The water entering the excavated area is definately the problem. Either find a way to dam it off, or wait until it dries up. Generally, if we hit large areas of wet subsoil, we leave for a few days to allow it to dry on it's own. Small areas of "mushy" gravel we dig out by hand (including any soft soil) & replace with dry gravel. Don't cover the wet gravel base, it's not worth it to save a few days time.