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Planning for the Unexpected

Contractual clauses to help limit the impacts of the Discovery of Historical Structures or Items during Construction

Over the last sixty years, significant legislation has been enacted with the underlying goal of preserving our historic heritage. Following the passage of the National Historic Preservation Act in 1966 at the federal level, many states and tribes enacted state and tribal level legislation to create the position of State Historic Preservation Officer (SHPO) or the Tribal Historic Preservation Officer (THPO) as contemplated by NHPA. The SHPO or THPO is responsible for administering the state or tribal level program and coordinating with a number of federal agencies consistent with the responsibilities established under NHPA. While many potential statutes are implicated by discovery of historical items, this post focuses on one portion of the NHPA.

One of the significant portions of NHPA is the review contemplated by Section 106 of NHPA (often referred to as a Section 106 review). This review is often part of the planning process on any federal project (typically during the reviews required by the National Environmental Protection Act), but it is also required on any project which receives federal funding – meaning that a project funded in part by federal grants or federal loans will also need to comply with the Section 106 requirement.

When triggered, a Section 106 review is a requirement during the planning process, and the related regulations are focused on evaluation, coordination, and planning during that phase. In very broad terms, Section 106 contemplates identification of historic properties, analysis of whether they will be adversely effected by the project, and consideration of alternatives or other methods of avoiding, minimizing, or mitigating any adverse effect.

Section 106 contains several key definitions that expand the review process significantly. The first is Section 106’s broad reach. The historic properties analyzed under Section 106 extend beyond just those historic structures that are included on the National Register they also incorporate those that are eligible for inclusion. One of the first steps (after identification) is analysis. If a structure is deemed eligible, even if it is not a “recognized” historic structure, the potential for adverse effects must be evaluated. Of next significance is the scope of adverse effect, which includes more than just the obvious adverse effect of demolition, but also extends to anything that would “diminish the integrity of the Property’s location, design, setting, materials, workmanship, feeling, or association.” This means that alterations to the surrounding property – including the viewshed or the audio experience – can create an adverse effect, even if the structure itself is not touched.

If no finding of adverse effect is issued by the agency official, and no objection is received within the requisite timeframes, the project can move forward. If the agency official determines there is an adverse effect, then continued consultation is necessary to consider alternatives or modifications that can “avoid, minimize, or mitigate” the adverse effects.

Historical Brick Wall.When adverse effects are recognized during the planning process, they are easier to manage. Although they may significantly alter the project, considering these evaluations during the planning process maximizes the options available. Presuming a Memorandum of Agreement (or a programmatic agreement when discovery is contemplated) is reached between the various agencies, the agreement(s) may address the process if additional items are discovered during the project. These provisions help mitigate the risks associated with discovery during the project.

However, when the initial finding is “no adverse effect,” discovery of historic items during the project may cause significant delay. While the regulations require prompt notice, evaluation and consultation, there is not a set time frame for carrying out “appropriate action” – likely in part because the appropriate action can vary significantly.

Construction contracts can be drafted with this risk in mind to try to allocate and mitigate the risk between the parties. For example:

1. Change provisions. Consider the implications of needing to alter, reduce, or increase the scope of work. While standard construction contracts contain provisions allowing the Owner to alter the work, these change provisions typically consider in-scope changes. While constructing in a different manner may fall within this parameter, conducting an extensive survey for the purpose of mitigating through documentation may not be. Funding may be available for certain kinds of activities but not for others. Change order clauses can be drafted to restrict or increase the Owner’s ability to direct changes. They can also be used to establish pricing, which can help define risk. For example, overhead and profit rates can be agreed to for both deductive and additive changes. Unit pricing can be established for either type of change. Pricing mechanisms can also be established – defining, expanding, or limiting what can be recovered.

2. Suspension clause. Consider the likely damages that would flow from a discovery and who should bear the risk of discovery. A suspension of work clause can be instrumental in this. Typically, a suspension of work clause allows the project owner to suspend the work (either indefinitely or up to a certain period of time) without paying damages. The remedy under the suspension clause is an extension of contract time at the end of the project. Unless addressed elsewhere in the contract, this clause can allocate the risk of increased costs associated with material escalation, rising prices of fuel, and increased labor costs.

3. Force majeure. Consider the implications of a force majeure clause. This clause often excuses delays caused by acts outside the parties’ control. It may define or limit the remedy in that case. If applicable, it may assist in mitigating or controlling the risk to both parties for a hidden discovery.

4. Coordination. Consider the potential need to have multiple parties working on-site. If mitigation is handled by a separate contractor, coordinating that work with the original contractor’s work may be significant. Clauses can be included in the initial contract that provide for coordination, cooperation and consultation to assist in minimizing any impacts caused by having multiple parties working within the same area.

5. Termination for convenience. Consider the potential for cancelling the project. A termination for convenience clause can allow termination without fault. From the Owner’s perspective, if the cost of addressing the adverse effects is outside its budget, being able to terminate the construction contract (in whole or in part) may be key. From the contractor’s perspective, being able to terminate the contract if it is suspended for too long may also be an important tool in managing risk. The termination clause itself can also limit or establish the respective rights and remedies in the event of a termination for convenience – providing certainty in assessing the potential risks and damages.

6. Differing site conditions. Consider incorporating a differing site condition clause. These clauses typically require the contractor to stop work if a hidden or unforeseen condition is encountered prior to disturbing it, and then await the owner’s direction. This can be significant in avoiding damage to a potentially historic structure which might then require additional mitigation, and preserve work to allow creativity in any consultation relating to adverse effects.

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We regularly update clients about changes in real estate law and on industry trends. This includes briefing clients on legislative proposals in the federal tax, housing and other legal areas affecting their businesses. Staying current enables you to anticipate and prevent legal problems as well as capitalize on new developments.
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