This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
The Newfoundland and Labrador Court of Appeal’s 2009 split decision in Welcon (1976) Ltd. v. South River (Town) shows how uncertainties over project conditions can create protracted legal battles with uncertain outcomes. The case dealt with an extra cost claim for unforeseen work made by a contractor on a municipal water and sewage project. The contractor claimed that the additional work was created by unexpectedly adverse soil conditions. The trial took 50 days, during which 29 witnesses were called to testify in order to determine whether the contractor had encountered “extraordinary conditions” that entitled the extra payment. Ultimately, after considering the detailed evidence, the trial court ruled against the contractor:
Reviewing the evidence regarding the soil conditions, I am satisfied on balance that the soil conditions encountered at South River should have been expected. I recognize that Mr. White, the principal of Welcon, and those employed with him, state that the conditions were severe, however, their evidence has to be viewed with the reality of the fact that they have an interest in the outcome. I am also satisfied that Welcon did little or nothing to prevent water from contaminating the soil, as well as failing to segregate the wet soil from the dry.
The evidence of the experts, Paul Green, Calvin Miles, Leo Brown, Sean Kavanagh, and Thomas Kendall have satisfied me that the glacial till encountered on this project is typical of the glacial till found on the whole of the Avalon Peninsula. In that regard there should have been no surprise for the contractor when he encountered some poor soil conditions after the soil was exposed to moisture. The risk of adverse soil conditions rests with the contractor. Bruce Butler (1974) Ltd. v. Bonavista Peninsula Interfaith Senior Citizens’ Foundation et al. (1989), 83 Nfld. & P.E.I.R. 318, 260 APR 318. I am also satisfied that because of the optimum moisture content of the soil it had to be carefully handled in order to be reused. In that regard, I am satisfied the plaintiff did not take adequate precautions to protect the soil from moisture. In relation to Mr. Neville’s testimony, I accept the fact that he says contaminated glacial till is difficult to work with, but I reject his evidence that the circumstances here were extraordinary. I find that Mr. Neville’s opinion is based on the fact that most of the project was affected by contaminated soil. The reality is that only a portion was affected. Regarding the soil conditions throughout the project, I accept the evidence from Sean Kavanagh and Thomas Kendall that only a small portion of the project was affected by poor soil conditions and that would not be “extraordinary” considering the makeup of the soil not only for South River, but for the whole of the Avalon Peninsula.
However, the 50-day trial did not put the matter to rest. The contractor appealed to the Newfoundland and Labrador Court of Appeal. The majority of the Court of Appeal agreed with the trial decision. However, the third judge disagreed, finding that the trial court failed to properly interpret the contract terms. In a lengthy dissent, the minority judge maintained that the contractor should have been awarded damages from both the municipality and the municipality’s engineer.
As this case study indicates, to reduce project risks, purchasers would be wise to proactively plan for an orderly disclosure process and confirm which party is responsible for inspecting and bearing the cost of unforeseen project conditions. Win or lose, leaving these material issues to be retroactively resolved through litigation can be a costly and time-consuming alternative to due diligence in the pre-award stage of the tendering process.
