Legal Blog

Extras

 We have a significant body of law dealing with tender and contract formation. We also have a significant body of law dealing with claims for extras. What happens when the law of contract formation and tender meets the law dealing with claims for extras? This was the situation in Asco Construction Ltd. v. Epoxy Solutions, a 2011 decision of the Ontario Superior Court of Justice.

 Background

 A sub tendered to provide the floor epoxy work for a theatre project. The sub based its tender on a sketch that the architect provided. The general accepted the tender and sent a formal contract for the sub to sign. The sub never signed the contract. Instead, it hired a surveyor to survey the theatre floor so that the sub could determine the exact work it was to perform. The evidence at trial indicated that this was a usual practice.

 The surveyor determined that the tender sketch was inaccurate and that the sub would need 490cf of fill rather than the 290cf originally estimated. Accordingly, the sub informed the general that the subcontract price had to be increased from $72,500 to $105,000.

 The general, aside from complaining about late notification and delay, told the sub to start its work and that, if there were “extra material and labour that could be proven to the consultant it would be fairly dealt with at that time. I expect this work to start ASAP.”

 The sub was not keen on this ringing endorsement of its claim and refused to start the work. After a number of letters and emails back and forth, the general asked for the sub’s prior detailed backup calculations for its original bid quantities. In the same letter, the writer used some intemperate language, such as “unprofessional joke” and “incompetence”. Before the sub even saw that correspondence, the sub had considered itself fired and, when it received the correspondence, it did not respond further. The general formally terminated the sub about 5 days later.

 The general commenced an action against the sub to recover its increased cost, the grand sum of $17,000, to have a replacement sub perform the work. The sub counterclaimed for the profit it would have made on the project had the sketch been accurate.

 Analysis

 We found the judge’s analysis a touch convoluted and important facts were lacking.

 The judge discussed, and relied almost completely on, the 1960 Supreme Court of Canada decision in Peter Kiewit that dealt with extras. The court in that case held that when a sub does work, without written authority, but which it claims is extra to the contract, and the general refuses to pay the claim, then that sub has itself to blame and will not be compensated. Accordingly, the judge absolved the sub from performing its work. He held that the sub had a right to refuse the work if it were unable to agree with the general on the increased payment for the additional work.

 Although the judge’s analysis is not great, we cannot complain about that result. If parties cannot agree on the terms of construction contract B and, in particular, the exact work to be completed, there can be no contract. This does not follow from the Peter Kiewit decision; it follows from contract and tender law. The sub tendered on a certain quantity; the general cannot force the sub to sign a contract to supply a different quantity.

 Wait a minute. Of course it can – depending on the terms of the prime contract and the terms of the tender.

 That was the problem. The judge spent page after page dealing with “he said, she said”, credibility, and the parties’ positions and never told us about the important factors, factors that were not present in 1960 when Peter Kiewit was decided.

 All of the CCDC documents provide that a general or sub, as the case may be, is obliged to perform additional work if the additional work is within the general scope of the work it is supposed to perform under its contract. Without that clause, chaos would reign on construction sites. An owner (general) cannot allow a general (sub) to refuse to perform work that is inherently part of the general scope of the project work merely because the parties disagree on whether the work is an extra or not. Accordingly, the standard contracts all allow the owner (general) to notify the general (sub) to do the work and to fight later about the validity of the claim or its quantification.

 So was the decision correct or not? We do not know. The reasons for decision did not refer to the terms of the prime contract or the terms of contract B that the general had supplied to the sub for signature.

 Tender

 This is where the law of tender comes into play. The tender documents invariably set out the terms of the prime contract. That is enough to bind the general to the usual extra and change order clauses. It is not enough to bind the sub unless the sub knew, at the time it submitted its tender, of the subcontract that the general expected the sub to sign.

 So what happens when the sub and the general cannot agree on the construction contract and neither is resiling from tender contract A? Is there no contract B and both parties walk? That all depends. What did the tender documents say? We do not know; there is no mention of their terms in the reasons for decision. Was the sub being unreasonable in refusing to sign a contract that has the usual CCDC terms? Possibly. If the proposed subcontract gave the sub a right to additional compensation for a scope that was greater than that specified, then the sub was being unreasonable and ought to have executed the contract and performed the work. Conversely, if the subcontract tried to foist an increased scope on the sub, then the sub would have been well within its rights to refuse to execute the contract and to refuse to perform the work.

 Sub’s Damages

 The judge went further. He held that the general was in breach of contract, although he did not say which contract, and allowed the sub’s counterclaim for its lost profit.

 We can understand, sort of, the possibility that the parties never agreed on contract B and therefore neither could sue for its breach. We do not understand how the general could have breached a contract upon which the parties never agreed and we cannot comment on the possible breach of contract A, the tender contract, because the judge never told us what it said – possibly because the judge never knew what it said.

 The judge awarded the sub damages of $23,200 on a $72,500 contract, agreeing with the sub that its profit would have been 32%. We find that profit level unlikely. Certainly, there were no contingencies accounted for in its calculation.

 What can we make of this decision? As far as we are concerned, as to law, nothing. However, as to moral blame, we think that the outcome can be presumed, at least in part, from the following statement that the judge made: “(The sub) had been ordered off the job by (the general) who acted in bad faith in dismissing (the sub) without cause in an insulting manner.” 

 Letter writers be warned. Watch what you say; your words can come back to haunt you.