Canadian Design-Build Institute Risk Management Committee


The Minimum Performance Principle and The Calculation of Damages for Breach of Contract

By Paul V. Stocco, Partner Brownlee LLP and Heather Cave, Student-at-Law, Brownlee LLP

In breach of contract cases, one of the key legal issues is calculation of damages suffered by the non-defaulting party. The typical rule is that damages are awarded so as to give the non-defaulting party the benefit that it would have enjoyed from the contract had the contact been fully performed. Contracts sometimes contain limitation of liability clauses that restrict and clarify the types and amounts of damages that can be claimed by and awarded to a non-defaulting party. In instances when there are alternative ways of performing the contract at issue, and where the alternative ways of contractual performance give rise to different damages calculations, a Court will choose the scenario that is least profitable to the non-defaulting party and least burdensome to the defaulting party. This is known as the “minimum performance principle”. Read more

Consultant Certificate Controversy: Are Progress Certificates Binding?

By Joshua Ungar, Brownlee LLP

It is a common misconception that once a consultant has certified work completed by a contractor, the owner is bound to that certification and will be required to pay the amount certified in a timely manner regardless of the circumstances. While the older case law predominantly supports this position, and while the general premise still holds some merit, a deeper examination suggests that there are several instances in which an owner may be entitled to dispute its obligation to pay. Read more

Breaking up Is Hard to Do

By Krista Johanson, Borden Ladner Gervais

A recent Ontario court decision illustrates the expected – and unexpected – challenges that arise when one party wishes to end a contractual relationship. In Bombardier Transportation Canada Inc. v. Metrolinx, 2017 ONSC 2372, Bombardier had entered into a $770 million contract with Metrolinx to design and build a fleet of light rail transit vehicles for new transit lines in Toronto. After a series of very public delays in meeting milestone deadlines, Metrolinx put Bombardier on notice that it was in default of the contract and then terminated the contract. Bombardier objected to the termination, saying that it had cured the default by developing a new schedule it was confident it could meet. Read more

The Fine Art of Limiting Liability

By Steve Vorbrodt, Singleton Urquhart LLP

Almost all professionals these days provide their clients with a written engagement letter – if they don’t, they should. This includes all sorts of professionals including architects and engineers as well as design-builders. Many design firms try to limit their exposure in the event of errors or omissions by including limitation of liability clauses in their engagement letters and / or contract terms. However, the professionals who rely on them may not always be as protected as they think they are. Read more

Contract Warranties

By Norm Streu, LMS Reinforcing Steel Group, and Christopher Hirst, Alexander Holburn Beaudin + Lang LLP

Buried near the end of most construction contracts are contractual warranties. These clauses rarely receive much attention or comment but, a recent court decision has highlighted the risks inherent in these common clauses. In Greater Vancouver Water District (GCWD) v. North American Steel and Pipe Ltd., the GVWD contracted with North American to supply steel pipe for a waterworks project. The GVWD and its consultants had prepared the design and specifications for the steel pipe that was to be supplied by North American. In the contract, North American gave two relevant warranties to the GVWD with respect to the steel pipes. First, North American warranted that the steel pipes would conform to the specifications; and second, that they would be “free from all defects arising at any time from faulty design in any part of the Goods.” Read more

Is It Over Yet? A Summary of Provincial Limitation Periods

By Nolan Heuchert, Wylie-Crump Ltd. and Paul Stocco, Brownlee LLP

During the CDBI design-build tutorials across Canada, we are frequently asked about the limitation periods for legal actions in the various provinces. Unfortunately, there is no one common rule across Canada. Many of the provinces have undertaken a review of their limitation legislation and changes are happening, albeit slowly. As a general trend, provinces are enacting a 2-year limitation period in respect of a known cause of action, along with a 10 or 15-year ultimate limitation period. Read more

Avoiding Pay When Paid Pain

By Paul Stocco, Brownlee LLP

There is an old saying that “cash is king”. Adapted for challenging economic times, the saying should be “cash flow is king”. Ensuring that accounts receivable are paid in a timely way, and having enough cash flow to pay accounts payable, are prime concerns for any business. Adequate cash flow is especially important for the construction industry where the flow of money from the top to the bottom of the contract pyramid determines the success, or failure, of a construction business. Read more

What’s on the Horizon Part II?

By Paul Stocco, Brownlee LLP

In the case of Re Horizon Earthworks Ltd., the Alberta Court of Queen’s Bench attempted to clarify the entitlement of competing claimants to monies “earned but not yet paid” by the MD of Greenview (“MD”) to an insolvent contractor (“Horizon”). Like many construction contracts that allow an owner to pay an unpaid subcontractor directly upon receipt of notice of an unpaid account, the MD’s contract with Horizon allowed the MD to pay unpaid subcontractors of Horizon directly. Read more

BC Supreme Court Addresses Interesting and Novel COC Policy Issues

By R. Glen Boswall, Clark Willson LLP

In the recently decided case of Acciona Infrastructure Canada Inc. v. Allianz Global Risks US Insurance Co., the BC Supreme Court addressed some interesting and novel issues concerning Course of Construction (COC) insurance. Particularly, the Court,

  • clarified the distinction between excluded defects and covered resulting physical damage within a building component;
  • dealt with a novel argument that fortuity was not required to trigger coverage under typical COC policy wording; and
  • was the first in Canada to interpret a design and workmanship exclusion wording that is becoming more common in COC policies.

Read more

When Is a Contract a Contract?

By John R. Singleton, Singleton Urquhart

The lack of proper contracting practices has always been a concern in the construction industry, particularly for professional consultants, but also for builders, trades and developers. Although there has been a marked improvement in understanding the need for a proper contract with one’s client, the ability to manifest that need is still lacking in many corners. Understanding what a contract is and why it is so important will hopefully encourage design- builders to pay closer attention to this aspect of their practices. Read more

The Extent of a Surety’s Obligation under a Performance Bond: An AXA to Grind

By Paul Stocco, Brownlee LLP and Eleni Loutas

Despite the wording set out in a performance bond, the extent of a Surety’s obligations to an Owner/Obligee, in the event of a default by the Principal, is unclear. There are two perspectives and each one is represented by a decision of an appellate court.

On the one hand, the Ontario Court of Appeal has held, in the Whitby Landmark Development Inc. v Mollenhauer Construction Limited (“Whitby”) case, that a performance bond Surety is responsible for all of the Principal’s obligations/liabilities under the bonded contract, not just those related to the costs of completing the physical construction e.g. Principal’s potential liability for liquidated damages for delay payable to Obligee. By contrast, the Saskatchewan Court of Appeal, in the Lac La Ronge Indian Band v Dallas Contracting Ltd. (“Lac La Ronge”) case, has held that the scope of a Surety’s obligations under a performance bond are limited to completion of the physical work solely. Read more

Avoiding the Pitfalls of Social Media

By Paul V. Stocco, Brownlee LLP

Technology has changed how construction companies perform their work. Social media has changed how construction companies do business. Technology facilitates instantaneous exchange of information. While this can be beneficial, there are also some risks that construction firms must manage effectively in order to avoid the pitfalls created by social media. Construction firms face a new set of challenges due to the proliferation of social media. Read more

Contractor’s Warranty Triggered by Defect Arising from Owner’s Specifications

By R. Glen Boswall, Clark Wilson LLP

The recent decision of the British Columbia Court of Appeal in Greater Vancouver Water District v. North American Pipe & Steel Ltd. serves as a warning to contractors about the risks taken when they commit to follow design specifications while also providing an unqualified warranty against design defects. Read more

Coverage of Construction Deficiencies

By R. Glen Boswall, Clark Wilson LLP

In an April, 2012 ruling in Lombard General Insurance v. Canadian Surety Company, the British Columbia Supreme Court (“BCSC”) analyzed and applied the “particular part” restriction within the typical CGL policy faulty work exclusion (the “particular part work exclusion”). In doing so, the BCSC followed the path set down by the Supreme Court of Canada (SCC) in Progressive Homes Ltd. v. Lombard General Insurance Company of Canada. Read more

What’s on the Horizon?

By Paul Stocco, Brownlee LLP

At the time that Horizon was assigned into bankruptcy, it had several incomplete projects throughout Alberta including a project for the Municipal District of Greenview (“Greenview”). As part of the contract with Greenview, Horizon was required to post a Performance Bond and Labour and Material Payment Bond each in the amount of $761,662.22. Prior to delivering the said bonds, Horizon had executed an indemnity agreement with its bonding company, namely, Western Surety. Read more

When Is a Design Faulty

By John R. Singleton, Q.C., Singleton Urquhart Legal Counsel

Those undertaking design-build projects must become educated to the potential risks that they face in taking on the role as the “design-builder”, and being the sole contract holder to an owner with responsibility for both construction and design. Whilst the common insurance products available for project address many of the identified physical perils to a project, there are certain specific insurance policy exclusions which should be reviewed and understood. A common focus is upon the “Faulty Design Exclusion” which is found in many property insurance policies, and similar Builders Risk insurance policies. A common Faulty Design Exclusion will exclude coverage for: “cost of making good faulty or defective workmanship, material or design…” Read more

Design-Builder Contractors and the Need for Professional Liability Insurance

By Nolan Heuchert, Wylie-Crump Limited

There was a time when there was a clear distinction between the contractors who performed the “work” and the architects and engineers who performed the “professional services.” Their respective roles and responsibilities were relatively clear and separated by distinct contractual arrangements. Today, more often than not, the general contractor of the past is today’s construction manager or design-builder. The owner’s project architects and engineers may now be the contractor’s design consultant or joint venture partner. Read more

2010 Important “BIM-formation”

By Paul Stocco, Brownlee LLP

Technology has had a tremendous impact on construction. Each new technological advance in construction machinery and construction products influences how a construction project will look once completed. Along with changes to how construction projects are built has come a change in how construction projects are designed. Building Information Modeling (BIM) promises to revolutionize the way construction projects are conceptualized, designed, constructed and ultimately operated/maintained. This new and exciting design model has many advantages, but as with any innovation, there are risks. Read more

Hands off My Holdback

By Paul Stocco, Brownlee LLP – Article prepared with the assistance of Kristjana Kellgren, Associate, Brownlee LLP.

These are turbulent times for the construction industry. While there are signs of a modest economic recovery, there are also many warning signs about how fragile the recovery really is. Some of the foremost concerns of the industry are the availability of credit and maintaining a positive cash flow. If contactors are experiencing difficulties in operating their businesses, this has an impact on the industry as a whole–work on projects can start to slow down, contractual defaults can increase, and the spectre of contractor insolvency looms. Another development often seen in times of economic slowdown is the increased activity of the Canada Revenue Agency (“CRA”) Read more

Coverage under CGL Policies for Construction Defects

By John R. Singleton, Q.C., Singleton Urquhart Legal Counsel

Much has been written and said by both legal commentators and the judiciary about the coverage available to general contractors and their subcontractors under general liability policies for claims brought against them for “property damage” on projects they have worked on. The issue has arisen not when there are claims for “property damage” to property external to the project in question, but when the claim is for the cost of repairing portions of the project itself as a result of faulty workmanship or materials supplied by a general contractor or its contractors. Read more

Requests for Proposals for Design-Build Projects: Identifying and Mitigating Select Legal Risks

By Denis Chamberland, Aird & Berlis LLP

It is widely accepted that low-bid procurement – which relies on a single measure, cost – is not the optimal procurement methodology for design-build projects. Owners who prefer such a commodities-based approach to competition fail to take advantage of several attributes that contractors may bring to the equation, such as quality and performance. As a result, the Request for Proposals (RFPs) has become the procurement methodology of choice for services as complex as design and construction. Indeed, most owners welcome the opportunity to review proposals that are based on their own distinctive needs, and where they are more likely to arrive at the best combination of value. Read more

Design-Build Problems – Design Growth

By Steve Panciuk, P.Eng., Assistant Vice-President, Construction Claims Encon Group Inc.

This Bulletin was prepared following identification of a source of new claims being reported involving design-build projects where the contractor is claiming costs associated with “design growth.” These claims develop as a result of design changes between preliminary drawings and construction drawings. The Bulletin deals with the contractor-led (consultant contracts with contractor) guaranteed maximum price design-build projects. It is intended to assist engineers/architects avoid, or at the very least reduce, the extent to which they find themselves exposed to such claims. Read more

Employee Fraud: Keeping the “F” Word off Your Construction Site

By David Miachika, Ross McGowan and Robert Dawkins  Borden Ladner Gervais LLP

Fraud is one of those words that all people seem to know and use but few seek to clearly define. It encompasses is a broad category of deceptive behaviour designed to benefit the fraudster, or a third party, to the detriment of the target of the deception. Its scope is limited only by the ingenuity of people looking for the easy dollar. Read more

Sustainability – Implications for Design Professionals

By Derek Holloway, Senior Vice-President, Architects and Engineers ENCON Group Inc.

There is a growing trend toward the construction of “green” or “sustainable” buildings. While to date most of these buildings have been constructed for public sector clients as models for others to see, or for private sector companies wishing to demonstrate their corporate social and environmental responsibility, there is some momentum for the expansion of the sustainability movement. Read more

Project-specific Professional Liability For Design-Build Projects

By Simon Fenn, CDBI Risk Management Committee Chairman 2001

On a typical design-build project, there is no shortage of professional liability insurance. Many times, perhaps more so in the USA than in Canada, the contractor, the design firm, the design sub-consultants and some sub-contractors all carry professional coverage. It may seem everyone is protected in the event of a loss. Read more

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