McGILL LAW JOURNAL
Volume i’
Montreal
1965
Number 3
The Preparation Of Construction Contracts
The Honourable George S. Challies *
Invitations to Bidders and Bids
Any considerable contract is usually preceded by public bidding
secured by invitations to bidders published in the press.
The advertisement usually gives rough information about the
job and ‘may list the quantities involved.
A simple invitation to bid might read:-
“Sealed proposals are desired for the performing of all the work and the
furnishing of all the labour, material, and equipment incidental to the con-
struction of a powerhouse on the north fork of Cherry Creek, Logan County,
Utah, in accordance with the plans and specifications available in the office
of the Chief of Engineers.”
If more detail were thought necessary, the invitation might
read thus:
“Sealed proposals are desired for the construction of the intake structures,
intake shafts, and river connecting tunnel at Berry Point, Wisconsin. The
intake structures will be built of reinforced concrete. The two intake shafts
will have an internal diameter of 11 feet and 15 feet, respectively, and will
be lined with concrete. The portions passing through earth being of rein-
forced concrete”, etc.
Very often a deposit is required by certified cheque to guarantee
that a bid is serious. The deposit is returned to unsuccessful bidders.
Bidders can obtain copies of plans and specifications on paying
for them.
It is customary to specify that any bid, whether the lowest or
not, may be accepted or refused, and to set forth the time and place
where bids will be opened.
* Associate Chief Justice of the Superior Court. The present article was de-
livered as an address at the Junior Bar Symposium, November 19, 1964.
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An invitation to bid is merely what the words imply and no
contract can result from the bid. In fact the bid is merely an offer
to the owner which he may or may not accept. If a bid is accepted
a contract is then entered into usually a variation of one of a
standard form of contract used by the Canadian Construction As-
sociation and the Royal Architectural Institute of Canada. We will
presently consider at length such a contract.
Types of Contract
Lump Sum – Here the interests of owner and contractor are
opposed. The less the contractor gives in labour and materials the
more profits he makes although the owner does know what the
total will be.
Unit Price (with schedule of quantities) –
The contractor is
not so tempted to skimp but the owner has no definite knowledge
of the total cost.
Cost-Plus –
Sometimes there is cost plus a flat fee rather than
a per cent. In order to give the contractor an incentive to save he
is sometimes given a per cent of any saving below a certain total.
Important Characteristics of Contract – apart from Legal Essentials
Fairness, definiteness, accuracy, clarity, brevity, convenient
arrangement.
Contents of Contract Generally
The contract usually consists of four things:
1 Plans
2 Specifications
3 General Conditions of Contract (which are more or less same
for all)
4 Specific conditions of particular contract.
These things form a single whole. In one form one reads: “The
general conditions and specifications and drawings form part of
this agreement and constitute the contract between the parties”.
Plans
Preliminary plans are usually necessary in order to permit bidders
to bid. The degree of detail required varies from job to job. The
successful bidder is entitled to a reasonable number of copies of
plans and of shop drawings showing in detail the various jobs.
No. 3] PREPARATION OF CONSTRUCTION CONTRACTS 187
Specifications
These are a written description of the work to be performed,
usually describing in detail the quality and nature of the work and
materials required. e.g. The Memorandum Specifications under the
National Housing Act gave a list of minimum standards of materials
and construction which was then followed by the detailed specifi-
cations.
They may be in one document or in a series of documents, one
steel work, reinforced concrete, plumbing, elec-
for each trade –
trical, etc.
Capacity or Required Performance
It is important to set forth for a load bearing structure live
load, impact, wind load, etc. For pipe lines or tanks pressure should
be stated. A contract for a pump may require so many gallons per
minute at a given plunger speed and head. A generator may be
required to have a given output at a stated power factor and speed
and to be able to stand a given overload. Vehicles and ships may be
required to maintain prescribed speeds.
Quality of materials
What is first class should be defined, otherwise who is to say. It
is dangerous to specify brands without an alternative, if one is un-
available. Negative characteristics are often as important as positive
ones. Characteristics which will cause rejection should be set forth.
In one contract sewer pipe specifications contained the following:
“A single fire crack which extends through the entire thickness of a pipe…
must not be over 2″ long at the spigot end, nor more than 1″ long at the
hub or socket end, measured in the latter case from the bottom or shoulder
of said hub or socket. Two or more such cracks, however, at either end of
said pipe will cause the same to be rejected.”
Quality of Workmanship
Do not specify higher quality than is reasonable in the district.
One should define the acceptable degree of straightness, smoothness,
tolerances in detail. It is useless to say that concrete must be smooth.
What is smooth ?
In Ontario Department of Highways contracts, the standard of
smoothness on a concrete bridge floor is defined as where a ten
foot straight-edge parallel to axis of a bridge would not indicate a
departure of more than 14 inch.
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In another contract “straight” was defined as not more than
1/4 inch out in 50 feet.
Construction Contracts in General
There are usually:
i. main contract between owner and con-
tractor; ii. contracts between contractor and sub-contractor; iii.
contract between owner and engineer or architect for supervision.
As already stated there are standard conditions and the cons-
truction agreement proper.
General Conditions
These vary widely, of course, but might well contain the fol-
lowing items:
Definitions
These are important to avoid later argument. They could include,
owner, company, engineer or architect, contractor, subcontractor.
It is usually provided that the law of the place of building will govern
the interpretation of the contract.
Documents
It usually says that all are read together, that in case of discre-
pancy between specifications and drawings the specifications govern.
Things to be provided by Contractor
It is usual to say that he provides all labour, materials, supplies,
etc., as well as tools, electricity, water.
Authority of Architect and Contractor
The architect has general supervision and direction of the work.
He is the interpreter of the contract and the judge of its perfor-
mance. The contractor must in the last analysis do what the architect
tells him to do but often provision is made for arbitration of a
serious dispute.
Subject to the architect’s general supervision, the contractor has
complete control of his organisation. The contractor shall keep a
foreman on the job at all times who shall represent him.
Inspection of work
The owner or architect (or his representative) shall at all times
have access to the work. The architect can decide what work is not
No. 3] PREPARATION OF CONSTRUCTION CONTRACTS 189
satisfactory and order it to be redone. In this case, contractor must
forthwith do so at his own expense.
If the architect so decides, work is not redone but the price is
reduced to the extent that the work is not satisfactory.
It is often stipulated in the contract that even after final payment
the contractor is liable to replace defective materials or workman-
ship within one year. This is without prejudice to any longer res-
ponsibility under the Civil Code or any other statute in another
province.
Protection of Work and Insurance
It is usual to provide that work shall be protected from damage
and that adequate steps will be taken to protect the public.
The contractor must maintain sufficient liability insurance to
protect him and the owner from claims under the Workmen’s Com-
pensation Act 1 or claims for injury, death or property damage
(e.g. collapse of an adjacent building due to the undermining of the
foundations.) The contractor must file certificates of insurance with
the architect who must be satisfied.
It
The contractor must pay for and maintain in force fire and
supplemental risk insurance in the joint names of the owner and
the contractor to at least 80 per cent of the value of work done. In
case of loss there are detailed provisions regarding payment. Ten
days after notice in writing from the architect that the construction
is complete, the contractor’s liability to insure against fire shall cease.
is important to consider who should insure because of the
requirement under insurance law that a person taking out a policy
must have an insurable interest in the object insured, under pain of
nullity. In Commissaires d’Ecoles de St-Eugene v. Baloise Fire Ins.
Co.,2 a contractor was building a school supplying both labour and
materials. He insured against fire for $3,000 and the Commission
insured for $5,500. Two days before completion there was total loss
by fire. An action by the School Commission against the fire insur-
ance company was dismissed because until delivery, the contractor
remained owner and the risk was his and so the Commission had
no insurable interest. It is better to insure in joint names of con-
tractor and owner as their interests may appear.
Guaranty Bond
The owner may require the contractor to supply a guarantee
bond to guarantee completion, including correction of errors and
1 R.S.Q. 1941, c. 160.
2 [1944] S.C. 19.
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defects. This is important in case of bankruptcy of the contractor,
or sub-contractor.
Alterations and Extras
It is customary to provide that the owner or architect may make
changes by adding or subtracting from the work, the contract price
being adjusted accordingly. This should normally be authorized in
writing except in case of emergency.
If no provision is made in contract based on plans and specifica-
tions for extra, then 1690 C.C. applies and states that in a fixed
price contract based on plans and specifications the contractor cannot
claim any additional sum upon grounds of change in plans or
specifications or increase in prices or wages unless the change or
increase is authorized in writing and price agreed with owner or
admitted by him. The admission must be complete.
However if an extra is a brand new job separate from the main
job these principles do not apply. In a case where a house painter
was to paint the interior of a house, he was able to prove a claim
for the cost of sanding and refinishing floors as this was held to be
an independent contract. Also in Leblanc v. C6tg,3 a builder agreed
to build a two story house with the second story unfinished inside.
After the work started, the owner instructed the builder to finish
the second story. In an ensuing lawsuit it was held that this was a
brand new job, not an extra or change in the original plans, and
proof by testimony was permitted.
Payments
The contract usually provides for progress payments. The de-
tailed conditions require that for each payment the contractor must
submit an application to the architect supported by receipts and
vouchers covering labour and materials including materials on site
but not yet incorporated into the building. This application should be
submitted at least five days before due date.
The architect shall issue a certificate to the contractor on the date
due but may withhold an amount sufficient to protect against privi-
leges of subcontractors or workmen. Interest at five per cent runs
from the date that a progress payment is due.
Cost of licenses, etc.
It is usual to state that all permits or licenses shall be obtained and
paid for and all patent fees paid by the contractor.
3 [1943] S.C. 351.
No. 3] PREPARATION OF CONSTRUCTION CONTRACTS 191
Cleaning up
The contractor must keep the premises cleaned up as much as
possible during the job, and must clean up and remove all waste at the
end of the work.
Time and Delays
It is usual to provide somewhere that time is of the essence. The
time of completion is usually dealt with in the contract proper. In the
conditions it is only fair to provide that delays due to strikes, lockouts,
unusual delays by carriers, or other delays beyond the control of
contractor shall result in an extension of the completion date for such
reasonable period as the architect may decide.
Right of Owner to terminate for unreasonable
Delay or Bankruptcy, etc.
It is usual to state that if there is an unjustifiable delay or other
failure to fulfil the contract, or in case of bankruptcy or insolvency of
the contractor, the owner, upon a certificate of the architect, may
terminate the contract. This applies only in the case of nonfulfilment
of important clauses of the contract. The owner can then himself com-
plete it. When the job is completed, the contractor will receive the
balance of payment if the unpaid balance of the contract price shall
exceed the cost of completion.
In the unlikely eventuality of a contract for construction at a fixed
price saying nothing about this, 1691 C.C. states that the owner may
cancel at any time on paying all expenses of the contractor and paying
damages according to the circumstances of the case.
1691 C.C. applies to a contract between the architect and the owner
H6pital St-Lue V. Beauchamp. 4
These damages are not necessarily and automatically the profits
that the contractor would have made had the contract not been resil-
iated.r In other words the plaintiff must show that it has been unable
to obtain other work to replace the cancelled contract and then it may
be able to recover as damages the profit it would have made on the
cancelled contract.
It has been held that this article applies only between owner and
principal contractor and not between contractor and subcontractor.6
4 [1950] S.C.R. 3.
Gauthier v. St-Laurent [1958] Q.B. 114; Socit6 Napihes Transports v. Tide-
water Shipbuilders Limited [1957] S.C.R. 20.
( Pelisson v. Desrochers [1958] S.C. 289.
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Termination by Contractor
The contract should provide that if completion becomes impossi-
ble because of a court order or an order of a public authority with-
out act or fault on the part of the contractor, he may on notice to
the owner cancel and recover payment for all work done, with a
reasonable profit.
Assignment and Sub-contracts
No assignment should be permitted except by mutual consent.
The contractor shall give notice of the names of proposed subcon-
tractors who must be approved by the architect.
Usually the contractor agrees to bind subcontractors by general
conditions so far as applicable.
Arbitration
It is often provided in contracts that in case of dispute either
party may elect to proceed to arbitration. Each appoints its arbi-
trator and the two so appointed select a third, and if they cannot
agree, a judge of the Superior Court appoints the third. The parties
agree to accept the award.
There is considerable doubt as to the validity in Quebec of such
a general clause because it merely is an undertaking to submit to
arbitration future disputes. There are in the Code of Civil Procedure
articles for submitting to arbitration actual disputes that have al-
ready arisen. The matter is extremely complicated and is dealt with
in detail in The Clause Compromissoire, by Walter S. Johnson, Q.C.
The Contract or Agreement Proper
This usually contains the following:
i. Names and description in detail of parties.
ii. Description of job to be done which is usually also described as shown
in plans and specifications.
iii. Completion dates with penalties for lateness and bonus for early com-
pletion.
iv. Provision for payment periodically on a certificate of the architect.
v. Addresses at which for purposes of the contract all communications may
be sent to the contractor, architect and owner.
Example of Litigation over a Construction Contract
In Verona Const. Ltd. v. Frank Ross Const. Ltd.,7 there is a good
example of the importance of foreseeing all possibilities before con-
tracting.
7 [1961] S.C.R. 195.
No. 3] PREPARATION OF CONSTRUCTION CONTRACTS 193
“In 1949, the defendant company entered into a contract with the City of
Dorval to construct sewers within the city, and gave a sub-contract to the
plaintiff company for some of the work. Within a few weeks of the signing
of this sub-contract, the plaintiff wrote to the defendant that having en-
countered quicksand the sub-contract would have to be cancelled and a new
one made for an increased price. The defendant refused to change the sub-con-
tract, and eventually the work was stopped and taken over by the defendant.
The plaintiff alleged in its action that the defendant had prevented it from
completing the contract. The defendant counterclaimed and alleged abandon-
ment of the contract. The trial judge found that both parties had voluntarily
put an end to the sub-contract. He maintained the action in part and dis-
missed the counterclaim. The Court of Appeal reversed this judgment and
held that the plaintiff had abandoned the sub-contract and that the taking
over of the work by the defendant did not amount to a consent to the aban-
donment. The plaintiff appealed to the Supreme Court of Canada.
It was held: “The appeal should be dismissed. As held by the Court of
Appeal, the impasse giving rise to this litigation was created by the
plaintiff’s decision to abandon the work when it came to the realization
that it could not complete it without suffering a serious financial loss. The
defendant did not have to remake its contract with the plaintiff or to tem-
porize, and neither its refusal to do so nor the celerity with which it had
the work completed could have changed the fact of the abandonment and its
consequences.
The acceptance of the abandonment as a fait accompli, after the plaintiff
had openly abandoned the contract and shown a clear intention to keep
on doing so, did not imply that the defendant had consented to this unilateral
act on the part of the plaintiff.”
