By Robert Kennaley
McLauchlin & Associates
Consider the following hypothetical situation: A contractor is retained to erect a box-shaped building for an owner on lands that are now part of a subdivision. The developer of the subdivision previously performed the site works for the lands, which were recently purchased by the present owner. As part of those site works (and is the case with many a subdivision project), the lands had been brought to the proper elevation and compaction through a ‘cut and fill’ job: organic materials (supposedly) were stripped away down to suitable subsoils, and engineered fill was brought in and compacted to fill voids and low areas.
Fill can be engineered in the sense that its quality and characteristics, including moisture content, are approved by a geotechnical, or civil engineer. They also approve its placement and compaction, generally through what is known as ‘proctor density’ analysis.
The building is designed with no basement, to be supported by foundations and piers with a slab on grade. As the lands have already been prepared for construction purposes by the developer, only minimal excavation is anticipated. The contractor is only asked to price the excavation for the foundations and piers. Beyond that, the contractor is requested to include in his tender form a unit price for additional excavation. The number submitted by the excavator is higher than one would expect, on a unit rate basis, for the full-depth bulk excavation of a building footprint. The owner does not object, as he anticipates that only minimal additional excavation might be needed. This is taken into account in selecting a bidder on the bid-price for the contract.
Unfortunately (you see where this is going), when the contractor commenced excavation for footings and piers, it was determined that the underlying materials were not suitable to support the structure, and that, indeed, a full-depth excavation and replacement of engineered fill would be required.
A CCDC 2 1994 contract was in place. The contract documents were not as clear as they could be about whether the unit price set out in the tender form should apply to the change. The owner’s view was that it would not, and he accordingly issued a Change Directive under the contract, directing the contractor to perform the required earthworks and requesting that the contractor provide proposed pricing in relation to that change. The contractor balked and suggested the proposed price would be the only, and previously-agreed-upon price on the tender form. The owner’s view was that the tender form unit price was intended to cover smaller, localized excavation extras, citing he was not bound to accept it.
The CCDC 2 standard form allows the owner to insist that the contractor commence work on a change, notwithstanding that an agreement on price has not been reached. The owner must ensure that he has followed the contract, through Change Directives and Notices under the dispute settling mechanism sections of the contract.
The contractor submitted his proposal for pricing and started the Change Directive work. The owner started tracking quantities and there was some back and forth in relation to pricing, although no Change Order (which would confirm the amount to be paid for the work) was issued. Eventually, the contractor’s work on the removal began to slow down and, ultimately, the contractor’s excavation subtrade walked off site. Having received no payment for the work done to date, the subtrade was concerned that he might not get paid. The subtrade’s position was that, while the contractor might be required to do the work while the pricing issue was worked out, that was not a requirement of his subcontract. The project then ground to a halt.
There are, of course, lots of issues here. First, the underlying dispute is over how much the contractor should be paid for the extra. Given the confusion over the tender and contract documents, this may not be an easy question to answer. Reference will have to be made to all of the contract’s provisions, including the priorities clause, establishing which clause governs over others in the event of a conflict. This is another example of how important it is to make sure the tender and contract documents are as clear as possible.
In the short run, however, the owner’s immediate concern is how do we get the contractor back to work? The contract does allow the owner to insist that the contractor perform the change in the work, before an agreement on price is settled. If the contractor does not, under this form of contract the owner can declare the contractor in default and on five days notice terminate the contract and/or take over the work. This, however, does not solve the owner’s problems with respect to delay. Also, the owner should be concerned that it will always cost more to bring in a completion contractor than it will for the original contractor to complete the work. In addition, the owner should be concerned that, if the matter proceeds to litigation, costs will incur, and no party is ever made whole in that regard.
The contractor faces a further dilemma. In a way, he is caught between a rock and a hard place. While his contract requires him to keep working, he did not insist that his subcontract with the excavator incorporate the terms of his contract with the owner. In this circumstance, the contractor is learning the hard way how important it is to ensure that his subcontractors are working under the same terms and conditions as he is, so that there is no gap in that regard.
The best solution to this type of problem is to settle the dispute as quickly as possible, without litigation. Often, the parties agree to a payment by the owner of a certain amount, which will be paid through to the subcontractor and credited as against the Change Directive work. In this way, hopefully, the project continues while the parties work out their problems. The worst-case scenario involves the contractor and subcontractor digging in their heels such that the owner has no choice but to terminate. The lawyers get involved and everyone goes to trial in four to seven years.
Robert Kennaley practices construction law in Toronto and Simcoe. He speaks and writes regularly across North America. He can be reached for comment at 416- 368-2522, or at kennaley@mclauchlin.ca. This material is for information purposes and is not intended to provide legal advice in relation to any particular fact situation. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.
