Alberta Court of Queen’s Bench – Dissatisfied Customer’s Obligations to a Contractor

By Moe Denny

In a recent decision, Cubbon Building Centre Ltd v Gabrysh, 2020 ABQB 219, the Alberta Court of Queen’s Bench answers the question: can a home renovation contractor’s workmanship be so deficient that the customer is relieved of any obligation to pay? In this decision, the Honourable Justice Mah clarifies the risk to owners who fail to allow a contractor the ability to remedy defects on a project and subsequently terminate or repudiate an agreement.

The action arises as a result of the defendant’s failure to pay in full for the supplies provided and work performed by the plaintiff. The defendant alleged that the work performed was so substandard that he was required to dismantle it and have it all redone by another contractor, and also alleged breaches of the Fair Trading Act (now the Consumer Protection Act) so as to nullify any contract with the plaintiff.

In its review of the law the Court provides that a fundamental breach entitling the innocent party to repudiate the contract must be a breach that goes to the root of the contract and therefore deprives the contracting party of substantially the entire benefit of the very thing for which it contracted.

Ultimately, the plaintiff was successful in their action, with the Court finding that there was no fundamental breach of contract on the plaintiff’s part and therefore the defendant was not entitled to repudiate the contract, or purport to terminate it as he did. Relying on 1314058 Alberta Ltd v Albers, 2019 ABQB 9, which outlines the law relating to fundamental breach in the context of residential renovation, the Court held:

There is no doubt that Cubbon’s product did not meet Mr. Gabrysh’s expectations. However, he did not afford them the opportunity to make good. Moreover, he undid their work. Tearing something down does not mean that it was not done in the first place. Mr. Gabrysh’s actions do not relieve him from liability for Cubbon’s services and materials.

Further to the above, when considering the alleged breach of the Fair Trade Act by the plaintiff, the Court found there was no evidence of overcharging or misrepresentation and dispensed with the defendant’s allegations accordingly.

The key take-aways from this decision are:

• a contractor’s workmanship not meeting the owner’s standards, does not necessarily relieve the owner from liability for materials and services provided; 
• contractors should be given the opportunity to address concerns prior to hiring a replacement contractor;
• tearing down a product that does not meet the owner’s standards does not mean that it was not done in first place; and
• dissatisfaction in a contractor’s work does not necessarily amount to a fundamental breach.

Vendor Performance Management Program – Summary and Implications

By Richard Wong and Corbin Devlin

Effective January 6, 2020, the Government of Alberta rolled out the Vendor Performance Management (VPM) Program to support the delivery of quality infrastructure projects on time, on budget and within scope, all while utilizing resources more efficiently. In essence, the VPM Program is designed to hold vendors accountable to poor performance or unacceptable behaviour, while providing incentives to improve performance and minimize the need for corrective measures. It does so by using vendor past performance information to acquire goods, services or construction, improve transparency, promote innovation, and ensure best value for tax-payers.

VPM Program Ratings and Evaluations

The VPM Program applies to a person, business or entity that has contracted with Alberta Infrastructure to provide goods or services. Contracts at or above $100,000 are subject to the VPM Program and are identified during the procurement planning stage. However, contracts may be opted out of the VPM Program, prior to the commencement of the procurement process, where the contract is deemed low risk.

Through performance evaluations, those subject to the VPM Program are provided an “Overall Vendor Performance Rating,” which will be used for future procurement. Inadequate performance will result in corrective measures and may result in possible suspension of bidding privileges if performance does not improve.

The Overall Vendor Performance Rating is calculated using a three-year rolling average of evaluations consisting of key performance indicators. The key evaluation indices are quality, management, schedule, cost and safety, and can be found in the VPM Program, published by Alberta Infrastructure here.

Evaluation criteria and the scoring guide for contractors can be found here. 

Evaluation criteria and the scoring guide for consultants can be found here.

Vendor performance is to be evaluated every six months and at the end of the contract term, subject to the following:

1. For contracts where the first key milestone or deliverable is provided after a period longer than six months, the first evaluation may be completed within two months of receipt of the first deliverable or completion of the first key milestone; and
2. For contracts that conclude at or before six months, one interim and a final evaluation must be completed.

An adjustment of 5% to 10% will be applied to the procurement evaluation final score, allowing past performance history to have an impact on selection of a vendor in the procurement process.

For the purposes of evaluation, a partnership or non-incorporated joint venture will be treated as a vendor in its own right, that is, the non-incorporated joint venture or partnership will be evaluated as if it were a single vendor with one set of vendor performance scores assigned for the contract. Those scores will then be assigned to each constituent vendor and will form part of its Overall Vendor Performance Rating. If a member of a joint venture is subject to a suspension, the joint venture’s proposal, tender or bid will not be considered.

In the case of an acquisition of one company or entity by another company or entity, the Overall Vendor Performance Rating of the acquiring company or entity becomes the Overall Vendor Performance Rating of the resulting single company or entity.

In the case of an amalgamation of two (or more) companies or entities, the average of the amalgamating companies’ or entities’ Overall Vendor Performance Ratings are used as the Overall Vendor Performance Rating for the resulting amalgamated company or entity.

Expected Outcomes of the VPM Program

Although the VPM Program is still in its early stages, the expected outcomes of the program include:

1. Facilitating ongoing, regular communication with vendors, ensuring clarity of expectations and quality performance;
2. Providing incentives to vendors to improve their performance;
3. Minimizing the need for corrective measures due to poor performance;
4. Enabling better decision making on bidder selection through a centralized repository containing vendor past performance information;
5. Holding vendors accountable for poor performance or unacceptable behaviour; and
6. Enabling Alberta Infrastructure to provide objective vendor references.

Review of VPM Program Results

Vendors have the right to request a review of evaluation results within 10 days of receiving the results. The score under review will not be considered as part of the vendor’s Overall Vendor Performance Rating until a final decision is issued by the Vendor Performance Committee. A Vendor Performance Committee consisting of senior leadership at Alberta Infrastructure will evaluate the vendor’s request for a review. Best efforts shall be made to issue a decision within 30 days of Alberta Infrastructure receiving an accepted request for review. The decision will indicate that the evaluation results be upheld or adjusted.

Implication of Results

The corrective measure and suspension process is triggered by inadequate evaluation results. An initial warning letter will be issued if the vendor receives an interim performance evaluation result of 2.5 or below, following which the vendor will be required to meet with Alberta Infrastructure to discuss and submit a corrective action plan. Bidding privileges may be suspended if, after completing the corrective action plan, the vendor receives less than 2.5 on a consecutive performance evaluation on the same contract.

Suspension of bidding privileges range from 18 months to 3 years. A first suspension, resulting from inadequate performance, will result in an 18 month suspension. A second or subsequent suspension of the same vendor will result in a 3 year suspension. Suspension of bidding privileges may be applied to any beneficial ownership that is affiliated with the vendor; and/or any related person of the vendor.

Additionally, Alberta Infrastructure will provide a performance-based reference, upon request, for a vendor’s completed contracted work, if the vendor’s contract was subject to the VPM Program.

More to Come 

Considering this, vendors engaged with Alberta Infrastructure should be familiar with the VPM Program and confirm whether or not they are subject to same. The VPM Program was implemented to provide security that tax-payers are getting what they pay for, while non-compliant vendors are sanctioned for poor performance. At this stage, however, it is too early to determine how vendors have been affected by the VPM Program. We will update you as more information becomes available and as vendors subject to the VPM Program become more engaged in the procurement and review process.

Deference to the Project Consultant

By Corbin Devlin

A recent decision of the Alberta Court of Appeal serves as a stark reminder that the Consultant appointed in a CCDC contract wields considerable authority to determine the rights of the parties.

The Court’s Decision

In ASC(AB) Facility Inc v Man-Shield (Alta) Construction, 2019 ABCA 379, the Court considered a dispute regarding the amounts owing for work performed pursuant to a CCDC2 fixed price contract.  The Consultant determined that the Contractor did not perform some of its work to contractual requirements and that the Owner could deduct the value of that work from amounts otherwise owing to the Contractor.  The Contractor sued for the contract value, asking the Court to find that Consultant erred in deducting various deficiency costs when certifying the final payment due to the Contractor.

In the summary trial decision in 2018, Justice Antonio stated: “…CCDC2 makes it clear that the Consultant was empowered to make decisions, in real time or as close to it as possible, in order to keep the project moving. The Consultant had access to the work site and the expertise to evaluate the work he saw. He was regularly involved with the parties, the work, the contract, and the parties’ interactions under the contract. He has expertise in relevant areas. The parties chose this person, equipped with these advantages, to make decisions about the state of completion of the work and any resulting contractual obligations. This Court lacks those advantages. Therefore, as a matter of contractual interpretation, precedent, academic rationale, and practicality, this Court will defer to the Consultant’s determinations on questions of fact, unless they reveal significant errors.  The same will apply to the Consultant’s interpretation of the contract…”

The Contractor appealed this summary trial decision.  The appeal decision was issued in October 2019.  The Court of Appeal agreed with the summary trial judge, ruling that deference to the Consultant’s decisions is appropriate “absent demonstrable and significant error or compelling evidence to the contrary.”

In the result, there was insufficient evidence for the Court to determine the value of various alleged deficiencies (this was only a summary trial, without live witnesses). So, the Court directed a full trial of certain issues. But the Contractor lost the argument that the Court should disregard the Consultant’s valuation of deficiencies. 

Practical Implications

Considering these comments, it is imperative to ensure at the outset that the Consultant appointed in a CCDC contract is appropriate to fulfill the important role of neutral decision-maker under the contract.

It is often a fallacy that “the parties” choose the Consultant; although the contract is (in theory) a negotiated agreement, in many cases the Contractor has no input on the designation of the Consultant by the Owner.  Sometimes, this is due to inequality of bargaining power; other times, this is due to the Contractor (actually, both parties) paying insufficient attention to this important element of the contract.

Pursuant to the CCDC contracts, the Owner pays the Consultant.  In most cases, Consultants are professionals with reputational concerns, and they properly fulfill their role as neutral decision-maker, regardless of who pays them.  But we have also seen cases in which the Consultant shows significant bias in favour of the party who is paying their fee accounts.

We have also seen circumstances in which the project Consultant is lacking necessary experience or qualifications to properly fulfill the role.  Remarkably, we have also seen several cases in which the Consultant is named in the contract, but not actually engaged and paid by the Owner to properly fulfill the role.  Such unfortunate circumstances often lead to a departure from the contractual payment certification process, leaving the parties in unpredictable territory when a payment dispute arises.

Such circumstances tend to present a greater risk to the Contractor than the Owner.  But it is a risk to both parties that legal disputes are more likely to ensue if the project Consultant is not suitable or properly supported to perform the role. 

The ASC case serves as a reminder to take due care in the selection of the Consultant - and to heed the decisions and interpretations made by the Consultant during the course of the project.