Avoid Nightmares in Dream Home Construction: The Importance of Carefully Drafting and Following Your Construction Contract

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By Denny Chung

Ellcar Ventures Ltd. v. MacLeod2023 BCSC 2095 reminds all construction stakeholders to pay close attention when drafting and executing their contracts. Where possible, include contractual terms to address contingencies that impact the contract scope, price, and time. Document the progress of the project in writing, including all communications especially when issues arise. Most importantly, follow your contract. If you don’t, you may not be able to rely on key terms as you had intended.

Facts

The owner hired the contractor to build her residential home. They entered into a bespoke eight-page contract that the contractor drafted. During the construction, extra work scope arose which increased the project cost and time. The owner refused to pay the contractor’s final invoice due to the extras. The owner argued there was a fixed price contract, so extras beyond that price were the contractor’s responsibility. The contractor stopped work and sued the owner for payment. The owner countersued for deficiencies and delay.

Decision

The contractor was substantially successful. The key issue at trial was contractual interpretation: what did the contract cover in scope and cost? The Court found that the contract was not a strict fixed-price contract. It contemplated extras and limited the scope of work to that specified in the contract.

The Court agreed with the contractor’s interpretation of the contract. The Court lauded the contract’s simple and clear language. The contract price did not capture all of the extras. Those extras were necessary, unforeseen, and accepted by the owner. The owner asked for more expensive goods and services above the specified base scope in the contract—this accounted for the bulk of the disputed extras.

The Court rejected the owner’s argument that the contractor was obliged to build to her plans which she said captured the extras. The owner’s plans were conceptual before construction, did not account for actual site conditions, and many of its elements were not incorporated into the contract or final construction of the house. Moreover, the contract gave priority to specifications arising during construction over pre-construction blueprints. The owner requested many specifications during construction that went beyond what was provided for in the blueprints. With respect to unforeseen site conditions such as the need to hammer (rather than dig) bedrock, the contract did not include these more expensive works. It was not reasonable for the contractor to bear these expenses—they were not an insurer for all unexpected problems.

The Court rejected the owner’s argument that unsigned change orders were not payable. The contract required adjustments in price be agreed to in writing. However, the owner impliedly waived reliance on signed change orders. Here, neither party provided or asked for any written change orders. The owner requested several changes that were unsigned but were executed at the owner’s direction and under her watch. The owner could not rely on the contract requirement for signed change orders.

The Court rejected the contractor’s argument that the owner was in fundamental breach which entitled them to stop work when they did. The owner refused to pay the contractor’s final draw, but she did not indicate that she would not pay nothing for the final draw. She said she would make certain payments in ongoing negotiations with the contractor. In any case, the contractor did not accept the owner’s fundamental breach. They continued negotiating. The owner was also entitled to claim for defective work, which right crystallized before any termination of the contract. The contractor was therefore still responsible to correct deficiencies.

Nevertheless, the owner could not prove most of her deficiency claim. She did not

(1) provide a deficiency list before making final payment,

(2) provide the contractor the chance to correct the defects before hiring another contractor to do so, or

(3) establish that all of the defective work was base scope as opposed to extras.

Finally, the Court rejected the owner’s claim for delay. The contract did not provide any completion date or even a “time is of the essence clause”. The owner had no basis on which to assert delay.

Takeaway

The parties in Ellcar learned first-hand how any construction project can go off the rails if the parties do not follow their contract terms. Ignoring or treating your contract too casually can transform your “dream home” project into “grotesquely disproportionate litigation”, as Justice Crerar describes in this case.

The findings in Ellcar reaffirm several time-tested principles that apply to all owners, developers, design professionals, and contractors, no matter the size or nature of a project.

Provide for contingencies in scope, price, and time, keeping in mind that unexpected issues almost invariably arise in any project. Terms governing change orders and directives, and associated price formulas can assist.

Follow your contract terms if you want to rely on those terms. Where deviations from a particular requirement may be deemed necessary or most efficient, record the parties’ intention with respect to any such deviations (e.g. an unsigned change order in one instance will not remove the requirement for signed change orders for all future changes).

If you claim a fundamental breach, be sure to document the sort of conduct to justify it, which requires showing your counterparty clearly intends not to be bound by the contract any longer. And, be ready to walk away immediately after the fundamental breach in a clear and unequivocal manner. Expressly communicate you are doing so and do not act to the contrary, such as continuing to negotiate.