Thursday, 19 May 2016

Be Careful What You Wish For: When a Breach of 'Contract A' May not be Worth Contesting - Specifier: April 2016

The Alberta Court of Queen’s Bench has recently issued yet another Contract A/Contract B decision, but this one has an interesting twist to it. In Elan Construction Limited v. South Fish Creek Recreational Association (2015 ABQB 330), the Court confirmed, if not strengthened, what we already knew about the bidding process – that the Owner must evaluate all bids fairly, consistently and in accordance with the stated evaluation criteria and the reasonable expectations of bidders, and that exclusion clauses will not save the Owner when they have clearly departed from these obligations. However, despite successfully showing that the Owner breached these obligations for Contract A, the Contractor in this case learned that sometimes a win is not always a win.

What happened?

In 2010, South Fish Creek Recreational Association (“Fish Creek”), a collective group of non-profit sports and community associations, decided to move forward with a project to add 2 additional ice surfaces and a multi-purpose room to an existing recreation facility. The budget was approximately $19 million, and the Consultant (Quinn Young Architects) prepared an Invitation to Bid and Instructions to Bidders for the project. Only pre-qualified bidders were invited to bid, which included, among others, Elan Construction Limited (“Elan”) and Chandos Construction Ltd. (“Chandos”).

To alleviate Fish Creek’s concerns about roping itself into a project using a contractor with a shoddy reputation, the Consultant outlined four criteria in the Instructions that would form the basis of the bid evaluation: price, completion date, experience and references. Each category was assigned a specific number of points for evaluation purposes.

Ultimately, the project was awarded to Chandos, and Elan voiced its protest, claiming that the project was awarded based on criteria not disclosed in this evaluation matrix. As a result, Fish Creek found themselves heading to the courthouse for an alleged breach of Contract A.

The Court agreed with Elan, finding that Fish Creek did, in fact, significantly depart from the evaluation criteria outlined in the Instructions, specifically:

On completion date:

  • While the Invitation bolded August 1, 2011 as the desired substantial completion date, the Consultant internally split the points in this section between substantial completion date and date for completion of deficiencies. Then, he created a complex formula for awarding these points. He first excluded several bidders from the completion date analysis (one for being an ‘outlier’ from the rest of the dates, and others for unexplained reasons), and used the remaining dates to create an average completion date, which was used as a baseline for awarding points to the remaining bidders. The same analysis was applied to the points for the deficiencies completion date. None of this, the Court explained, was communicated to the potential bidders, and the Court held that the combination of all these actions actually worked against Elan, who reasonably assumed that the highest points would be awarded to those who could commit or come closest to the August 1 date.
On experience:
  • In awarding points, Fish Creek placed considerable weight specifically on arena building and LEED experience, though neither of these were referenced in the bid documents. 
  • Following submission of the bids, Fish Creek decided to conduct interviews with Elan and Chandos, though this requirement was not disclosed in the bid documents either. Adding further insult to injury, Elan was informed that the interview must take place on August 18, despite the fact that Elan’s site superintendent and project manager were unable to attend on those dates. 
  • And, just prior to the interview, Chandos substituted the site superintendent shown in its bid with a ‘ringer’ in the arena building department, and as anticipated, his references and qualifications proved quite charming to Fish Creek during the interview process. Given that amendments to the bids were only allowed prior to the bid closing date, the Court found this substitution to be a significant breach that could not be passed off as an ‘informality’ waived by the exclusion clauses in the bid documents.
Naturally, Fish Creek argued that their exclusion and privilege clauses in the bid documents were wide enough to provide a full defence to any breaches claimed by Elan, particularly because they required Elan to “waive any right to contest any legal proceedings regarding the decision of the Owner to award points under the criteria noted below.” However, the Court disagreed, and re-affirmed that such clauses do not detract from the Owner’s obligation to treat bidders fairly and to disclose all criteria that will be used to evaluate the bids.

As a result, the Court confirmed that Fish Creek did, in fact, breach Contract A. And, the surrounding facts clearly supported Elan’s claim that, but for Fish Creek’s breaches, Elan would have been awarded the contract for the project.

Before you pop the champagne…

Let’s hope that Elan read the Court’s decision from back to front, as it would have saved them from the inevitable letdown in the damages analysis undertaken by the Court. Anyone who has spent $100 at the fair throwing baseballs at milk jugs, only to be presented with a one-eyed stuffed bear as the prize, will have a taste of Elan’s bitter disappointment in this department.

Elan presented the Court with a ‘lost profit’ damage calculation using their historical figures, which supported a 5% profit margin on similar projects. Their lost profit on the project, they argued, was approximately $700,000.

But the Court reminded them that a damage award must place them in the same position as if the breach had not occurred. And what position would that be? Well: 
  • One of Elan’s listed subcontractors had actually underestimated the scope of work required, and on the evidence presented, the Court found that Elan would have been forced to absorb at least some of the cost associated with this error. 
  • Both Elan and Chandos had listed the same masonry and paving subcontractors in their bids. Chandos testified that it incurred additional cost on the project to replace both of these subcontractors (the former because they were deemed ‘too high risk’ to contract with, and the latter because they fell into receivership). The Court was persuaded that Elan could not have escaped these additional costs either. 
  • Chandos suffered severe losses due to unexpected weather conditions, as 2010 just happened to be an unusually cold and early winter in Calgary. Based on the evidence presented, the Court found that Elan would also have incurred these inevitable costs.
  • Finally, there were major delays on the project due to various unanticipated design issues, all of which proved costly for Chandos. Once again, the Court found no reason why Elan would have escaped similar costs of this nature. 
All things considered, Chandos provided evidence showing that it had actually suffered a substantial loss on the project, and the Court found that Elan, too, would have incurred a substantial loss as opposed to a profit had they been awarded the contract instead. So, while Elan celebrated its successful breach of Contract A claim, the celebration quickly turned sour when the Court awarded them nominal damages of $1,000. 

What can we learn from this?

Consultants should keep this case in mind when preparing bid documents and evaluating submitted bids. Specifying rigid evaluation measurements may prove dangerous, as the Courts will scrutinize these criteria closely to ensure the ‘integrity of the bidding process’ is upheld at all times. 

And while its unsettling to believe that you were treated unfairly during a bidding process, Contractors should put careful thought into the hypothetical outcome of the project had it been rightfully awarded to them. In other words, be careful what you wish for – you just might get it.

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1 comment:

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