment of the physical conditions” while recognising the inherent limitations of site investigations.
However, in Silver Book (SB), most risk shifts to the Contractor, who is responsible for design, interpretation, and verifying site data (6). The deeming provision requires the Contractor to anticipate all possible risks and costs at the bidding stage (7). SB 2017 bars any Contract Price adjustment for any unforeseeable or unforeseen difficulties or costs. The FIDIC Guidance note for SB (1999 and 2017 ) advise against using SB for projects involving extensive sub-surface work like tunnelling (8).
Employer using RB and YB should be cautious of Contractor shifting UPC risk. However, full transfer of the risk to Contractor (as in SB) breaches FIDIC’s Golden Principles. Employer can mitigate risk by permitting early investigation. Contractors reduce UPC risk by negotiating baseline reports, limiting liability to foreseeable conditions and modifying deeming clauses.
In India, provisions relating to UPCs are rarely articulated expressly in concession agreements. Instead, risk is allocated through broad disclaimer clauses that shift responsibility onto to the contractor for verifying employer-provided site data, thereby transferring the risk of inaccuracies or omissions.
For example, the General Conditions of Contract issued by Noida Metro Rail Corporation disclaim any warranty as to the accuracy or reliability of site information and require the contractor to undertake independent investigations. Similarly, EPC contracts issued by National Highways Authority of India obligate contractors to independently assess all data provided by the employer (including site and subsurface conditions) and place the risk of any error or inadequacy squarely on the contractor, precluding claims arising from inaccurate data (9). This approach of risk-allocation is consistently adopted across major public authorities. The Dedicated Freight Corridor Corporation of India Limited (10) employs nearly identical language in its EPC contracts. Similarly, NITI Aayog Draft EPC Contract for Civil Works (11) requires contractors to have fully investigated all relevant conditions (including ground, subsoil, and geological characteristics), irrespective of the accuracy of employer-supplied data.
Under English and Indian law, in the absence of UPC provisions, the Contractor is liable for delays due to ground conditions (12)(13), irrespective of the accuracy of the Employer’s site data (14)(15), as there is no implied warranty of its correctness (16). Though, in absence of detailed inspection obligations, the liability may shift to the employer for non-disclosure. (17)
However, where there are UPC provisions, the emerging Indian jurisprudence reflects a more balanced approach to risk allocation, particularly in cases where employer-provided information is materially inaccurate or incomplete, or where the contractor lacks a meaningful opportunity to conduct site investigations prior to execution.
In NTPC Ltd. v. Tata Projects Ltd (18), the Delhi High Court upheld an arbitral award granting compensation to the contractor for costs arising from incorrect ground-level specifications supplied by the employer. Despite contractual obligations requiring the contractor to conduct inspection, the tribunal found that site access had not been provided and meaningful inspection was impossible due to existing obstructions. The Court agreed with the tribunal’s reasoning that the principle of unforeseen conditions superseded general liability clauses, particularly where the employer’s failure to provide accurate information directly caused additional work. The judgment reinforced that contractual provisions cannot be interpreted to penalise the contractor for relying on employer-supplied data where independent verification was neither feasible nor intended.
A similar approach is visible in DMRC Ltd. v. J. Kumar–CRTG JV (19). Here, although the contract imposed a strong duty on the contractor to assess site conditions, the tribunal relied upon a specific clause relating to unforeseeable physical conditions to allow compensation for encountering hard rock instead of the sandy soil represented in the employer’s tender documents. The High Court held that the arbitral tribunal was entitled to harmonise seemingly conflicting clauses; one of shifting the risk to the contractor and another expressly providing relief for unforeseeable conditions. The reasoning affirmed that general inspection obligations cannot nullify specific protective clauses drafted to address unforeseeable conditions.
=== Endnotes ===
(1) 1999 RB and YB, Sub-Clause 4.10. (2) 2017 RB and YB, Sub-Clause 4.12. (3) 1999 and 2017 RB and YB, Sub-Clause 4.12. (4) Obrascon Huarte v. Gibraltar [2015] EWCA Civ 712. (5) Van Oord v. Allseas [2015] EWHC 3074 (TCC). (6) 1999 and 2017 SB, Sub-clause 5.1. (7) ibid. (8) Christopher Wade, ‘The FIDIC Contracts Guide’ <https://fidic.org/sites/default/files/The%20FIDIC%20Contracts%20Guide.pdf [blocked]> (9)NHAI EPC Contract, Clause 6.1 (Disclaimer) (10) The Dedicated Freight Corridor Corporation of India Limited (DFCCIL), Clause 6.1 (Disclaimer) (11) NITI Aayog’s Draft EPC Contract for Civil Works, Clause 6.1 (Disclaimer) (12) Barkby v Cornerstone [2022] EWHC 1892 (TCC). (13) Union of India and others v. Satyanarayana Construction Co., (2005) SCC OnLine AP 278 (14) Thorn v London Corp (1876) 1 App Cas 120. (15) Gammon India Ltd. v. NTPC Ltd., 2012 SCC OnLine Del 4656 (16) State of Maharashtra v. Saifuddin Mujjaffarali Saifi, 1993 SCC OnLine Bom 203 (17) NTPC Ltd. v. VU Seemon 2014 SCC OnLine Del 4110. (18) NTPC Ltd. v. Tata Projects Ltd, 2023 SCC OnLine Del 4560 (19) DMRC Ltd. v. J. Kumar–CRTG JV, 2022 SCC OnLine Del 1210