One of the most contentious issues in building contracts is mechanism to ensure that the contractor is guaranteed payment for extras, and that the owner is guaranteed not to pay for something that is not an extra. It would be simple to state these propositions in a building contract, but they usually aren’t there.

However, in King Road Paving and Landscaping Inc. v. Plati, the Ontario Superior Court of Justice found that that is exactly what the contract said. The contract was for the renovation of a barn, to convert it into a “marijuana grow operation” said the contactor, or a nightclub said the owner. The parties entered into an initial written contract to renovate the barn. However, there were no signed contracts for much of the work that was done and the payments for the work were largely made in cash without any receipts. There were disputes over a large amount of work for which additional payment was claimed by the contractor.

The Decision

The court performed a two-stage test to determine if the owner was obliged to pay for this work:

“in the absence of any written agreements relating to extras, the only way to determine whether something is an extra is by reference to the original contract. A secondary issue is whether the work claimed was actually performed, and, if so, the cost of such work.

Having performed this exercise, the court held that under the following term of the contract, the contractor was entitled to be paid for this work:

“All work not stated will be a charge of time and materials.”

Accordingly, the court found that since the work was done, and was not covered by the written contract, the owner was required to pay for it. Payment was to be the basis of “time and material” where invoices or other evidence supported the claim.

In arriving at this conclusion, the court found that the owner’s representative was on the site and therefore aware that the work was being done. As the court said:

“[the owner] often assumed (or perhaps hoped) that any extras would be covered by the price set out in the contract. That, however, is not what the contract provides.”

Discussion

Why make a fuss about this simple little case? Because the building contract stated an express obligation to pay for extra work that so many building contracts don’t quite state.

Thus, the CCDC contracts never quite state that obligation. Instead, they construct an elaborate regime under which the consultant is to oversee the progress of the work and rule on whether work or materials are extras, and then an equally elaborate procedural regime relating to dispute resolution, change orders and changed conditions. Those regimes appear to intend that the contractor will be paid for extra work and materials, and that the owner won’t pay for work and materials that are covered by the contract. But they never quite say that expressly.

The real problem is with respect to work that, during the job, the owner says the contractor must perform as it is within the contract and the contractor says is not within the contract. If the consultant sides with the contractor and the contractor feels obliged to proceed with the work, the contractor may be shut out of a quantum meruit claim based upon the decision of the Supreme Court of Canada in Peter Kiewit Sons Co. of Canada v. Eakins Construction Ltd. [1960] S.C.R. 361. If the contractor refuses to do the work, then the owner may terminate the contract and sue the contractor for damages.

It is this conundrum that the dispute resolution and change order provisions of the CCDC contracts are intended to address. They are intended to ensure that the contractor can proceed with the work without prejudicing its claim for extra payment for the work. The court or arbitrator can later determine that the work or materials were or were not part of the contract, and if they were not, then the contractor is entitled to be paid for them.

This is the result that the Supreme Court of Canada arrived at in Corpex (1977) Inc. v. Canada, 1982] 2 S.C.R. 643. The Court said that, as long as the contractor gives timely notice under these procedural clauses of its claim that the work is an extra (or is due to unforeseen circumstances, or due to the owner’s delay or whatever the claim arises from), then the contractor is “practically certain of being compensated for additional costs”.

The words “practically certain” aren’t the strongest foundation for a claim in these chancy circumstances, but coming from the Supreme Court of Canada contractors have been relying on them to proceed with the work and assert the claim. But those words are, perhaps, appropriate because the sorts of extras/changed condition/dispute resolution provisions dealt with in Corpex provide procedural remedies. They don’t actually say that the contractor will be paid. But they must mean that, as long as the contractor gives timely notice and the work and labour is later found to be extra to the contract.

Refreshingly, in twelve rather inelegant words, the contract in the King Road Paving case said exactly that: the contractor will be paid for extra work. Maybe other building contracts can say exactly that.

Thomas G. Heintzman O.C., Q.C., LL.D (Hon.) FCIArb                   April 1, 2017

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 4, part 8 and chapter 10, part 6(c).

King Road Paving and Landscaping Inc. v. Plati, 2017 CarswellOnt 1712, 2017 ONSC 557

Building contract – extra work and materials – quantum meruit

This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.