Change Orders And Complaints Complicate Construction Payment
August 28, 2020
Disputes related to construction contracts can have a serious impact on a project and the ability to have it completed in a way that satisfies all parties. The delays and costs associated with litigation can be crippling to a project. As we often see in construction contract disputes, a failure to follow specific instructions in a contract can lead to the parties finding themselves before a judge, as we recently saw in a decision from the Alberta Court of Queen’s Bench.
Final payment for the construction project is challenged
The plaintiff is a construction company who was hired by the defendant to construct a building for use as a daycare. The original contract was for the amount of $950,000 plus GST. However, there were a few change orders agreed to, with the most significant one being in the amount of $155,971 (“the change order”). The change order was signed, according to the court, and there was a text message from a representative of the defendant, saying to “just go ahead” with the additional work.
The defendant ultimately argued that their approval was given under duress. However, the court stated that there were no complaints associated with the additional work throughout the completion of construction, and that the work covered under the change order was clearly not in the original contract. As a result, the court found that the costs associated with the change order were agreed to.
The contract requires use of project consultant
The real issue before the court was whether the provisions in the contract requiring the use of a project consultant for the submission of progress payments were followed. The contract stipulated that the plaintiff was to submit invoices through the project consultant, who would review them. The defendant did not request that the process be followed and did not object to any of the invoices forwarded directly to them. The court found that in the end, the project consultant was used hardly at all.
The court highlighted the importance of the use of a project consultant, writing,
“By having accounts submitted for payment through the consultant, an owner who may or may not be sophisticated in construction matters receives a review of the contractor’s invoices, and assistance with any issues that arise during the course of construction. On the other hand, while the contractor’s invoices are subject to review, it can take some comfort in knowing that they are being reviewed by a knowledgeable person with professional obligations, as opposed to an owner with a vested interest in the project and minimizing costs. As such, in an ideal setting, the consultant is often a form of buffer between the contractor and the owner.”
The first documented mention of deficiencies in work was for $52,000 and was made shortly after the defendant took possession of the building. Since then, an additional $252,000 in costs were challenged.
Were there deficiencies in the construction project?
The defendant submitted a number of quotes outlining how much it would cost to fix the alleged deficiencies, though the quotes themselves do not acknowledge the existence of any deficiencies. The plaintiff wanted to retain a 10% holdback under the Builders’ Lien Act, amounting to $112,497. This would leave the total amount still owing at $588,082.62 rather than the actual contracted amount still owing of $475,584.96.
The court found that the issue isn’t really a matter of questionable work, especially since none of the issues cited by the defendant were raised during the course of construction. Instead, the dispute was more about whether the statutory holdback should be released. The court decided that the plaintiff should be awarded all except the amount of the lien, writing,
“While normally set off cannot be made against the 10% portion of the lien fund, there are no subcontractor liens in this case, and the issue is directly between the contractor and the owner. I choose the statutory holdback amount for several reasons. One is that it fairly encompasses and covers the deficiencies that were claimed shortly following completion. Some of those alleged deficiencies were quantified and some of them were not quantified. In addition, the contract (at GC 5.5 and GC 5.7) has specific terms dealing with final payment so the holdback amount would appear to be a proper place to draw a line between what the action should be about, and what it should not be about. The certificate of substantial performance was not challenged when issued, and the owner claimed an occupancy permit, so there is no reason that (the plaintiff) should not at least be paid for everything up to, but short of, the final payment stage.”
At HMC Lawyers, our team of skilled lawyers knows that construction disputes and project delays can have massive impacts on your financial bottom-line. We work closely with our clients to understand their business and personal needs and identify the best potential outcome, then work diligently to resolve matters quickly and with certainty. To speak with one of our lawyers about a construction contract or delay claim, contact us online or call 1-800-480-3534. We represent construction clients in Calgary, throughout Alberta, and across Western Canada.