The Importance of Written Contracts in Construction Projects

Standard form contracts published by trusted bodies such as the CCDC and the CCA 1 provide well-known and understood starting points for the contractual relationships involved in completing a project. The most overlooked cost-saving benefit of using standard form contracts is that, in the event of a dispute, there is a clear and readily available record of the rights and responsibilities of the parties.

A recent Manitoba Court of Queen’s Bench case, North Perimeter v. 6625844 Manitoba Ltd. et al., demonstrates the risk the parties assume by not documenting their intended relationship in a written contract.

The principals of the parties involved in this case had a history of working together. When a new construction opportunity came up, the Contractor provided the Owner with quotations for its scope of work. The Contractor provided the quote to the Project Manager, who was the father of the principals behind the Owner. The parties moved ahead with the project without signing a written contract.

Over time, problems arose with the project, which was ultimately completed months after the completion date the parties previously discussed. The relationship between the parties subsequently deteriorated to the point that the Project Manager asked the Contractor to leave the project and did not pay a number of its invoices. The Contractor successfully sued the Owner for more than $350,000.

The lack of written contract between the parties resulted in a number of interesting issues that were only resolved at trial. The parties could have avoided litigation and addressed these issues earlier by using and adopting a written contract. These issues included:

1. Who was the general contractor on the project?

At trial the Owner and the Project Manager attempted to push responsibility for numerous project completion issues to the Contractor. The Project Manager claimed that he retained the Contractor to act as the general contractor for the project, notwithstanding that the Contractor’s quotation was for a specific portion of the project and the Owner had entered into direct contracts with five other contractors for other portions of the project.

With no written contract terms to refer to, the Court looked to the conduct of the parties and determined that either the Project Manager was acting as general contractor or there was no general contractor. As it was Project Manager who gave directions to the other contractors involved about their work and made recommendations to the Owner about payments to be made for the project work, the Court held that the Project Manager was the general contractor for the project.

2. Was the Owner entitled to damages as a result of the project’s delayed completion?

The parties did not seriously dispute that the project completion was beyond the originally discussed completion date. Although the Owner and the Project Manager claimed the Contractor was responsible for various delays, the court noted that two key trades retained directly by the Project Manager/Owner were only hired shortly before the project’s original target date.

The Court also noted that the Project Manager expanded the Contractor’s scope of work several times, that certain work to be done by other contractors was either delayed or not done at the direction of the Project Manager and that, overall, the delay on the project was attributable to the conduct of the Project Manager.

With no written contract identifying a fixed completion date, the Court had no difficulty finding that the parties accepted that the initial target completion date was not a firm one.

3. Was interest payable to the Contractor and, if so, at what rate?

Even though the parties did not have a written contract, the Court had no difficulty in holding that interest was payable to the Contractor on the overdue amounts of its invoices.

The Court considered the history between the parties to assess what they may have intended the interest rate to be and, in the end, concluded that the interest rate shown on Contractor’s invoices was an implied term of the contract.

Unfortunately for the Contractor, the manner in which the interest rate was identified on the invoices did not meet the requirements of the Interest Act and the rate was capped at 5% per annum – a substantially lower rate than the one the Court would have otherwise awarded.

Key Takeaways

Executing a written contract may not have prevented the breakdown of the relationship between the Contractor, Project Manager and the Owner or resulted in the project being completed on time; however, the real-time guidance and direction typically found in written construction contracts could have assisted the parties to resolve many of the issues that were left for the Court to determine years later after several weeks of trial.

This article first appeared in Build Manitoba, a publication of the Winnipeg Construction Association. 

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.