This article is an excerpt from Government Procurement, which is available for purchase.
In its July 2015 ruling in Bench in Brad Gould Trucking & Excavating Ltd. v. Bird Construction Co., the New Brunswick Court of Appeal reversed a November 2013 trial decision of the New Brunswick Court of Queen’s Bench that had previously found the provincial government liable for extra costs incurred by a contractor due to unforeseen soil conditions. The case dealt with the construction of the Saint John Law Courts building in Saint John, New Brunswick. While the trial court found that there were no negligent misrepresentations or omissions in the original tendering process, it held that this was irrelevant when determining extra costs for subsequently discovered unforeseen soil conditions. The trial court found that the province was responsible for paying for those additional costs since the contract provided for additional payment in the event of such unforeseen circumstances:
74 In its final written submissions, the Province expanded its reasons for why the claim should be dismissed. Essentially the Province submits that nothing in the Conquest report has been shown to be incorrect and the real issue is not the accuracy of the Conquest Report as it relates to the description of the bedrock, but rather the incorrect assumptions drawn by both Bird and Mr. Gould in relation to the methods in which the bedrock could be excavated – i.e. the extent of the bedrock that could be dug out with excavators as opposed to the portion that required the use of rock breakers.
75 I do not disagree with the Province’s submission that nothing in the Conquest Report has been shown to be incorrect. However, I do not agree that it is determinative of the claim or that it should result in Bird and Gould’s claim being dismissed. In my view, the correctness of an assumption is not the test. If it was, one might ask what need would there be for a change in soil conditions clause?
76 Clause 12(1)(a) covers a much broader range of conditions than suggested by the Province. In short and more specifically in the context of the present situation, it provides that Bird/Gould are not entitled to any additional payment on the contract due to a misunderstanding of any fact on their part unless the additional expense claimed is directly attributable to a substantial difference between the real soil conditions found on the site and the information relating to the soil conditions in the plans and specifications or other documents or material communicated to them by the Province for their use in preparing their tender or a reasonable assumption of fact based on that information.
77 I find that it was reasonable for Bird and Gould, based on the documentation, material and information communicated to them by the Province, including the information provided in the Conquest report, to assume that the vast majority, if not the entirety, of the bedrock excavation could be accomplished by the use of a mechanical excavator without the necessity of hydraulic rock breaking equipment, they were incorrect in that assumption and there was a substantial difference between their understanding of the soil conditions and the real situation as it existed on site which directly resulted in their incurring the substantial extra expense in removing the majority of the rock by the use of rock breakers.
The trial court therefore determined that both the prime and subcontractor were entitled to additional payments under the contact since the unforeseen soil conditions required significantly more work than was originally contemplated during the tendering process. However, the Court of Appeal disagreed and found that the contractors were not entitled to additional payments:
14 In order to engage the Change in Soil Conditions clause, there must first have been either a substantial difference between the information relating to soil conditions provided by the Province and the actual conditions encountered, or a substantial difference between the respondents’ reasonable assumptions of fact based on the soil conditions and the conditions encountered. The trial judge concluded, and I agree, that the information on soil conditions provided by the Province in the Conquest Report was not misleading. Specifically, the judge stated: “I do not disagree with the Province’s submission that nothing in the Conquest Report has been shown to be incorrect” (para. 75). It follows that for the clause to be triggered, the respondents must have made reasonable assumptions based on the soil conditions, which differed from that actually encountered at the site.
15 The trial judge framed the issue as being whether Bird/Gould were entitled to any additional payment on the contract due to a misunderstanding on their part based on “a reasonable assumption of fact” from the information communicated to them by the Province for their use in preparing their tender (para. 76). The trial judge found “it was reasonable for Bird and Gould, based on the documentation, material and information communicated to them by the Province, including the information provided in the Conquest Report, to assume that the vast majority, if not the entirety, of the bedrock excavation could be accomplished by the use of a mechanical excavator without the necessity of hydraulic rock breaking equipment” (para. 77). With respect, for the reasons I will outline below, I find this conclusion is the result of one or more palpable and overriding error(s).
16 I conclude that the respondents’ assumptions of what would be required to complete the contemplated work, based on the soil conditions contained in the Conquest Report, were not reasonable. In light of this conclusion, the condition precedent was not met, and the Change in Soil Conditions clause was not engaged. As a result, the Province is not liable to pay for extra work.
In support of its conclusion, the Court of Appeal noted that the contractors had the information required to reasonably anticipate the soil conditions that they encountered on the project:
21 I would also note here that the trial judge made no reference to the expert witnesses’ testimony regarding MPa values and their impact upon the “diggability” of the rock.
22 In summary, the Conquest Report described exactly what Gould encountered during excavation. Some rock could be removed with excavators, while other rock required hydraulic breaking; and, although blasting was considered, it was prohibited because of the proximity to other structures. The trial judge held, correctly in my view, that the Conquest Report, including the Methods and Means clause, was not misleading. Through minimal enquiry, Bird could have avoided its own error regarding the “diggability” of the bedrock.
The Court of Appeal found that the trial court’s failure to properly take the expert evidence regarding soil conditions into account undermined the validity of the trial court’s ruling:
29 What is significant for purposes of this appeal is that neither expert was challenged upon his statement that RQD factors should not be used to determine the strength or “diggability” of bedrock. The trial judge made no reference to the testimony of Mr. Whitford and Mr. Whitcomb regarding the inapplicability of RQD data to determining the strength of rock. Because Bird relied heavily upon RQD data in making its assumptions about which rock could be dug and which would require excavating by way of hydraulic breakers, the trial judge should have expressly dealt with the only evidence that addressed that issue.
The Court of Appeal rejected the assertion that it would have been cost prohibitive for bidders to conduct pre-bid due diligence to properly assess the project conditions disclosed in the province’s report:
35 The trial judge’s conclusion that potential costs prohibited Bird and Gould from informing themselves regarding the proper interpretation of the Conquest Report is, in my view, simply not supported by the evidence. There was no evidence the errors Bird, a large Canada-wide construction corporation, made in assessing the Conquest Report could only have been avoided by obtaining its own $15,000 geotechnical report. With respect, it is self-evident that a summary review by a geotechnical engineer or someone with experience in the field could have informed Bird about the meaning and impact of RQD and MPa data without the need for a full-blown investigation. In fact, the following exchange between Mr. Whitford and the Province’s counsel puts this whole issue of the cost of obtaining a “proper interpretation” of the Conquest Report in perspective:
Q: If Bird Construction had come to you and requested a review of the Conquest report and asked your comments on the method of excavation, what would you have charged them?
A: For Bird?
Q: For that kind of review?
A: Nothing.
Q: Why is that?
A: They’re basically a good client.
36 Thus, I find the trial judge erred in choosing to rely upon the potential cost of a full-blown geotechnical report to excuse Bird’s errors in interpreting the Report. That error, to the extent it was used to justify the reasonableness of the assumptions made by Bird and Gould about the soil conditions, was palpable and overriding.
The Court of Appeal was also critical of the change order cost-recovery strategy that was apparently employed by the low bidding contractors:
37 Here, I wish to add that the respondents aggressively advanced the position that any requirement for bidders to conduct their own soil investigation or inquiry would result in less competitive bidding and increased costs to the Province. I find such a position does not “square” with the fact that Gould initially offered to perform its sub-contract for $1.42 million, but was encouraged by Bird to reduce it to $1.25 million on Bird’s suggestion that the difference could be made up via “change orders”. I also note that, according to the evidence, the next highest bid for the earthwork component (that performed by Gould) was $1.37 million. While the implications of Bird’s suggestion that Gould might increase its revenue by means of “change orders” was not argued before us, I would simply observe that bidding based upon planned change orders does nothing to ensure bids are competitive.
The Court of Appeal therefore allowed the appeal and set aside the trial judgment award of extra costs to the contractors. As this case illustrates, scope change claims remain an inherent project risk that contributes significantly to project cost overruns. Purchasing institutions would be well served to ensure that they disclose all available material information since this puts them in a better position to defend against unreasonable extra cost claims encountered during project performance.
