By Bill Preston

You will find that the site conditions are different than the bid documents upon which you bid your stipulated work.  You feel you’re entitled to an extra, right?  No necessarily; it depends!  What to do?  Clearly, if your contract terms permit you to promptly give a Written Notice of a Claim for Extras and also entitle you to retain your right to have a dispute determined later, do so perfectly.  Otherwise, read on.  A recent Ontario case involving a Subcontract dispute which did not have these dispute/defer terms can help provide you with some answers.

In Asco Construction Ltd. v. Epoxy Solutions, Inc.,  Epoxy was awarded the concrete floor topping repair work for renovations to the Kingston Grand Theater.  Epoxy’s Bid Price was based upon both a sketch reporting the existing floor elevations as well as an Architect’s detailed spec’s of what finish Epoxy’s work had to achieve.  The problem was with the elevations on the sketch; in places they were out as much as 2 inches, and all of the discrepancies would reasonably increase Epoxy’s costs by as much as 45%!  Who bears the risk of sucking up these costs?  Asco, the general contractor, took two positions.  Firstly, it weaseled by saying that if later it was determined Epoxy’s costs increased, it would plead to the owner’s consultant for payment of these costs, and secondly, that Epoxy had no claim for extras because it ought to have known when it bid the job that the elevations on the sketch were approximate and thus Epoxy ought to have included this risk in its Bid Price.  The owner’s position was simple: the bid documents required Asco, as the general contractor, to do whatever elevation surveys were needed, while the court determined that Asco/Epoxy subcontract terms had not passed this obligation on down to Epoxy.  Finally, Epoxy took the position that it could not have been aware that the sketch elevations were significantly different from the actual.  But unfortunately, Epoxy did not have in its subcontract terms the below usaul terms found in the CCA/CCDC Standard Forms:

8.1.3    If a dispute is not resolved promptly, the Contractor shall give instructions for the proper performance of the Work to prevent delays pending settlement of the dispute. The Subcontractor shall act immediately according to such instructions.

8.3.1   It is agreed that no act by either party shall be construed as a renunciation or waiver of any rights or recourses, provided the party has given the Notices in Writing required.

Thus, Epoxy refused to start its Work until Asco either prepared the floor surface to near the elevations on the sketch drawings, or agreed to pay an extra for Epoxy’s increased costs.  Asco did neither.  Rather, it tried to persuade Epoxy to start its Work by using words (often heard on other construction projects) like:

“You must start .. if later it is found that more costs are required, it will be dealt with at that time.” 

“I agree with you that there is not sufficient information supplied by the sketch; we will later refer the matter to the Consultant.”

“You are one month behind schedule.  Dumping this on us … being a month late … kind of unprofessional joke and if you do not meet and solve this with architect’s approval … I will find a new subcontractor for the job.  I have no more patience with you.”

Eventually, Asco’s weaselling did not entice Epoxy to start performance of its Work, and thus Asco terminated Epoxy and hired another for costs above Epoxy’s Bid Price.

Asco sued Epoxy for both its additional costs as well as for impact costs which it incurred because Epoxy delayed the Project’s completion.  In turn, Epoxy counterclaimed for lost profits because Asco had wrongly terminated its Subcontract. Epoxy won hands-down!  Asco was denied its claim while Epoxy was awarded  lost profit on the basis that Asco wrongfully terminated the Subcontract!  Here’s the Judge’s reasoning:

1. Where there is a Subcontract bid process, a Prime Contractor stands in the same position and has the same obligations toward a subcontractor as apply to an Owner tendering the Prime Contract.
2. Thus, in  the absence of a warning announcing the unreliablility of the sketch , or a well drafted weasel clause in the Bid Documents, Asco had a  duty to reasonably make available to Epoxy the actual floor elevations, or at least elevations sufficiently close as to permit Epoxy to do its Work without a Change Order.
3. And, if it is here, Epoxy before starting Work discovers that the elevations are so far off as to substantially change its costing and/or schedule, Epoxy must not start the Work because to do so is an acceptance of the surface without a change in either the price or schedule.
4. Rather, Epoxy must get a Change Order or a Change Directive; Judges won’t require that the price of the Change Order be certain, because they will imply a reasonable market value, but Asco must agree that Epoxy is entitled to an extra payment by it, not the Consultant nor the Owner for whom Asco does not have the authority to commit their credit.
5. And, in this case, Asco never agreed.
6. Thus, if the Subcontract had included the usual dispute/defer CCA/CCDC standard terms, Epoxy must perfectly give Asco a Written Notice and defer termination of it claim until later.
7. But here, because the Subcontract did not have these terms, Epoxy was in a tough spot.  Does it start work and hope that someone will later make a sympathetic extra payment?
8. Or, does it take the chance that later a Judge will decide either that Epoxy ought to have known that the sketches elevations were only unreliable estimates which Epoxy should have either verified before bidding, or priced in its Bid Price, or the elevation variances were not “substantial to a degree changing the character of Epoxy’s Work?
9. Here the Court had no trouble finding that a two inch variance and a cost change of 45% is “substantial. As well, the Court did not expect Epoxy to be aware of this variance at the time of its take off because the actual floor surface was not viewable given the demolition debris and scaffolding covering the floor, and the fact that usually in the industry bidders do not invest in the costs of an elevation survey until they have been awarded the Work.
10. Thus, Epoxy was always entitled to access to the Project’s Site once Asco brought the As-Built Floor Elevations close to those reported in the sketch which was part of the Bid Documents.
11. And, for this reason, Asco’s termination was wrongful, entitling Epoxy to lost profits and Court costs.

Conclusion

Here’s what I take from this case:

• The Bid Caller should make sure that its Bid Documents and the eventual Construction Documents call for pretty much the same Work, and that any difference can be solved by a no credit Site Instruction.
• The Bid Caller has a duty to disclose all known material circumstances or to clearly warn the bidder to investigate and take the risks.
• While, the Bidder should exhaust its opportunity to investigate and seek clarifications or addenda so as to be able to reasonably take off a Bid Price from the Bid Documents.
• The Bidder should assure that the spec’d Contract B (the Construction Contract) has the usual CCDC/CCA dispute and deferral terms so that it can start and complete what the Bid Caller wants, while continuing to be entitled to a fair award on its Extras claims.
• Otherwise, if the Construction Contract spec’d in the Bid Documents does not have these usual terms, the Bidder runs the risk of having to refuse to work and later having to pay the extra expenses of a competitor to do its Work because it was unable to satisfy the Judge that there was a substantial difference between the Bid Documents and the Construction Documents to the degree causing “a change to the very character of the Bidder’s Work”.