Everything to Know about Latent Conditions Risk

What is Latent Conditions?

Latent Conditions in construction refer to unforeseen or hidden site conditions that are not apparent during the initial site inspections or assessments. These conditions can significantly affect the construction process, leading to increased costs, delays, and potential redesigns. Common examples include buried hazardous materials, unstable soil, underground water sources, or pre-existing structural faults.

What does Latent Conditions mean?

'Latent Conditions' means any subsurface or concealed condition at a Capital Project or construction site that differs materially from the conditions anticipated or specified in the contract. These conditions typically become known only after construction has begun, posing unexpected challenges to project teams.

Latent Conditions Example

An example of latent conditions impacting a construction project is the discovery of an old, undocumented underground storage tank containing hazardous material during the excavation phase of a new building. This would have been impossible to know before hand, and as such, would not have been allowed in cost estimates or the budget. This example would require emergency environmental remediation before construction can proceed, leading to unforeseen expenses and project delays.

The History of Latent Conditions

It's hard to know what truly likes beneath the ground under out feet. Hence, the construction industry has always faced challenges with latent conditions as they generally always result in a delay, additional costs and some type of disputes over who is responsible for it - Project Owner or General Contractor? Over time, contract terms have evolved to better allocate risks associated with latent conditions, including detailed site investigation requirements and specific contractual provisions.

Causes of Latent Conditions

Latent conditions can arise from a variety of reasons:

• Inadequate Site Investigation: Insufficient or incomplete preliminary site assessments.
• Natural Variability: Natural variation in geological and environmental conditions that are difficult to detect through standard investigation methods.
• Historical Usage: Previous use of the site that has not been properly documented or disclosed.
• Change in Conditions: Conditions that have changed over time and were not present during initial investigations.
• Humans: Mostly, humans are the cause of a latent condition on a site but generally from an existance many moons ago.

Likelihood of Latent Conditions

The likelihood of encountering latent conditions varies significantly based on the geographical location, history of the site, and the extent of pre-construction site investigations. Areas with complex geological histories or previous industrial usage are at higher risk. For example, the likelihood of finding latent conditions for a construction project next to the Egyptian pyramids would be almost certain....or would it? 🤔

Consequence / Impact of Latent Conditions

The impact of latent conditions can range from minor adjustments to significant project overhauls, including substantial financial costs, delays in project timelines, and potential legal disputes. Addressing these conditions often requires additional design work, construction delays, and sometimes even litigation.

Latent Conditions Clauses in Construction Contracts

Latent condition clauses appear in Standard Form Contracts in Australian and North America, with contract authorities such as Standards Australia and AIA Contract Docs respectively. AIA Contract Docs clauses require General Contractors to report and possibly adjust contracts for unexpected 'site conditions' like latent conditions. Standards Australia's AS 4000-1997 includes 'latent condition' clauses that deal with this issue directly, mandating notifications and potential contract adjustments. It is important to read and understand your contract and how contamination may affect your project.

Mitigations and Treatments for Latent Conditions Risk

Effective mitigation and treatment strategies for latent conditions include:

• Site Investigations: Employ advanced techniques and thorough investigations to identify potential latent conditions before construction begins.
• Flexible Project Design: Design flexibility into the project to accommodate potential changes due to latent conditions.
• Risk Management Plans: Develop risk management plans that include strategies for dealing with latent conditions, such as contingency budgets and adaptable project schedules.
• Contractual Safeguards: Ensure that contracts clearly define the responsibilities and mechanisms for dealing with latent conditions, including detailed conditions and procedures for claiming additional time and costs.

Risk Management and Reporting of Latent Conditions

As we've seen above, there are alot of considerations when it comes to Risk Management of Latent Conditions. Implementing Risk Management and Reporting controls will make managing this risk easy, and ensure success of your Capital Project.

1. Risk Management Plan: Download a free Risk Management Plan Template and put a Risk Management process in place.
2. Risk Register: Download a manual Risk Register Template or use an automated Risk Register solution to track all risks, causes, consquences and mitigations.
3. Reporting: Create automated Risk Reports, Project Status Reports or Dashboards for communicating with stakeholders. If you need a free Report Template, you can find some examples here.

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