Things Left Unsaid – Determining Price Adjustment resulting from Scope Changes

By Matthew Turzansky and Catriona Otto-Johnston

It’s common for the parties to a construction contract to focus on the price of the work to be performed.  Less attention is often given to the method of calculating changes to the price for alterations to the scope of work.  Uncertainty in this area can lead to a major headache for a contractor trying to get paid, which all too often can lead to a trip (or two) to the Court house. So how can you avoid costly litigation and ensure you are paid for your work? We focus on the recent Alberta case of Architectural Millwork & Door Installations Inc v Provincial Store Fixtures Ltd, 2017 ABQB 390 to provide some helpful tips.

Architectural Millwork & Door Installations Inc v Provincial Store Fixtures Ltd, involved a $19 million stipulated-price contract for the performance of tenant improvements in The Bow tower in downtown Calgary.  The owner issued three Change Directives significantly reducing the contractor’s scope of work, and the parties found themselves disagreeing over how to calculate the credit due to the Owner.

At first blush, the Contract seemed to address this situation.  After all, the Contract Appendix containing Price and Payment Provisions included a set of 4 scenarios for the calculation of price reductions for scope deletions, depending on the nature and timing of the changes.  It should have just been a matter of applying the correct scenario, right?

Wrong.  The two scenarios that were potentially applicable both referenced certain “Unit Prices” in the Tender Documents.  The problem was, the Schedule of Unit Prices was struck out of the General Contractor’s bid form and omitted from the final Contract.

On what basis then should the price reduction be calculated?  The Court was faced with three options:

  1. Internal Estimating Documents – The General Contractor urged the Court to accept its internal estimate materials as “Tender Documents”, and to apply the Unit Prices in those documents. The Court rejected this on the basis that the owner could not have agreed to prices on internal estimating documents which were not disclosed to it as part of the bidding process.
  2. “Identified Prices” – The owner pointed to a different Appendix to the Contract listing certain “Identified Prices” for other purposes under the Contract. The Court rejected this as well.  It reasoned that the Contract would not have referenced “Unit Prices” if what was intended was actually the schedule of “Identified Prices”.
  3. Net Cost – The approach favoured by the Court was to attempt to determine the net cost of the deleted items, and to calculate the price reduction form the scope deletion on that basis.

Unsurprisingly, calculating the Net Cost of the deleted items was not a straightforward task.  The contractor argued that once the scope of work was significantly diminished, it shouldn’t have to honour the “Incentive Pricing” feature of its tender, used to persuade the owner to award them the entire project.  The Court rejected this argument and applied the incentive pricing anyway, noting this was a risk the contractor accepted when bidding on a project subject to possible scope deletion.

Given that the Net Cost adjustment did not contain a deduction for overhead and profit, the Court next had to calculate what portion of the price was attributable to these items.  After considering the evidence as to the total materials and shop time for the fabricated products on the project, as well as other provisions of the Contract, the Court landed on the rate of 7.5%, noting that this matched the mark-up permitted to be added where Changer Orders resulted in a net increase to the contract price.

The final result was a credit to the owner for the scope deletion in the amount of $1,525,919.67.

How does this decision affect you? Parties embarking on a new project are planning on the project unfolding as planned, but it is nevertheless important to take precautions in the event that plans change.  In the case of a deletion in the scope of work, a clear and complete contract containing a pricing mechanism can give the parties certainty, and avoid messy disputes.  For advice and assistance on drafting and interpreting construction contracts, contact Matthew Turzansky, lawyer and Associate, or Catriona Otto-Johnston, lawyer and Partner at Field Law.

“A rose by any other name? Not so!”: The critical role of “improvement” in the Builders’ Lien Act

Contributors: Sharn Mashiana (articling student), Andrew Wilkinson and Catriona Otto-Johnston

Do you know if the nature of your construction work on a project allows you to register a valid builders’ lien? You might be surprised to hear that not all types of work give rise to lien rights. In order for you to register a valid lien, the Builders’ Lien Act (the “BLA”) requires that the work you performed or the materials you supplied improve the lands on which the construction occurs. If your work or materials do not relate to an improvement, you will not be able to lien. It is therefore very important that you understand from the outset whether the work you are doing will allow you to register a lien against the project lands in the unfortunate event that you are not paid for your work.

Under the BLA, the definition of “improvement” generally includes anything constructed on the land but excludes those things not affixed or intended to become part of the land. There have been many Court decisions dealing with whether certain work or supply constitutes an improvement. In the right circumstances, the work of architects and engineers can be considered an “improvement”. Even the removal of land, through excavation, has been held to be an “improvement”.

Trotter and Morton Building Technologies Inc. v Stealth Acoustical & Emission Control Inc., 2017 ABQB 262 is a recent Alberta decision in which the Court considered whether pumphouse buildings were “improvements”. The buildings were designed so that, after they were affixed to the land, they could later be moved without damaging them. Given this potential for removal, the owner of the oilsands project argued that the buildings did not relate to an “improvement”.

The Court considered the following factors in finding that the pumphouse buildings were “improvements” and thus the liens were valid:

  • Location and function of the buildings
    • The buildings were to be placed at known and specifically designated and prepared locations
    • The buildings were fully integrated into the larger oilsands project
  • Size and weight of the structures
    • The buildings were large (their weight ranged from 200,000 to 260,000 pounds)
  • Degree of affixation of the structures
    • The building and its structural base were then anchored to 12-14 concrete piles, with a minimum pile depth of 72 feet

Additionally, the Court considered the likelihood of the pumphouse buildings staying on site. While the Court declined to assign a percentage to the likelihood that the pumphouse would stay on the site, it noted that the buildings were very large and heavy structures and were currently affixed to the land. They were intended to be put in place and operated as part of the overall project. Even if the buildings were moved, it was possible that they would simply be moved to another part of the site.

The Court held that even though the pumphouse buildings could be moved after being put into operation, that possibility was not sufficient to prevent them from being improvements.

The subcontractors in this case made an alternative argument that if the pumphouse buildings were not an improvement, the oilsands project to which the pumphouse buildings were to be supplied, was the improvement. The Court agreed with this argument and held that it is the improvement of the overall project that must be considered.

How does this decision affect you? Work or material furnished with respect to a moveable structure can still be an “improvement” so long as certain factors are met. This analysis requires a careful examination of the facts of each case and consideration of the criteria the Court will apply. For more information on requirements for lien registration, contact Andrew Wilkinson or Catriona Otto-Johnston, lawyers and Partners at Field Law, to discuss your options.

Estimates: How Important Are They Really?

Ever found yourself in a situation where you have provided an estimate for your services, but felt uncertain if you underquoted your client? Maybe you didn’t have all the necessary information? Maybe your client requested additional work or changes to the work as the project progressed? Either way, will you be able to collect payment for amounts in excess of your original quote? The best answer: it depends.

While you may be bound by an estimate in some circumstances, the Supreme Court of Canada has said an estimate is not a guarantee or warranty at law. The Court will review each case on its unique facts. Some situations where a contractor might not be bound by an estimate include:

  • Where work is performed that is outside the scope of the contract at the customer’s request;
  • Where a client by its conduct increases the amount of work;
  • Where unforeseen circumstances add a new or unexpected dimension to the work; and
  • Where a contractor has insufficient information but clearly identifies the limitations of their estimate.

These factors were all at play in Pillar Resource Services Inc. v PrimeWest Energy Inc., 2014 ABQB 317. Pillar provided estimates to PrimeWest based on incomplete information and was hired to perform certain work. Pillar completed additional work and was forced to accelerate the schedule of the project at the request of PrimeWest. The amount invoiced by Pillar was significantly higher than their original estimate. PrimeWest refused to pay. The Court found that because Pillar’s estimates were based on limited information provided by PrimeWest, they were inadequate for a complete or specific estimate. In addition, PrimeWest was not induced by these estimates. In the end, Pillar was able to recover the total amount invoiced. The Court also explained that simply because an estimate is inaccurate does not expose a contractor to liability unless that estimate was made with a lack of skill, competence, or diligence.

How does this decision affect you?

Giving an inaccurate estimate does not necessarily limit your invoices to the estimated amount. Being open and forthright when providing an estimate, communicating any limitations or uncertainties, and providing regular updates to your client may protect you in the event your final invoice exceeds your original estimate.

If you find yourself in a dispute over an estimate or are in the process of preparing one, Field Law recommends speaking with a lawyer to ensure you are paid for your hard work. For more information on estimates or assistance with resolving estimate-related disputes, contact Catriona Otto-Johnston, lawyer and Partner with Field Law to discuss.

Summary Judgment: Shortcut to Payment?

By Catriona Otto-Johnston and Sheena Campbell

Trial dates are years away. The cost of full-blown litigation is foreboding. You can’t afford to wait years to be paid for your hard work on construction jobs. Are there options to obtain judgment for your claims without the delay and expense of a full trial? Field Law thinks so, in the right circumstances. In our experience, even a case with complex facts and extensive, largely contradictory, evidence can be successfully heard in a summary manner, absent a full trial. Summary judgment may be a shortcut to getting paid!

Summary Judgment: The Basics

An application for summary judgment is made before the Court on Affidavit evidence. The parties involved are questioned on their Affidavits. The transcripts of this Questioning are filed with the Court, and an afternoon-long application is often required.

The test for summary judgment in Canada has been evolving, starting with the Supreme Court of Canada’s (SCC) decision in Hryniak v. Mauldin, 2014 SCC 7.  The SCC encouraged a broad interpretation of the summary judgment rules with a view to avoiding full-blown trials where it is in the interest of justice to do so.  To achieve this, the court uses its “fact-finding” powers to weigh the evidence, including evaluating credibility based on Affidavits as opposed to live-witness evidence.

Hitting Close to Home – Summary Judgment on a Complex Pipeline Claim

The test for summary judgment was recently applied in Alberta in E.O.S. Pipeline & Facilities Inc. v. Sprague-Rosser Contracting Co. Ltd. (unreported).  E.O.S. was a subcontractor on a pipeline project. Sprague-Rosser failed to pay E.O.S. for its work. E.O.S. filed builders’ liens and applied to have its liens declared valid and for judgment.

This was a complex matter involving multiple issues, including:

  • Extra work signed off by an employee of Sprague-Rosser but not paid for;
  • Failure by Sprague-Rosser to sign off on E.O.S.’ daily tickets and later refusing payment on that basis;
  • Appropriate mark-up for third party charges under the subcontract;
  • Sprague-Rosser’s purported reliance on the “pay when paid” clause in the subcontract;
  • Proper characterization of and entitlement to payment for additional tie-in scope of work completed by E.O.S.; and
  • Set off claimed by Sprague-Rosser for delay purportedly caused by E.O.S. and for damages relating to welding deficiencies, costs of non-destructive testing and deficient work.

The Application – Contradictory Evidence a Bar to Summary Judgment?

Multiple Questionings on Affidavits was conducted, and the parties submitted many volumes of materials, including conflicting Affidavit evidence.  Before the Hryniak case, based on the volume of evidence and conflicting Affidavits, we may not have been so bold as to apply for summary judgment. Post-Hyrniak, the Master followed the direction from the SCC and the Alberta Court of Appeal, carefully examining all the evidence before him to determine whether a trial was required.

Some issues were decided easily; others required a more detailed analysis. The Master could have awarded summary judgment on some of the clearer issues and sent the more complicated matters for trial, but after considering and weighing the evidence of each party, including disputed facts, the Master sided with E.O.S. and granted summary judgment on all aspects of the claim.

The Appeal – Was It Fair to Grant Summary Judgment in the Circumstances?

The Master’s decision was appealed (Sprague-Rosser Contracting Co. Ltd. v. E.O.S. Pipeline & Facilities Inc., 2016 ABQB 231), and while the appeal judge recognized there were multiple issues and disputed facts at play, he was able to make a decision on the evidence before him and agreed that a full trial was not required.  The Court cited the evolution to a more holistic approach. E.O.S.’ summary judgment was affirmed, and they were paid for their work.

How Does this Evolution Benefit You?

The Court’s job when deciding if a full trial is necessary is to ensure a fair process and just adjudication in the circumstances. As the E.O.S. case shows, under the new evolved process, summary judgment applications can be successful even when faced with complex issues and contradictory evidence.  This means costly and lengthy litigation can be avoided where summary judgment is appropriate.  With trial dates being two or more years in the future (depending on length of trial time required), the ability to have more matters decided summarily is a step in the right direction to providing a faster and more economical approach for clients.

If you would like more information on how to secure payment for your hard work, contact Catriona Otto-Johnston, lawyer and Partner with Field Law, to discuss your options and whether summary judgment might be right for you.

Mistakes and Builders’ Liens: Fixable or Fatal?

By Catriona Otto-Johnston & Anthony Burden

Builders’ liens are a great tool for the unpaid contractor, subcontractor and supplier. It gives you leverage over a project, even if you’re only owed a small amount. But the simple one-page form is much more complicated than it appears, and what might be seen as a harmless mistake can be fatal to your lien. The wrong number or word might be enough to invalidate your lien, remove your leverage and catapult you into the pit with other unsecured creditors.

Builders’ Liens: the basics

The builders’ lien form is commonly used in the construction industry. The Alberta government has the form online. A lien claimant fills in the blanks:

  • Who did the work, the type of work they did, for whom, and how much they’re owed;
  • Legal (not municipal!) address of the land worked on and who owns that land;
  • Whose interest is being liened (is it the registered owner i.e. fee simple? Or the party leasing the land); and
  • Last day on site (if work is complete).

This seems simple enough, right?  But mistakes happen – especially when there’s a rush to get the lien registered in time. However, when there’s a mistake on the lien form, it isn’t always clear if the lien is invalidated.

Oops, I messed up the lien…now what?

The Act (section 37) has a provision that may save a lien that contains a mistake. It provides that “substantial compliance” with the list above is enough, unless, in the Court’s opinion, a party is prejudiced by the mistake. Great! But what is substantial compliance, and what is prejudice? Each case is decided based on its specific facts, but the Court in Norson Construction Ltd v Clear Skies Heating & Air Conditioning Ltd, 2017 ABQB 188 dealt with liening the right lands, but identifying the wrong owner.

The project in question was owned by Pattison. Norson was the general contractor, Whitemud was a subcontractor, and Clear Skies was a sub-subcontractor. Clear Skies hadn’t been paid, so it filed a lien using the form provided and filing in the information on its own. It had most of the correct information, but mistakenly listed Whitemud, not Pattison, as the owner.

Luckily for Clear Skies, the Court decided this was “substantial compliance” with the Builders’ Lien Act, and there was no prejudice to anyone resulting from the mistake. The lien was registered against the right lands and the right interest – i.e. Clear Skies didn’t mistakenly lien a leasehold interest rather than the fee simple.

How does this decision affect you?

Naming the wrong owner in your lien is not fatal, as long as the correct legal address is liened. However, liening the wrong interest will likely be fatal, as will liening the wrong legal address. These two scenarios are common: a given city block might have dozens of different legal addresses. How do you know the exact location you performed work? Other contractors, or the municipality, or online searches may help, but even they can be wrong.  “I tried my best to get it right” isn’t enough.

There’s no requirement to hire a lawyer to register a lien, but Field Law recommends doing so. We have qualified staff and lawyers that can perform the necessary searches, complete the lien forms, and take the required enforcement steps to maintain your lien. If you would like more information on how to ensure your hard work is protected by a proper lien, contact Catriona Otto-Johnston, lawyer and Partner with Field Law, or Anthony Burden, lawyer and Associate with Field Law, to discuss.