Strategic and Legal Considerations
By Tom Olson
Anyone who performs below-grade construction recognizes that one of the most important stakeholders on a project is someone who is not a contracting party: utility companies. Without accurate information from utility companies, contractors experience extra costs, delay and significantly increased safety risks. The related problem of late utility relocation is equally problematic. Insofar as contractors do not have a contract with utility companies, the question is how can they protect themselves against these problems?
Utility-related problems plague underground contractors
The impact in dollars and delay from utility-related problems cannot be over-stated. A 2009 Second Strategic Highway Research Program (SHRP2) report, Encouraging Innovation in Locating and Characterizing Underground Utilities, stated that “the untimely discovery of an unknown underground utility needing relocation is one of the major causes of delay during highway renewal projects and, as such, one of the major contributors to traffic disruptions and budget overruns.” i
The impact is similarly significant from a safety standpoint: Striking a utility line occurs nearly every minute somewhere in the United States. Although most utility strikes result in minimal local damage, many others result in fatalities, injuries, significant collateral damage, or all of these. ii
Utility-related problems are going to continue unless and until owners make changes in how they obtain utility information
Based on my experience throughout the country of over thirty-five years in highway-heavy construction, owners seek to determine the existence and location of utility lines by examining the information which utility companies provide (i.e. the Design One-Call System). The problem with this approach is that utility companies neither have accurate nor complete information. I learned that firsthand when I successfully sued CenturyLink for providing inaccurate information on a project. In shocking sworn testimony, CenturyLink stated the following about the accuracy and reliability of its information:1
- “The actual location [of a utility] could vary by plus or minus 1,000 feet in any direction of where it was actually installed versus where it was recorded internally by CenturyLink to have been installed…And that would have been the horizontal location…We do not capture the elevation.”
- “[The utility] may actually show up on the wrong side of the road…You’d be lucky to get the right side of the road.”
- The records are “incomplete” and include “inaccuracies.”
- In fact, “it’s very common, standard that those [CenturyLink] maps are not accurate.” The maps “aren’t accurate. . . Not accurate to the point that you would use them for design purposes.”
What can be done to minimize these utility-related problems?
The simplest means for owners to minimize utility-related problems is to stop relying upon utility companies to provide accurate and complete information. As discussed above, utility companies DO NOT HAVE ACCURATE UTILITY INFORMATION. Their X and Y information (i.e. horizontal location) is inaccurate. And, shockingly, UTILITIES DO NOT HAVE THE Z INFORMATION (i.e. vertical location)! So, what can and should owners do to minimize this problem? There are two answers.
First, owners should conduct their own subgrade utility investigation (aka Subgrade Utility Engineering, otherwise known as “SUE”) to determine both the horizontal and vertical location of utilities. Since owners are already paying for this prior to the start of excavation (i.e. potholing), there is no reason not to pay for this prior to the start of design. The return on investment is much greater. With accurate information, owners can design around existing utilities and, where not possible, timely plan for utility relocation.2
Second, both owners and contractors should use the utility/easement agreements which were executed when the utility companies first placed their lines. Owners should use these agreements at the design phase for two reasons. First, based on my experience, these agreements contain more accurate X and Y information than what the utility companies have. Second, many of these agreements set forth important obligations.
- Some require the utility companies to relocate their
utilities within a stated period of time after being requested by the owner. - Some also require the utility companies to pay for extra construction costs incurred if they fail to relocate on a timely basis!
Prior to the start of construction, contractors should ask project owners for copies of such agreements for all of the utilities who may have lines that interfere with construction. Contractors should have these in hand for use at the pre-construction meeting with utility companies. This should enable contractors to not only have more accurate utility information, but also potentially the most effective tool to get utility companies to relocate on a timely basis: the agreement requirement to relocate within a stated period of time and financial consequences for failure to so relocate. (One large contractor has told me that they have followed this approach, and it has been a game changer!).
What can be done when the utility information is inaccurate and/or the relocation is untimely?
The unfortunate reality is that for the foreseeable future, notwithstanding more proactive efforts as discussed above, contractors will continue to encounter unmarked, mismarked and late utility relocation. So how do contractors protect against the financial impact of this? Contractors must educate themselves on the whether and to what extent there are contractual and/or regulatory rights which compensate them for these utility problems.
I have conducted a nationwide analysis of such compensation rights. What I have learned is that such rights vary significantly from state to state. (Due to limited space, I will only address these rights generally, rather than the specific contracts and/or state regulations/county ordinances.) As a matter of contract:
- Some DOT standard specifications expressly provide for compensation for late utility relocation as well as unmarked/mismarked utilities.
- Other such standard specifications, as well standard contracts, provide for compensation only if the owner is negligent. (NOTE: As an example, one way to prove that the owner was NEGLIGENT is through its failure
to use the utility/easement agreement to facilitate timely relocation.)
The difficulty for contractors to learn their compensatory rights for utility-related problems is complicated by the fact that such rights often exist outside of the contract.
- Some utility-related compensation provisions are set forth in state statutes and/or regulations.
- Other such provisions are sometimes set forth in county ordinances.
It is important to note that rights set forth in statutes, regulations, and/or ordinances have the same practical application as if they were expressly set forth inside of the contract. Given this, contractors should seek out, review and understand such legal requirements with the same commitment as they do with contracts.
The unfortunate reality is that some state laws, as well as contracts, do not compensate contractor under any circumstances for utility-related problems. When this is the case, contractors only remedy is a time extension. And, regardless of whether a contractor may or may not be compensated, contractors should always timely seek a time extension both how and when the contract requires (including keeping track of the amount of delay for which the extension is sought).
How to calculate the amount of compensation due
When a contractor has a right to compensation for utility-related problems, it is important to understand how to calculate the amount of compensation due.
- When a contractor is unable to work (i.e. delay), many contracts provide for payment of idle resources. This is one of the most often overlooked yet significant extra costs. Generally speaking, idle iron is compensated at the rate of half the operated rate.
- When a contractor can work but at reduced production rates (i.e. disruption), if possible, the contractor should calculate this by comparing the reduced production rate in the area of utility disruption with the actual production in the area where there is no disruption. This approach is the best one for two reasons. First, this will likely result in a greater amount of lost production (and hence more compensation) than if the contractor compares the lost production with the production as-bid. Secondly, this approach (referred to as the “Measured Mile”) is more accepted throughout the country because it is based on a comparison of production actually achieved versus the theoretical production of what a contractor hopes to achieve.
- A contractor may also be entitled to payment of extended field overhead (i.e. General Conditions) as well as unabsorbed home office overhead.
- NOTE: In some contracts, such as those with the DOT, the right to compensation is buried in the section entitled “SUSPENSION OF WORK.” So, although a utility delay or disruption is typically not accompanied by the engineer formally suspending the project work, this referenced contract clause still should apply because it typically provides that a contractor is entitled to compensation for suspension “or a delay of an unusual or anticipated type.”
Conclusion
Unmarked, mismarked, and late utility relocation is one of the biggest causes of delay, extra costs, and safety problems throughout the country. And, notwithstanding what many contractors as well as owners believe, there are both effective means to minimize the causes of the problems as well as to be paid when these causes occur. The key is contractors educating themselves as well as project owners and engineers.
Tom Olson is the founding partner of Olson Construction Law, based in St. Paul, Minn. Olson serves as a mentor to both contractors and attorneys for his sharp understanding of construction issues, and for his genuine commitment to their business and personal success.
i See U.S. Department of Transportation, Federal Highway Administration Office of Infrastructure, “National Utility Review: Utility Coordination Process” Final Report FHWA0HIF-18-039 (October 2018) (“FHWA Report”) at 6.
ii Id. at 28, citing Sterling, R.L., et al, SHRP2 Report S2-R01-RW, “Encouraging Innovation in Locating and Characterizing Underground Utilities,” Transportation Research Board (2009) at 52.
- See Allied Manatts Group, LLC. and Delong Construction, Inc. v. Qwest dba CenturyLink QC, Case No. 3:18-cv-00020 JAJ (Fed. So. Dist. Ct. Iowa 2019).
- My position, as a matter of law, is that owners are required to conduct such a subgrade investigation projects (as well as actually schedule any required utility relocation) on federally-assisted projects. For a fuller discussion of why this is a requirement, see Thomas R. Olson, Olson Construction Law, “Inaccurate Utility Information: How to Protect Against the Largest Problem on Highway Construction Projects with Subgrade Utility Engineering (SUE),” (NASTT No-Dig Show, April 10-14, 2022).
