Law Times

lAw times • July 27/August 3, 2009 NEW An online resource tool 1.800.263.3269 Bestcase earlug.indd 1 3/26/08 11:52:01 AM Focus On CONSTRUCTION LAW Will process go back to Wild West? "wild, wild West" when it renders a deci- sion in the much anticipated Tercon case? It's a dramatic way of putting things Supreme Court weighs the rules around bidding W BY IAN HARVEY For Law Times ill the Supreme Court of Cana- da undermine itself and throw the bidding process back to the but Clive Thurston, president of the Ontario General Contractors Associa- tion says that's exactly the risk the SCC may be taking if it redraws the legal boundaries around contracts. "With the creation of the 'exclusion of liability clause' in the Tercon case we may be headed back to the Wild West," he says. "With the case being appealed to the Supreme Court, should this language be upheld, I and many in the legal profession believe it will be the end of Ron and all the established rules for accepting a bid." The case in the spotlight is Tercon Contractors Ltd. v. B.C. Ministry of Transportation and Highways which some like Thurston fears could throw the bidding process into turmoil. But that's probably not going to happen, says Ian Houston, a construction law spe- cialist at Borden Ladner Gervais LLP and the firm's regional practice group leader. "It's difficult to think the court will make a U-turn," says Houston. "That's just not their pattern. They really have an appreciation for the entire construc- tion industry because so many cases have been decided there." The guiding case for the most in construction is the celebrated R. (Ont.) v. Ron Engineering which held that a bid constitutes a contract — Contract A — while the awarding of the job is a separate contract — Contract B. Ron Engineering and Construction (Eastern) Ltd. had bid on a job and then discovered there was an error and that $750,058 had been omitted from the to- tal sum tendered. It tried unsuccessfully to convince the owner to let them with- draw the bid without penalty. However, the owner selected their bid as the lowest bid and proffered a contract. When Ron refused to accept the contract for the job the owner considered them to be in default and seized their $150,000 deposit. Ron Engineering sued for recovery of the deposit and lost the first round, winning at the Ontario Court of Appeal before losing at the Supreme Court of Canada which encapsulated the concept of Contract A and B in the decision. Some 860 cases including M.J.B. Enterprises Ltd. v. Defence Construction (1951) and Martel Building Ltd. v. Cana- da have since flowed. More recently Dou- ble N Earthmovers Ltd. v. Edmonton (City) seems to have caused a rift and some backtracking on procurement law. Double N involves a 20-year battle between the City of Edmonton and Double N Earthmovers Ltd. in which the company submitted a bid to pro- vide equipment and operators at a land- fill site. It was the lowest bid and was accepted but a competitor complained Double N's equipment as listed was older than 1980 and in contravention of the terms of the Request for Proposal. Ian Houston says it's 'difficult to think the court will make a U-turn.' "The competitor told the city of Edmonton to check its own registry," says William Pigott, a construction law specialist at Miller Thomson LLP. "But instead of doing what we'd expect a public body to do, the city shrugged it off. All they had to do was press a computer key but they didn't." The contract was awarded and the older equipment was utilized, says Pigott, and the Supreme Court of Canada held that regardless of the rules under Contract A, Contract B, the job itself was a whole new game and therefore not constrained by anything stipulated in the tendering rules. If the winning contactor wanted to use older equipment, they were entitled to do so as long as Edmonton was agreeable. Still, he says, the court split 5-4, with some strong opinions. Tercon, he says, is interesting because it deals with the rules under Contract A, the bidding portion. The case starts in 2000 when the prov- ince called for bid for construction of 25 kilometres of highway in tough terrain. The RFP stipulated all bidders must be pre- qualified. The winning bidder in fact was a partnership between Brentwood Enterpris- es Ltd. and Emil Anderson Construction (EAC) Inc. but unsuccessful bidder Tercon cried foul saying while Brentwood was pre- qualified, their partner was not. The B.C. government hid behind a li- ability clause which it claimed protected them from any action arising out of the tendering process. Alberta-based Tercon sued and won $3.3 million from British Columbia but it was reversed on appeal. "What the court said was that the li- ability clause may have been vague or not specific but it was there and it was valid," says Pigott. The question now, he says, is whether the SCC will uphold it or strike down but in either way he doesn't think it's "going to drive a wood- en stake through the heart of Ron." What the industry wants, he says, is a sense of fairness and common sense to pre- vail in these matters. See Privilege, page 13 The devil is in the details — and the supplementary G BY IAN HARVEY For Law Times enerally speaking, con- struction bosses are a unique bunch; they use unlawyerly language, shoot from the lip and are well versed in extracting water from rocks be- cause it's what they do to squeeze each nickel and dime from a job to protect their margins. They're a hard-nosed group of tough business people who call it as they see and protocol be damned, whoops, darned. Four- letter words are common in cli- ent meetings — from both sides of the table because those prac- titioners working in the sector learn quickly that such epithets aren't just mere curses, they're "technical construction terms," as one experienced lawyer put it. You'll also likely discover that the members of the profession serving this sector are just as likely to be strongly opinionated and outspoken — perhaps the antithesis of the stereotypical contract lawyer. Perhaps it's a case of the clients' attitudes rub- bing off on counsel or perhaps a case of sheer survival. In any event, when it comes to contract documents con- tractors like it spelled out clear and simple in plain language without a lot of fuss and with- out the endless cross references and weasel clauses which can tend to confuse even the most experienced of jurists. And that's where CCDC comes in, or more formally the Canadian Construction Documents Committee con- tracts. There are a myriad of documents covering everything from price to qualification dec- larations to insurance and bid- ding but the one most often front and centre is CCDC 2, the price stipulation contract. It's a standard contract that can be tweaked to meet specific needs according to the situation. It's just 29 pages long which is it talks their language — minus the four-letter words of course — and it's a document they can live with because while it may vary from job to job, it sets out the responsibilities of each party in a standardized way with no hidden surprises; it also speeds up the process and allows for resolution of conflicts. For the owners — that is those issuing the contracts for signature — it's also a win, says Ron Petersen, a construction law specialist with Lang Mi- chener LLP based in Ottawa. "I do recommend it to my 'These days $5 million is not very much money in the event of a dispute,' says Ron Peterson. seen as a big win by the Ontario General Contractors Associa- tion which has long been vexed at the variety of contracts prof- fered to their members on suc- cessfully bidding for a project. Contractors like it because www.lawtimesnews.com clients," he says. "It really helps in that we know how it's been interpreted." There are a couple of areas he advises that need special naviga- tion and tweaking, such as those around the insurance levels which are defaulted at $5 million. "These days $5 million is not very much money in the event of a dispute," he says. "So I do recommend using it, PAGE 9 especially if it's a large project." The contract document is more of a work-in-progress than carved in stone since the CCDC itself is constantly entertaining input and change suggestions from stakeholders. Changes rolled out last year, for example, bring the process into the mod- ern age with notices now being accepted in fax or electronically. "I also like to have the in- surance reviewed by an insur- ance broker," says Petersen. "The other area is late claims and it's a nightmare." Clive Thurston, president of the Ontario General Contrac- tors Association says CCDC is a huge benefit to both owners and contractors because in the long-run it will cut costs and save everyone money. Contractors faced with complex documents err on the side of caution, says Thur- ston, and will pad their bids in anticipation to cover any See Holdouts, page 13

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