Failure to Disclose Available Ground Condition Reports – A Costly Error

This post was written prior to our January 2017 merger, under our previous firm name, Aikins, MacAulay & Thorvaldson LLP.

Unforeseen soil and ground conditions are a common source of dispute between contractors, owners and the engineers retained by owners to prepare tender documents. A recent decision out of Saskatchewan reiterates the importance of full disclosure of available soil condition data to contractor bidders.

In North Pacific Roadbuilders Ltd. v. Aecom Canada Ltd., North Pacific was the successful bidder for construction of a 57 kilometre ore haul road in a remote area between Cameco Corporation’s Key Lake mine and mill and a new mine located at McArthur River under a unit price contract. The contractor alleged that, relying on the soil information in the tender documents, it suffered damages of just under $5.0 million when it encountered much more difficult soil conditions than the tender documents suggested would be present. Although the owner, Cameco, was also named as a defendant, the target of the litigation was the engineer, AECOM Canada Ltd., who was responsible for preparing the specifications and technical information in the tender documents.

To assist the engineer in its task, the owner had made available to it three airphoto reports that had been previously prepared by another engineering firm with expertise in the interpretation of the terrain depicted in specialized aerial photos. The airphoto reports identified the various landforms and obstacles in the area where the proposed new ore haul road was to be located and provided commentary on the type of terrain that might be encountered each kilometre of the proposed route, all based on aerial photography. Although the engineer relied on the airphoto reports for the submissions to assist the owner in obtaining regulatory approval for the construction of the road, the tender documents did not make any reference to the airphoto reports being available for inspection prior to the bid closing date.

The evidence presented to the court indicated that, based on the information included in the tender documents, a contractor would anticipate excellent conditions for the construction of the road. The evidence also indicated that access to the airphoto reports would have allowed bidders to better anticipate the soil conditions to be encountered during construction.

In this case, the court was satisfied that the engineer knew at the time tenders were issued that potential bidders would rely on the information contained in the tender documents and that such reliance by the bidders would be reasonable. The court held that the engineer’s failure to disclose the terrain information contained in the airphoto reports was misleading by omission, implying that there was no terrain information available to the engineer that could assist bidders in the preparation of their bids. The court also held that engineer’s failure to disclose the available information, which was the only information available on the terrain to be encountered along the intended route and which was relied on extensively by the engineer itself, fell below the standard of a reasonable and prudent engineer and resulted in a breach of its duty of care owed to the contractor and other bidders on this project.

It is interesting to note that even though the court held that none of the contractor’s assumptions with respect to the terrain conditions to be encountered along the route were reasonable, the contractor succeeded in obtaining damages from the engineer for additional costs and expenses caused by the actual terrain conditions.  The court rejected the engineer’s argument that the contractor’s failure to make inquiry of the engineer or the owner regarding the terrain prior to submitting the bid or to conduct its own investigations of the remote terrain made the contractor contributorily negligent. The court further ruled that when there were no “red flags” in the data provided to suggest that further inquiries were required, it was reasonable for the Contractor to rely solely on the tender documents provided.

Although the contractor was alleging damages of almost $5 million, the court held that it was unable to determine what a correct bid amount might have been and instead awarded the contractor damages of $2 million, which was the initial number presented to the owner at the time of project completion as the additional costs incurred by the contractor due to the unexpected terrain conditions.

The North Pacific case is a good reminder to both contractors and engineers of the importance of requesting/disclosing all available information on soil conditions prior to the submission of bids. It is also a good reminder to contractors to use caution when discussing the amount of their damages claims with owners before the amount of those claims have been finally determined.

This article was originally published in Upword, Issue 4, Edition 2013.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.

Daryl A. Chicoine is an associate in the construction law practice at Aikins Law. Reach him at dchicoine@mltaikins.com.