Delay Claims

 By Bill Preston.

 

Today our Construction Industry is pressured by two overwhelming dynamics:  the methods of construction available to contractors are becoming more and more innovative, cutting edge, and specialized; while, owners “need” the design and construction phases of their project to be as quick and as cost effective as heavenly possible.  The confluence of these two dynamics often manifests in the impact costs of a delay from the initial schedule, which are becoming more and more expensive.  Still, the owner wants to keep the original completion date while also pushing back against paying money for these impact costs.  So, how is the law now fairly allocating these delay costs?  I propose to review two recent Ontario cases to give you some insight.

In Bre-ex v. Hamilton, the City in 2001 issued an Invitation to pre-qualified bidders to install a drainage system and construct a pumping station at its Glanbrook Landfill site for the purpose of stemming the leaking of contaminated water beyond the Landfill’s boundaries.  Included among the pre-qualified bidders was the operator of the landfill, Canadian Waste Services. Eventually the project was awarded to Bre-ex and it eventually completed a good project. But, Bre-ex’s delay claim remained in dispute until the fall of 2011 (11 years!), when the Court awarded Bre-ex $850,860.00 + court costs. 

The facts in this Bre-ex case were a bit different:

  •          The Contract Documents included the Bid Documents, unlike the standard CCDC 18;
  • Thus, the Construction Contract included a Bid Term not only requiring that the bidder describe its proposed method of work, but also prescribed:

Under no circumstances shall any of the investigations proceed prior to acceptance of the proposed methodology.

  •           This is also unlike CCDC 18 which provides:

The consultant will not be responsible for and will not have control, charge, or supervision of construction means, methods …or procedures, …required in connection with the Work…

While, the Bid Documents as well provided:

The City will require that Work commence immediately following award of the Contract, and will require the Work to be completed approximately the end of July, 2002.

Bre-ex proposed an ingenious methodology for laying the drainage pipe up to 16 meters below the surface of the existing garbage mound, and bid $3.2mil, roughly 43% of the next lowest bid being that by the existing landfill operator, Canadian Waste.  The advantage of Bre-ex’s bid was technical innovation. While the others proposed an open trench system involving the costs of dewatering, rodent/seagull control, and odour management, Bre-ex proposed using stacked trench boxes and hydraulic sleeve and rollers guided from the surface by laser technology. No open trench; no significant odour; minimal dewatering; and no rodent/seagull costs!  City Council loved the price and some of its knowledgeable staff recommended this proposed method.  But others in City Hall as well as the City’s outside consultant were not convinced. On December 11, 2001, City Council awarded the project to Bre-ex.  But, the doubters stalled delivery of the award letter to Bre-ex until Jan. 24th and obfuscated the Construction Contract’s terms such that it was not signed until April the 12th! Until then, Bre-ex did not start installing the drainage pipe, because it feared that the doubters might persuade the City to include a Contract Term giving the City a Right of Termination and paying only the value to date for Bre-ex’s work.  Thus, Bre-ex lost the opportunity of beneficial winter conditions from January 6th to April 12th

Here’s how the Court arrived at its award of $850,866.00 for Bre-ex’s delay claim:

  •   As is so frequent for projects today, the Construction Contract did not spec a specific schedule, except start immediately and complete approximately by the end of July.  
  • Thus, given there was no precise schedule, the Court accepted its mandate to determine a reasonable fair schedule in the circumstances of the project, the owners expectations, and the work expected of the Contractor.
  • This measure of reasonableness does not necessarily depend on the convenience of the Contractor.
  • Here, everyone was aware that Bre-ex’s method preferred winter conditions, thus the Court determined that it was reasonable that it ought    to have started work on January 6th.
  •  The City’s procrastinations concerning the terms of the Construction Contract were also found to be not reasonable, and accordingly the delay until the April 12th signing was caused solely by the City. 
  •  Thus, though the City agreed to extend the schedule to permit Bre-ex to perform during the Winter of 2002-03, Bre-ex was entitled to:
    1. Lost business opportunity reflecting that it couldn’t seek other jobs during the period of doubt and lost benefit of the better bid pricing for work done in 2002‑03;
    2. Increased expenses for rental equipment, fuel, and labour costs in 2002-03;  and,
    3. Financing costs to cash flow the extended schedule.

At the bottom line, the City paid $4.8mil for the late project it could have timely obtained for $3.2mil!  Owners don’t like that.  And thus some try to avoid paying money on delay claims by inserting weasel clauses into the Contract Terms.  The standard CCDC 18 is pretty straightforward:

6.5.3      If the contractor is delayed by… any other cause beyond the Contractor’s control… The Contractor shall not be entitled to payment for costs incurred by such delays unless such delays result from actions by the Owner.

But, other Owners prefer subtle terms like the following:

 32.5  Any delay resulting in increased cost which is the result of improperly scheduled Work shall be borne by the party responsible therefore.

32.6  Delays in the Work shall be resolved in accordance with GC56

What a Contractor will find if he reads further is that GC56 simply gives the Consultant a discretion to extend the remaining contract schedule; no mention is made of paying costs!

What will the law do?  The Ontario case of Dean Construction v. City of Toronto gives us an insight. The City of Toronto issued an Invitation to Bid for construction of the Harbourfont Fire Station.  This Invitation and the Construction Contract adopted soils reports which were misleadingly inaccurate.  Dean eventually claimed for its delay costs necessitated by the unexpected actual site conditions.  In turn, the City sought to hide behind the below weasel clause which it drafted into the Construction Contract:

In the event of delay caused by… any act of the… Corporation,… as, in the opinion of the Commissioner, the Contractor cannot reasonably be held responsible… the Commissioner may allow such additional time for completion as he may deem fair and reasonable.

The Court demolished the efficacy of the City’s attempt as follows:

I find that the … exclusionary clauses relied upon by Toronto … have no effect with respect to Dean’s claims …  These “exclusionary provision” are not effective … on all legal remedies, …  The clauses did not specifically and unambiguously exclude … legal remedies, …  Such broad general provisions granting an arbitrary power to the Commissioner must be drafted in the clearest and most precise language …

 

CONCLUSION 

My reading of these cases persuades:

1.       Owners should shy from Bid Invitation terms which get into choosing among the various methods of construction proposed by the bidders;

2.        The spec writer should prescribe only the Owner’s ultimate designed purpose together with the requisite contract security to transfer the risks of methodology to the surety industry.

3.        Also, use the fair and clear language of the standard CCDC terms to deal with delay,

4.        Rather than relying upon the hope that the Court will uphold the Owner’s weasel clauses as “perfect”.

5.        Judges will make every effort to wiggle around weasel clauses.

 

Tim Hawryluk appointed Inquest Coroner

Tim Hawryluk has been appointed as an Inquest Coroner for the Province of Saskatchewan.  As a Provincial Coroner, Tim will facilitate Coroner’s Inquests throughout the province in relation to deaths that occur in correctional institutions, in the custody or as a result of the actions of law enforcement, or in cases of sudden, unexpected or unnatural deaths.

Congratulations Tim.

Month: April 2012