This article is an extract from the 5th edition of Government Procurement.
In its May 2022 decision in Maxim Excavating Ltd v. Peace Regional Waste Management Company, the Court of Queen’s Bench of Alberta awarded extra payment in the amount of $300,000 plus interest to a contractor after determining that the owner and the owner’s engineer were unreasonable in refusing to adjust the project schedule and make additional payments for out-of-scope work. The dispute dealt with a construction contract for three industrial waste cells for Peace Regional Waste Management Company (Peace Regional) awarded to Maxim Excavating Ltd (Maxim) following a tendering process. Peace Regional retained the services of Omni-McCann Consultants Ltd. (OMC) to act as the project engineers, who in turn assigned engineer Royce Sather as its project representative. Peace Regional withheld payments due to project delays. Maxim brought a claim for those outstanding payments, as well as a claim for excess payments for additional out-of-scope work performed on the project.
The Court noted that the contract documents had been “cobbled together” by the project engineer and had clearly not been proofread, which the engineer blamed on his administrative staff:
Upon reviewing the Contract, it is not easy to overlook the many confusing and complicated issues that arise. The evidence is that Mr. Sather, as the engineer on the project, “cobbled” the Contract together. I use that term intentionally as it appears that each component for the Contract is based on a precedent of one sort or another and cobbled together for the purposes of this particular project. This is problematic and becomes more so when the numbering in the Contract was clearly not proofread and there are several instances where cross references to one subsection or another are clearly wrong. Mr. Sather blames this issue on his administrative staff.
The Court also raised concerns over the engineer’s testimony, expressing difficulty in finding the witness credible or reliable (emphasis part of the original decision):
However, I have quite a bit of difficulty with Mr. Sather’s evidence. He was qualified as an expert at trial as a witness with expertise involved in the events underlying the litigation but who is not a litigant: see Kon Constructions Ltd v Terranova Developments Ltd, 2015 ABCA 249 at para 35. He was qualified based on his engineering qualifications as set out in his licence.
During his testimony, Mr. Sather often indicated that he did not remember but then proceeded to say what he thought was being looked for. He would indicate he had no specific recollection but then add something like, “One of two things would have happened”. He frequently used what I would call “wiggle-room” language such as “I take those to mean…”, “I presume they would be…”, and “I assume…” At times it appeared that Mr. Sather was guessing. In fact, at one point in cross examination, Mr. Sather was challenged that he was speculating, and he agreed. Often, the smallest of concessions had to be pulled out of him – like the relative amount of rain between the summer and fall. He would concede nothing. I found that Mr. Sather was deeply entrenched in his view of events and committed to delivering to the Court whatever information best supported his particular interest. I have difficulty finding Mr. Sather credible or reliable.
As the Court noted, the project engineer responsible for contract administration has an obligation to act in good faith and to be fair and reasonable to both the owner and the contractor:
Mr. Sather was the engineer responsible for contract administration and the project. He assumed that duty through the Contract and through his professional engineering ethical standards. He had an obligation to administer the Contract in a way that was fair and reasonable to both sides of the Contract.
There is no doubt that in a construction contract where an owner has expressly given power or discretion over a matter to its engineer there is an implied duty on that engineer to act in good faith when exercising that power or discretion: Golden Hill Ventures Ltd v Kemess Mines Inc, 2002 BCSC 1460 at paras 662- 665 (Golden Hill). This duty of good faith is fundamental to every construction contract including this one.
However, the Court ruled that the engineer made the entire project more difficult by improperly siding with Peace Regional’s unreasonable denial of payments to Maxim:
The evidence establishes that Mr. Sather’s loyalties lay squarely with those of Peace Regional in the administration of the Contract. He seemed incapable of considering Maxim’s side on any issue that arose. As identified by Maxim, a good example is where OMC approved payment, but Peace Regional did not want to pay so as a result Maxim was not paid. Once OMC determined that payment was appropriate OMC should have done whatever it could to have payment made. It was OMC’s responsibility “to enforce…faithful performance by both parties”.
The failure of OMC, through Mr. Sather, to act for the benefit of the project as a whole made the entire construction process much more difficult as many of the Contract provisions depend on the project engineer acting in good faith when determining what is reasonable in the circumstances.
While Peace Regional argued that Maxim failed to provide proper notice under the contract terms for its delay claims, the Court noted that Peace Regional’s project engineer also failed to strictly follow the contract terms. As the Court stated, once one party fails to strictly comply with a contract, both parties should be granted leniency in strictly complying with those contractual terms:
In the circumstances of this case, I am concerned that Peace Regional (more specifically its engineer) routinely failed to comply with the Contract provisions and comes to this Court to insist the terms of the Contract be strictly applied to Maxim. It cannot have been the intention of the parties that Peace Regional can simply not comply with their own requirements under the Contract and insist on strict compliance by Maxim. For example, OMC repeatedly failed to deliver the notices of the site occupancy reports to the proper location or in a timely manner. The evidence establishes that site occupancy reports were not provided weekly but were provided whenever it appears Mr. Sather got around to them. Peace Regional cannot now suggest that Maxim must comply with notice requirements which are directly related to the timelines of the receipt of those very reports.
It appears by the actions of OMC that Maxim should also benefit from the relaxed compliance with the provisions of a complex contract that was drafted by OMC. I agree with the court in Golden Hill, at para 741, where it provides that:
Canadian courts commonly reject “notice” defences raised in construction cases based on a failure of the claiming party to comply with the technical requirements of the formal procedures in the contract recognizing that, on most construction projects the parties adopt less formal procedures more consistent with the realities of the construction project…
I find that this was the case here. The less formal procedures adopted by OMC and Mr. Sather are more consistent with the realities of the construction project, but these informalities must benefit all parties to the Contract.
Turning to the multiple causes of the disputed delay, the Court first determined that the work required by Maxim to remove on-site berm obstructions was out-of-scope of the original contract, which entitled Maxim to extra payment:
Sources of delay
(i) The Berms
The first delay asserted relates to berms. Mr. Reeves testified that at the beginning of the project it was apparent that there were berms of unsuitable material obstructing the project and that Maxim was instructed to remove them. Maxim argues that this was work outside the Contract and that working on the berms delayed the Contract. The work was paid as “forced account work” but Maxim argues that Contract Time should also be adjusted. Only one day was given in Contract Time but it took almost a week to do the work.
Peace Regional argues that the removal of the berms was not an extra to the Contract. Mr. Sather testified at trial that the berm removal was work included in Schedule 1(a) of the Contract as one can see the berms on the drawings. Peace Regional asserts that if the work cannot be compensated for outside the Contract, it cannot be a delaying event.
I find that Peace Regional’s position makes no commercial sense. Mr. Sather’s evidence at trial, when considered in context with what he actually did, is one example where Mr. Sather seemed determined to put his view of the best information possible before this Court to support the position taken in litigation. The documentary evidence establishes that Mr. Sather agreed to pay for the berm removal as “forced account” work rather than on the unit rates set out in the Contract. The documents show that Mr. Sather directed his on-site supervisor to accept the berm removal as forced account work and it was noted in the relevant daily summaries that it was forced account work. If the berm removal was a line item it should have been identified as such. I find that it was paid as forced account work because it was outside the scope of the Contract. Further, Mr. Reeves testified that they were asked to do this work and the fact that it is at odds with their construction schedule and cycle strategy supports that conclusion.
Peace Regional argues that Maxim never raised a complaint due to this forced account work and it did not provide any written notice of delay or make a change request for more Contract Time as is related to clearing away the berms. Mr. Reeves testified that at the beginning of the project this added five additional days to the project that were being paid as forced account work. He further testified that it was not until he had the site occupancy reports seven weeks later, that he saw that they were not given day for day credit for the work, and they were charged site occupancy days. He testified that had he known they would not get day for day credit, they would not have done the forced work.
Notwithstanding the fact that the project engineer initially took the side of Peace Regional and only granted a one-day adjustment to the project schedule, the Court ultimately ruled that this out-of-scope work entitled Maxim to an adjustment on the contract schedule for the full additional time required to perform that extra work.
Turning next to the issue of rain-related delays, the Court determined that Maxim was also granted insufficient scheduling adjustments to allow the site to dry before work could proceed. The Court determined that 71 additional days should have been granted due to those weather conditions:
Maxim argues that it did not obtain what it was entitled to under the Contract for an extension of Contract Time because beyond a few limited exceptions, OMC did not allocate any drying time to Maxim to halt the proverbial clocks of Contract Time and site occupancy. Given the monsoon-like rains and the evidence of Mr. Reeves with respect to the muddy conditions following the rain, I find that periods of drying were necessary and compensation by Contract Time extension is reasonable. In fact, the Contract contemplates such days in its definition of Site Occupation Days where it provides that unproductive days (after a rain while de-mudding or pumping) are not Site Occupation Days.
With respect to the extension of Contract Time as a result of weather, I have reviewed all the site reports, and the schedules provided by Mr. Reeves and Mr. Sather in the calculation of days lost to weather, in their respective opinions. I have calculated days lost to weather for the period up to the conclusion of Cells 2 and 3 to total 59 days plus 12 days for “drying” – more properly to reflect the fact that the very wet and muddy conditions delayed construction. GC8 Article 3.00 provides that Contract Time must be extended by no less than these 71 days.
The Court then considered the issue of on-site material contamination. Maxim asserted that the site contained excessive amounts of contaminated clay that could not be used for the on-site clay liner without first engaging in labour-intensive work to sort the clay from the on-site garbage. Maxim also asserted that these site conditions should have been disclosed to bidders during the bidding process if that work was to have been included in the original project scope, cost, and schedule:
Maxim argues that another source of delay and extra work on the Contract arose from excessive contaminated material requiring specialized sorting and handling. When excavating Maxim was looking for clay that would be suitable for the clay liner. If the material was not suitable it would be moved to an “unsuitable” or “junk clay” stockpile in a designated site. In this case much of the unsuitable material was also “contaminated” meaning that the material had to be disposed of in other areas. The unsuitable material encountered on site was mostly old garbage from a previously constructed landfill and lead to a bucket by bucket, time consuming exercise to separate usable clay to ensure that sufficient suitable material would be available to build the clay liners. Maxim argues that the presence of this material ought to have been disclosed to Maxim at the time of bidding.
The Court agreed that the site contained unusual amounts of contaminated clay, which reduced the amount of on-site material available to perform the work:
The evidence confirms that there was much more unsuitable and contaminated material than anticipated. Mr. Heroux’s and Mr. Richard’s notes both document that “significant amounts” of garbage were found resulting in the need to find additional areas in which to stockpile (separately) both unsuitable and contaminated material. The effect of this was that there was quite a bit less material for stockpiling to build the clay liners than expected.
The Court determined that the additional work required due to the clay conditions was out of scope of the original contract and that Maxim should be compensated for that additional work:
I find that the work that was provided in separating load-by-load contaminated and unsuitable material from suitable material for the liners was not incidental work. It is one thing to expect that a load of material will be either placed in the suitable or the unsuitable pile as was contemplated in the Contract, but it is another to be required to sort the material load-by-load. I also note that the bid price is inclusive of many items, with a qualification that the bid price is for work constructed “in accordance with the drawings and specifications”. This goes to Maxim’s argument that the volume of materials to be handled was outside any commercially reasonable expectations given the volumes provided in the Contract or in accordance with the Contract specifications.
In its defence against the extra payment claims, Peace Region relied on the legal disclaimers in its bidding documents, which stated that quantities were estimates only and that no claims should be made based on increases or decreases in estimates or based on the site data provided to bidders. However, the Court ruled that the disclaimers did not apply to out-of-scope work:
Tender Form, page 2, para 2 provides:
Any estimate of quantities as provided by the Engineer is approximate and only for the purpose of assisting the contractor in determining the scope of work. No claim will be made because of any increase or decrease in the quantities.
Further, Article 5: Site Conditions in the Instruction to Tenderers provides:
The tenderer is not entitled to rely on any data or information included in the Tender as to site or subsurface conditions or test results indicating suitability or quality or otherwise of site or subsurface materials for use in carrying out the construction of the work.
I find these provisions do not apply to work that was not contemplated in the Contract. The work that was performed must be paid for and delay from that work must be taken into account.
Maxim also argued that OMC’s decision to test the materials at its Edmonton test site contributed to further project delays. The Court agreed, concluding that the testing procedures, as well as the site conditions, weather, and site materials, should have all been factored into adjustments to the project schedule:
Conclusions on delay
In conclusion, I find that there was delay which should have been compensated with a reasonable extension of Contract Time including with respect to the berms, the weather, the unsuitable material, and the choice by OMC to test material out of Edmonton.
The Court concluded that Maxim should have been compensated for the cost of the additional out-of-scope work, and that the project schedule should have been adjusted to factor for that additional work. After engaging in a series of complex price calculations, the Court ultimately determined that Maxim was entitled to an additional $300,000, plus interest.
As this case illustrates, purchasing institutions, including their external advisors, should be careful to draft contract performance requirements that capture the full scope of anticipated work since out-of-scope work increases the risk of downstream performance delays and payment disputes.
