This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its April 2013 decision in North Pacific Road Builders Ltd. v. Aecom Canada Ltd., the Saskatchewan Court of Queen’s Bench found the defendant engineers liable for $2 million in additional project costs incurred by the plaintiff contractor due to unforeseen site conditions. The case dealt with the construction of a 57-kilometre ore haul road in northern Saskatchewan. Aecom Canada Ltd. prepared the tender call specifications and technical information on behalf of the owner. The plaintiff, North Pacific Road Builders Ltd., was the bidder that was awarded the project pursuant to that tendering process.
As the Court summarized in its evidentiary findings, while the first two phases of the project were performed with relatively few problems, North Pacific encountered unforeseen difficulties in completing the McArthur River haul road, the third and final phase of the project, due to problematic soil conditions. Those soil conditions caused an inordinate amount of damage to North Pacific’s construction equipment and resulted in additional maintenance costs:
Once construction started on the McArthur River haul road, approximately the middle of June, Mr. Pitts was on site from then until demobilization in the first week of December 1997. He was the equipment supervisor and liaised regularly with the construction foreman on what was required for the day. He stated he was all over the site every day and mechanics were on site to do repairs to the machinery. He stated the equipment is always in good shape when it is shipped to a job site and this was so when the equipment was shipped to Key Lake. He stated the repairs on Contract No. 259 south of the Wheeler River were comparable to repairs on most jobs. The ground was sandy and comparable to what he had been exposed to in his earlier attendances at Key Lake.
North of the Wheeler River the soil changed to being what he described as “rocky stuff” and the dirt changed to rocky stuff that he described as “concrete-like”. South of the Wheeler River they had used primarily scrapers in construction. North of the Wheeler River they had to bring in loaders, big rock trucks, and some excavators. The rockier conditions were a lot tougher on equipment. He stated they had the floor of a scraper ripped out, broke pins on loaders, bent rock guards on excavators, and bent hydraulic tank plates. It was tough ground to rip and they broke the odd ripper shank, and went through a lot of teeth on the rippers. Mr. Pitts brought in four or five additional personnel to keep up with the repairs required.
These unforeseen conditions caused unexpected project delays, which ultimately resulted in additional mobilization costs since construction had to be extended over the winter and into the next construction season. Northern Pacific claimed $2 million in additional costs against Aecom, alleging that the engineers failed to disclose all of the material information in their possession that would have assisted it in estimating the actual costs of the project when preparing its bid.
In particular, Northern Pacific took issue with the failure of UMA (a predecessor company that was subsequently purchased by Aecom) to disclose the aerial photo maps that were relied on by UMA engineers to determine the road route. Northern Pacific argued that those maps were highly relevant since they would have provided material information regarding the types of soil conditions that could be encountered in the remote area.
It also maintained that the failure to disclose the maps was particularly prejudicial since the project was tendering in the winter months when site visits to directly confirm working conditions were not possible:
The position of the plaintiff is that UMA had relied extensively on the terrain mapping in the Mollard reports in its preliminary design of the haul road, to locate potential gravel deposits, and to provide both fact and opinion to various regulators from whom permission was required before construction of the road could proceed.
UMA knew the terrain information disclosed in the Mollard reports north of the Wheeler River was more difficult terrain than south of the river, as indicated in its 1994 report referred to at para. 10 above wherein it stated that the first 25 kilometres would be constructed mainly in glaciofluvial material while the remainder of the project would be drumlinized morainal material.
The plaintiff states the effect of UMA not disclosing this terrain information was compounded by the inclusion of the soil samples on the plans and profiles submitted in the tender documents (Exhibits P-9, P-10 and P-11) which indicated various grades of sand only throughout the length of the road, and did not disclose the information on the composition of the sample from which the sand was obtained, which composition included a substantial percentage of rock, or the depth of the digging to obtain the sample, which varied in accordance with whether or not “refusal” was encountered, which information had been recorded by its survey crews. The allegation is that the soil sample information was an express misrepresentation, and the failure to disclose the difference in terrain was misrepresentation by material omission.
UMA knew that terrain information would be important to bidders in preparing their bid. While the Mollard reports advised against making the terrain information part of the tender specifications, it informed how the information might be made available to contractors, which indicates Mr. Mollard thought it was worthwhile making the information available to bidders. All of the expert witnesses agree the Mollard terrain information was reasonably reliable information. Mr. Coquet never did explain why he stated “we” never disclose terrain information.
The Court agreed with Northern Pacific, finding that the engineers had breached the disclosure duty they owed to bidders by failing to provide the terrain mapping information that they had in their possession:
I accept Mr. Woodcock’s evidence that not disclosing the Mollard terrain mapping information to bidders fell below the standard of what would be expected of a reasonable engineer in the factual situation faced by UMA. At the time of tender, 37 kilometres of the route was inaccessible to them, and was not going to be accessible to bidders. UMA had relied on the Mollard reports for preliminary design of the route, and used the Mollard terrain information to inform the regulatory authorities in its 1994 report (Exhibit P-2, Tab 25). In this report, it specifically noted the difference in terrain material south of the Wheeler River from what existed north of the Wheeler River based on the Mollard reports, as evidenced by the terrain description in that report quoted in para. 10 above.
Neither Mr. Salansky, nor Mr. King, supported such a position. Neither of them was specifically asked whether they would have disclosed the terrain information in this factual situation, but indirectly they answered the question by agreeing that a bidder would want as much geotechnical information as they could obtain on an excavation contract. I conclude that UMA’s failure to disclose the Mollard terrain mapping information to bidders, which was the only information on the terrain to be encountered along the route that was available, and was information that UMA had relied on extensively itself, fell below the standard of a reasonable and prudent engineer and resulted in a breach of its duty of care to bidders on the project, including the plaintiff.
After finding that the engineers breached their duty of care by failing to disclose information that was material to bid cost calculations, the Court ordered Aecom to pay Northern Pacific $2 million in damages for Northern Pacific’s unforeseen extra project costs. As this case illustrates, external engineers retained by an owner to assist in a tendering process owe a direct duty of care to bidders to ensure that all material information in their control is disclosed to bidders.
