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Is The Owner Liable For Delaying The Commencement Of The Building Project?

Time is money on a building project. And the obligation of the owner and the contractor to proceed expeditiously with the project may be one of the most important aspects of their relationship.

But what if the owner delays in notifying the contractor of the award, or in signing the building contract?  Can the owner be liable, even if the contract has not yet been signed?  In Bre-Ex Limited v. Hamilton (City), the Ontario Superior Court has recently answered Yes to these questions.  In the process, that court also provided a smorgasbord of answers to many questions arising from a construction claim.

The Background

In the fall of 2001, the City of Hamilton issued a call for tenders for the construction of a new leachate collection system at a landfill site located within its boundaries.  The tender documents stated that a binding contract would exist upon the acceptance of the tender by City council, that the listed documents would constitute the contract between the parties and that the signing of a contract would be a formality. The tender documents also stated that the work would not proceed without the City’s acceptance of the bidder’s methodology and that the “specifications” included “all written and printed descriptions or instructions pertaining to the method and manner of performing the work…”  The tender documents also stated that the City “will require that work commence immediately following the award of the Contract and will require the work to be completed by approximately the end of July, 2002”

Bre-Ex submitted a tender which provided for a methodology that was quite different than the methodology proposed by other bidders.

The tenders were opened on November 6, 2001 and Bre-Ex’s tender was the lowest. Before any contract was awarded, Bre-Ex advised the City that it would be undertaking the work during the winter months, although that statement was not contained in its formal tender. Before awarding the contract, the City and its consultants reviewed Bre-Ex’s methodology and accepted it.

On December 11, 2001, City council accepted Bre-Ex’s bid and authorized the award of a contract to it.  On January 6, 2002, the time expired for Bre-Ex’s tender to remain open.  The City did not advise Bre-Ex of the award of the tender to it until January 24, 2002.  The parties disagreed about whether Bre-Ex’s methodology should form part of the formal contract, Bre-Ex insisting that it did and the City asserting that it did not.  These matters were not sorted out until March 2002 when the City agreed to insert Bre-Ex’s methodology into the formal contract.  Bre-Ex signed the contract on April 12, 2002 and the City signed it on June 12, 2002.

As a result of these delays, Bre-Ex largely lost the ability to perform work during the winter of 2002, and it was forced to do much of the work during the winter of 2003.  It filed a delay claim with the City.

In these circumstances, the Superior Court held that the City was in breach of the building contract arising from the City’s acceptance of Bre-Ex’s tender.  In arriving at this conclusion, the court found as follows:

  1. The City’s failure to advise Bre-ex of the award of the contract from January 6, 2002 to January 24, 2002 was a breach of contract.  As a result of the tender documents, it was reasonable for the contractor to understand that its work was to commence on January 6, 2002 (being the date that its tender expired) if it was awarded the contract.  Moreover, it was reasonable for the bidders to assume that, if the City accepted a tender within the tender period, the City would forthwith advise the successful bidder so that it could marshal the documents and its forces in order to start work on January 6, 2002.
  2. The City was in breach of contract by failing to sign the formal contract until June 2002.  In particular, the City was wrong to assert that the methodology set forth in Bre-Ex’s bid should not be part of the contract.  It was only when the City agreed to put that methodology into the contract that the contract was finally signed.

Contractor’s Tender Methodology Became A Contract Specification

The court’s conclusion on this latter point is instructive.  The court held that the necessary result of the tender documents was that the contractor’s methodology was a “specification” included in the building contract.  This conclusion followed from the working of the tender document, and in particular the statements that:

    • the definition of “specification” included all documents pertaining to the method of performing the work;
    • the work could not proceed without the City’s acceptance of the contractor’s methodology;
    • the City had clearly accepted Bre-ex’s methodology in awarding it the contract; and
    • the subsequent execution of the Contract Documents was a formality.

This conclusion that the methodology in Bre-Ex’s tender became a “specification” is an important one for construction law.  It demonstrates that definitions used in standard form construction contracts and tender documents can include more than just the documents that the parties attach to their “formal” contract.  The tender process itself may well make documents delivered by the contractor during that process part of the contract, as “specifications”.

Owner’s Contractual Obligation To Commence The Project With Dispatch

The court then concluded that the delays by the City breached an implied obligation to perform its contractual duties within a reasonable time.  The Court quoted from Heintzman and Goldsmith on Canadian Building Contracts to the effect that what is a reasonable time for the performance of contractual duties must be decided in light of the “specific work and conditions and the general circumstances in which the contract was entered into”.

In its tender documents, the City had stated that the work was to commence immediately after the award of the contract and was to be completed by approximately July of 2002.  In these circumstances, the Court held that the City breached its implied duty to proceed with the contract with reasonable dispatch by its delay in advising Bre-Ex of the award of the contract and by its delay in executing the contract, all of which caused Bre-Ex to lose the ability to perform the work in the winter of 2002.

The Building Contract Arises From The Tender Process Itself

This conclusion followed from the fact that there were two contracts between the City and Bre-Ex, one relating to the tender itself (known in Canadian law as Contract A), and the other being the building contract arising from the City’s acceptance of Bre-Ex’s bid on December 11, 2001 (known in Canadian law as Contract B).  The City’s duty to proceed with reasonable dispatch might arise from both contracts, but it certainly arose from the building contract, Contract B.  As both parties acknowledged, that contract arose on December 11, 2001 when the City accepted Bre-Ex’s bid.  Accordingly, the implied duty to act with reasonable dispatch arose from that contract.  It did not require the execution of the formal contract in June 2002 for that duty to come into existence.

This conclusion is also an important one for construction law.  The owner’s duty not to delay the project does not just arise during the project.  That duty applies to the commencement of the project.  And it applies even before the execution of the “formal” contract if, as is usually the case for a true tender, the building contract arises from the tender process itself.

Damages awarded to Bre-Ex

The final interesting aspect of this case is the wide scope of the damage relief that was awarded to Bre-Ex.  It was awarded damages for: loss of revenue due to a decline in profit for the first quarter of 2002, fuel and labour escalation costs, refinancing costs, and loss arising from sale of equipment and required rental of replacement equipment.

Important Conclusions

The Bre-Ex decision is a very useful case to consult when allegations of owner’s delay are raised.  The decision reminds us that, when an invitation to tender provides, as it usually does, that a contract arises from the acceptance of the tender, then a building contract is immediately formed.  That contract may well include the methodology or systems proposed by the bidding contractor, as part of the specifications of the contract.  And it will require both parties not to delay pending the execution of a formal contract, but to proceed with reasonable and immediate dispatch.

See Heintzman and Goldsmith on Canadian Building Contracts (3rd ed.) at Chapter 5, part 1(b)

Bre-Ex Limited v. Hamilton (City), 2012 ONSC 147

Construction Law   –   Tenders   –   Implied Duties   –   Performance

Thomas G. Heintzman O.C., Q.C., FCIArb                                                               July 26, 2012


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